Help me figure out my savings and debt situation. PLEASE.
January 18, 2011 1:56 PM Subscribe
I have a mountain of debt and a pretty damn good job. I need to figure out how to balance two things: paying down the debt and saving money. Help me come up with a 2011 plan for my finances.
First, my monthly income and bills:
At my job, I make $3,800 a month. Not too shabby, and way more than I ever thought I would make. My monthly bills total about $2,400:
* $200 for phone, gas, electric, Internet, and car insurance.
* $600 student loans (this will eventually go up, due to my repayment plan)
* $400 minimum credit card payments (but generally I pay $750 to $1000 per month)
* $1,000 rent
* $50 gas
* $100 food
So let's say I'm taking home $2,700 a month. Minus family obligations, social things, various and sundry gift-givings throughout the year, we'll call it $2,200.
Second, the credit debt:
During grad school, I found myself in a situation where I had to put about $5000 on a credit card over a period of a few months. There wasn't much I could do about it, so I did it. Then I had a job as an independent contractor, and my tax liability was massive.
This put me into a spiral where at any given time during the last two years, I have had from $6,000 to $9,000 credit card debt.
During the last month, my bike was stolen, my car needed repairs, my cat needed surgery, so on, so forth. Suddenly I have $9,800 debt.
This will be down to $7,400 by the end of this month. (I'm cashing out some vacation days.) My interest rate is 21%.
I also have about $60,000 in student loans that are in repayment.
Third, savings:
I have about $750 savings.
Finally, what I need help with:
I believe that my debt load is at a point where it is affecting my credit a little bit. I also am worried that I need to have more savings. My job security is good but if I was SOL tomorrow, I'd be in serious trouble.
What I want to accomplish is this: have what is considered a reasonable amount savings and a reasonable amount of debt, ASAP. I want to prioritize whichever is most important right away, but I have no idea which is which. I want to be able to someday think about owning a home. I never learned much about money. I only learned about student loans.
SO, Hive Mind, what should I do with that $2,200 a month? I feel fortunate to have it, and I want to use it responsibly.
First, my monthly income and bills:
At my job, I make $3,800 a month. Not too shabby, and way more than I ever thought I would make. My monthly bills total about $2,400:
* $200 for phone, gas, electric, Internet, and car insurance.
* $600 student loans (this will eventually go up, due to my repayment plan)
* $400 minimum credit card payments (but generally I pay $750 to $1000 per month)
* $1,000 rent
* $50 gas
* $100 food
So let's say I'm taking home $2,700 a month. Minus family obligations, social things, various and sundry gift-givings throughout the year, we'll call it $2,200.
Second, the credit debt:
During grad school, I found myself in a situation where I had to put about $5000 on a credit card over a period of a few months. There wasn't much I could do about it, so I did it. Then I had a job as an independent contractor, and my tax liability was massive.
This put me into a spiral where at any given time during the last two years, I have had from $6,000 to $9,000 credit card debt.
During the last month, my bike was stolen, my car needed repairs, my cat needed surgery, so on, so forth. Suddenly I have $9,800 debt.
This will be down to $7,400 by the end of this month. (I'm cashing out some vacation days.) My interest rate is 21%.
I also have about $60,000 in student loans that are in repayment.
Third, savings:
I have about $750 savings.
Finally, what I need help with:
I believe that my debt load is at a point where it is affecting my credit a little bit. I also am worried that I need to have more savings. My job security is good but if I was SOL tomorrow, I'd be in serious trouble.
What I want to accomplish is this: have what is considered a reasonable amount savings and a reasonable amount of debt, ASAP. I want to prioritize whichever is most important right away, but I have no idea which is which. I want to be able to someday think about owning a home. I never learned much about money. I only learned about student loans.
SO, Hive Mind, what should I do with that $2,200 a month? I feel fortunate to have it, and I want to use it responsibly.
You should have enough money in an emergency fund to live on for up to 6 months. However, you should work on your credit card debt first. 100% of that should go towards whatever has the highest interest rate.
posted by quodlibet at 2:05 PM on January 18, 2011
posted by quodlibet at 2:05 PM on January 18, 2011
I was in a similar situation not long after leaving law school. Here's what I'd suggest:
1. Pay down the credit card debt to zero. Look at the interest rates on each card. Start with the balance that carries the highest interest rate, and pay that card first. Pay it to zero as soon as possible. Then pay the next card off. Going forward, keep paying each credit card bill to zero each month.
2. Then, if possible, accelerate your student loan payments and get rid of that debt too.
3. Then start saving. A balanced, mixed approach to savings is usually best, i.e. some savings in very conservative places like CDs, some in money market funds, and some in carefully chosen stocks. This is also likely to get you the funds needed for a down payment on a home when you re ready to buy one.
posted by bearwife at 2:06 PM on January 18, 2011
1. Pay down the credit card debt to zero. Look at the interest rates on each card. Start with the balance that carries the highest interest rate, and pay that card first. Pay it to zero as soon as possible. Then pay the next card off. Going forward, keep paying each credit card bill to zero each month.
2. Then, if possible, accelerate your student loan payments and get rid of that debt too.
3. Then start saving. A balanced, mixed approach to savings is usually best, i.e. some savings in very conservative places like CDs, some in money market funds, and some in carefully chosen stocks. This is also likely to get you the funds needed for a down payment on a home when you re ready to buy one.
posted by bearwife at 2:06 PM on January 18, 2011
I'm so confused.
Is that $3800 gross or net? That is, is it pre-tax or post-tax? Where does the $2700/$2200 number come from? Bad math? If your net income is $3800 and your bills are $2400, then you have $1400/month left.
Okay, confusion aside...
Forget about your credit score. Doesn't mean a thing until you're financially stable. Yes, you'll pay more if you take out loans, but you shouldn't be taking out loans until you get things fixed. So ignore it.
Your emergency savings aren't terrible, but if they make you nervous, you need more. Your emergency fund comes first, even before debt reduction, so take time to get that right before you tackle your debt in earnest. Only you can decide what that means. It sounds like $750 isn't enough for you, so maybe double that. If you're still nervous with $1500 in emergency savings, then save more. But don't go too crazy. Eventually you'll want to build that savings to six months or a year's worth of expenses, but not now. For now, you just want it to deal with minor nuisances -- like your bike being stolen.
Next, I have concerns that you're asking us what is most important. We don't know. It's different for everybody. Only you know what's most important for your situation. A reasonable amount in savings? Again, you are going to define that. A reasonable amount of debt? Well, zero debt is the goal, and is the most reasonable number, but that's going to take time.
If I could figure out your math (at the end you say you have $2200/month to work with, but that just doesn't make sense based on the other info you gave us), I could give some more specific recommendations. In short, though: Build emergency savings to a level that makes you feel not-stressed, attack the hell out of your credit-card debt, build savings a little higher, peck away at the student loans. In the meantime, if you're really serious about all of this, learn the art of frugality. Don't let your seemingly high income lead to you to buy new goodies. The more you can resist that, the better off you'll be. Once you're out of debt, spend on what you want. But not until.
posted by jdroth at 2:07 PM on January 18, 2011 [1 favorite]
Is that $3800 gross or net? That is, is it pre-tax or post-tax? Where does the $2700/$2200 number come from? Bad math? If your net income is $3800 and your bills are $2400, then you have $1400/month left.
Okay, confusion aside...
Forget about your credit score. Doesn't mean a thing until you're financially stable. Yes, you'll pay more if you take out loans, but you shouldn't be taking out loans until you get things fixed. So ignore it.
Your emergency savings aren't terrible, but if they make you nervous, you need more. Your emergency fund comes first, even before debt reduction, so take time to get that right before you tackle your debt in earnest. Only you can decide what that means. It sounds like $750 isn't enough for you, so maybe double that. If you're still nervous with $1500 in emergency savings, then save more. But don't go too crazy. Eventually you'll want to build that savings to six months or a year's worth of expenses, but not now. For now, you just want it to deal with minor nuisances -- like your bike being stolen.
Next, I have concerns that you're asking us what is most important. We don't know. It's different for everybody. Only you know what's most important for your situation. A reasonable amount in savings? Again, you are going to define that. A reasonable amount of debt? Well, zero debt is the goal, and is the most reasonable number, but that's going to take time.
If I could figure out your math (at the end you say you have $2200/month to work with, but that just doesn't make sense based on the other info you gave us), I could give some more specific recommendations. In short, though: Build emergency savings to a level that makes you feel not-stressed, attack the hell out of your credit-card debt, build savings a little higher, peck away at the student loans. In the meantime, if you're really serious about all of this, learn the art of frugality. Don't let your seemingly high income lead to you to buy new goodies. The more you can resist that, the better off you'll be. Once you're out of debt, spend on what you want. But not until.
posted by jdroth at 2:07 PM on January 18, 2011 [1 favorite]
I am assuming the 3800 figure is off, but I would guess your expenses are off a bit as well. 100 for food seems low, unless you're really good with making meals and stretching the grocery dollar.
Lock the credit card away, pay it off as aggressively as you possibly can, then start saving to get 6 months of breathing room in the bank.
posted by iamabot at 2:07 PM on January 18, 2011 [1 favorite]
Lock the credit card away, pay it off as aggressively as you possibly can, then start saving to get 6 months of breathing room in the bank.
posted by iamabot at 2:07 PM on January 18, 2011 [1 favorite]
In terms of debt, I think you're wise to pay off the credit card debt as quickly as possible. Pay the absolute minimum on your student loans and consolidate them (if you can) to get a better interest rate. Focus on paying off that credit card debt and then when you're done, start putting into savings whatever you were paying per month on your credit card bill.
But just one question- are you SURE you only need $100 a month for food? That seems really, really low to me. Like potentially detrimental to your health lowness that would cause all manner of health-related expenses down the line. Personally, I tend to overestimate how much I plan to spend on food so that I can make sure I really have enough even if I'm in a bit of a financial crunc
posted by joan_holloway at 2:08 PM on January 18, 2011
But just one question- are you SURE you only need $100 a month for food? That seems really, really low to me. Like potentially detrimental to your health lowness that would cause all manner of health-related expenses down the line. Personally, I tend to overestimate how much I plan to spend on food so that I can make sure I really have enough even if I'm in a bit of a financial crunc
posted by joan_holloway at 2:08 PM on January 18, 2011
Response by poster: dflemingecon, thank you for catching a significant typo.
Correction: If I scrimp on the family obligations and social occasions, on any given month I have between $1,000 and $1,200 to work with. Not $2,200 as previously noted.
posted by kensington314 at 2:09 PM on January 18, 2011
Correction: If I scrimp on the family obligations and social occasions, on any given month I have between $1,000 and $1,200 to work with. Not $2,200 as previously noted.
posted by kensington314 at 2:09 PM on January 18, 2011
Response by poster: Also, I would appreciate any reassurances that this amount of debt doesn't somehow negate my value as a human being. Thanks.
posted by kensington314 at 2:12 PM on January 18, 2011
posted by kensington314 at 2:12 PM on January 18, 2011
My interest rate is 21%
Either do something about that rate, or kill that debt before you do anything else, or both. If you really have $2,000 to use to pay down debt every month, this shouldn't take that long.
Given that it sounds like you are doing the responsible thing here, can you take advantage of a balance roll over to a card that won't charge you interest for 6 months? That will save you a bunch of money, provided you really do pay off that debt.
posted by mcstayinskool at 2:13 PM on January 18, 2011
Either do something about that rate, or kill that debt before you do anything else, or both. If you really have $2,000 to use to pay down debt every month, this shouldn't take that long.
Given that it sounds like you are doing the responsible thing here, can you take advantage of a balance roll over to a card that won't charge you interest for 6 months? That will save you a bunch of money, provided you really do pay off that debt.
posted by mcstayinskool at 2:13 PM on January 18, 2011
Let me append something to my answer: Based on your sloppy loose calculations here, I'd guess you might profit from tracking spending and/or using a budget. I'm not a huge fan of budgets myself, but I do like tracking my spending. Do you use Mint or an equivalent yet? If not, it might help.
I say this because you're telling us that your monthly surplus is $1400 ($3800-$2400), but you're also saying it's $1700 and then saying "but let's call it $1200". Which is it? There's a big difference between these numbers, and your imprecision leads me to believe that other things are slipping between the cracks. I'm no hard-core "you can't have lattes!" type personal-finance guy, but I do think it's important to know where your money is going instead of just guessing. Too many people just guess, and this leads them to pissing away hundreds of dollars a month. Don't guess. Track your spending.
posted by jdroth at 2:14 PM on January 18, 2011 [6 favorites]
I say this because you're telling us that your monthly surplus is $1400 ($3800-$2400), but you're also saying it's $1700 and then saying "but let's call it $1200". Which is it? There's a big difference between these numbers, and your imprecision leads me to believe that other things are slipping between the cracks. I'm no hard-core "you can't have lattes!" type personal-finance guy, but I do think it's important to know where your money is going instead of just guessing. Too many people just guess, and this leads them to pissing away hundreds of dollars a month. Don't guess. Track your spending.
posted by jdroth at 2:14 PM on January 18, 2011 [6 favorites]
Your first priority should be to continue making your payments while saving enough to live off of for 6 months or so. The only savings you need right now is enough to get you through any rough patches.
Once you have that secured then you want to pay down the high interest (credit card) debt as quickly as possible. If possible to get a lower, even temporary, payment on your student loan debt, it might behoove you to do so while paying down your high interest debt. Its pointless to save, and make 5% on your savings (made up number) while you are losing 10% in interest servicing your debt. When you get to just student loan debt, which usually has a pretty low interest rate you can start to look at moving money back to savings.
The only real exception to the above is that you should be trying to max out your 401k retirement savings plans (this is pre-tax money) - particularly if you are on some sort of employee matching program. Take that money and run.
BTW is the $3800 pre-tax or the amount you make per-paycheck.
posted by bitdamaged at 2:14 PM on January 18, 2011
Once you have that secured then you want to pay down the high interest (credit card) debt as quickly as possible. If possible to get a lower, even temporary, payment on your student loan debt, it might behoove you to do so while paying down your high interest debt. Its pointless to save, and make 5% on your savings (made up number) while you are losing 10% in interest servicing your debt. When you get to just student loan debt, which usually has a pretty low interest rate you can start to look at moving money back to savings.
The only real exception to the above is that you should be trying to max out your 401k retirement savings plans (this is pre-tax money) - particularly if you are on some sort of employee matching program. Take that money and run.
BTW is the $3800 pre-tax or the amount you make per-paycheck.
posted by bitdamaged at 2:14 PM on January 18, 2011
Response by poster: Also, w/r/t the food question. I basically think of my monthly grocery shopping as somewhere in the $100 range for fruits, vegetables, and some staples. The rest I lumped in with "social" expenses either because I eat out (very minimally, a few times a month) or because I share some shopping with my roommate.
posted by kensington314 at 2:16 PM on January 18, 2011
posted by kensington314 at 2:16 PM on January 18, 2011
You know, you are going to get a much clearer picture of your finances if you use some financial software. Besides the approach to your debt outlined above, I'd recommend picking up a copy of Quicken.
posted by bearwife at 2:20 PM on January 18, 2011
posted by bearwife at 2:20 PM on January 18, 2011
Oh, screw the coyness. I write a personal-finance blog, for god's sake, and both Matt and Jessamyn read it. They know I'm not shilling here.
Your debt doesn't negate your value as a human being, but it can be a psychological drag. Kill it as soon as you can. I carried debt for 20 years before finally getting rid of it. I hated every minute of it. To get out of debt, I basically used the Dave Ramsey "baby steps" mentioned above. I built an emergency fund. I used a debt snowball. And so on. It took years, but I did it.
Those links lead to basic articles about each of these ideas. (And here's one about why you should track your spending.) There's plenty more in my site's archives. Maybe start with the basics section?
posted by jdroth at 2:22 PM on January 18, 2011 [21 favorites]
Your debt doesn't negate your value as a human being, but it can be a psychological drag. Kill it as soon as you can. I carried debt for 20 years before finally getting rid of it. I hated every minute of it. To get out of debt, I basically used the Dave Ramsey "baby steps" mentioned above. I built an emergency fund. I used a debt snowball. And so on. It took years, but I did it.
Those links lead to basic articles about each of these ideas. (And here's one about why you should track your spending.) There's plenty more in my site's archives. Maybe start with the basics section?
posted by jdroth at 2:22 PM on January 18, 2011 [21 favorites]
I'm confused by your math as well. But, operating on the assumption that your take-home is $2700, your minimum living expenses are $2400, your savings are slim and your debt is large then the biggest thing I would council you on is this:
You do not, in fact, have $500/mo to spend on "family obligations, social things, various and sundry gift-givings throughout the year" (which is what you say takes you down from $2700 take-home to $2200 for everything else). Unless the "family obligation" is child support, you need to cut all of that shit way back until you get yourself on firmer financial footing. Otherwise, seeing that $2700 - 500 - 2400 = negative number, you're only digging yourself deeper into your hole.
Personally, I would pay down the credit card debt first before building your savings any larger. In the worst-case emergency scenario, you can put your "emergency" back on the credit card, and in the meanwhile, every month you spend "emergency free" is like $150 in interest alone that you won't have to pay.
posted by drlith at 2:23 PM on January 18, 2011 [2 favorites]
You do not, in fact, have $500/mo to spend on "family obligations, social things, various and sundry gift-givings throughout the year" (which is what you say takes you down from $2700 take-home to $2200 for everything else). Unless the "family obligation" is child support, you need to cut all of that shit way back until you get yourself on firmer financial footing. Otherwise, seeing that $2700 - 500 - 2400 = negative number, you're only digging yourself deeper into your hole.
Personally, I would pay down the credit card debt first before building your savings any larger. In the worst-case emergency scenario, you can put your "emergency" back on the credit card, and in the meanwhile, every month you spend "emergency free" is like $150 in interest alone that you won't have to pay.
posted by drlith at 2:23 PM on January 18, 2011 [2 favorites]
Do you own your vehicle out right? Is it worth anything? We were able to get a secured loan through a credit union on one of our vehicles for ~4% interest that we used to pay off our higher interest second mortgage, saving us hundreds of dollars. If you could do that to pay off your 21% interest credit card, I think that would help you out a ton. Instead of paying $400 minimum payments on 21% interest, your entire monthly loan payment could be $400/month over three years.
Credit unions are your friends as they tend to have lower fees and lower interest rates on loans.
Then what is your highest interest rate debt? Put your $1000 extra every month as an extra payment on that. (I would recommend putting the other $200 in savings as every little bit helps for those rainy days.) Once that one is paid off, put your extra $1000 PLUS what you were normally paying on that bill as an extra payment on your next highest interest rate debt.
(I think it is the snowball thing The ____ of Justice mentioned.)
Good luck to you - paying off debt is a scary thing, but once you have a plan, it can be very empowering!
posted by jillithd at 2:24 PM on January 18, 2011
Credit unions are your friends as they tend to have lower fees and lower interest rates on loans.
Then what is your highest interest rate debt? Put your $1000 extra every month as an extra payment on that. (I would recommend putting the other $200 in savings as every little bit helps for those rainy days.) Once that one is paid off, put your extra $1000 PLUS what you were normally paying on that bill as an extra payment on your next highest interest rate debt.
(I think it is the snowball thing The ____ of Justice mentioned.)
Good luck to you - paying off debt is a scary thing, but once you have a plan, it can be very empowering!
posted by jillithd at 2:24 PM on January 18, 2011
I agree with paying off the cards first and as fast as possible. It's good that you have some money saved in case of a one-time emergency. But if you choose to save now instead of paying off your cards, and then you lose your job- well, your savings aren't going to go that far if you're going to be using them to pay your credit card bills.
I spent this past summer paying off about 90% of my credit card debt (all I have left is a balance on one fairly low interest card, but I want to pay that off too, as soon as I can.) I had about the same amount of debt as you did. Now, I don't have any money saved, which is bad. (I'm back in school and living off loans again.) But at least I know that I don't have all these payments looming over me. I thought that having credit card debt was really stressful. If I forgot a payment or was late on one, bam, like a $35 fee and phone calls 10x a day until my payment cleared. So frustrating. Plus, being broke now but NOT from credit card debt makes me feel better about asking for help. I would have been really embarrassed to ask my parents to spot me a couple hundred bucks to cover some credit card bills, but I don't feel that way about asking them to send me an occasional grocery-store giftcard.
In any case, most of these things shouldn't be an issue for you unless you lose your job. I think you could pay it all off pretty quickly (well, the cards, not the student loan, but that's different.) And you'll feel so much better when you do. It's really worth it.
You didn't mention whether you were still using the credit cards, and I'm assuming you're not. But in case you are still using them here and there . . . STOP! (but since you have money now, I'm going to assume you don't use them anymore.)
posted by GastrocNemesis at 2:27 PM on January 18, 2011
I spent this past summer paying off about 90% of my credit card debt (all I have left is a balance on one fairly low interest card, but I want to pay that off too, as soon as I can.) I had about the same amount of debt as you did. Now, I don't have any money saved, which is bad. (I'm back in school and living off loans again.) But at least I know that I don't have all these payments looming over me. I thought that having credit card debt was really stressful. If I forgot a payment or was late on one, bam, like a $35 fee and phone calls 10x a day until my payment cleared. So frustrating. Plus, being broke now but NOT from credit card debt makes me feel better about asking for help. I would have been really embarrassed to ask my parents to spot me a couple hundred bucks to cover some credit card bills, but I don't feel that way about asking them to send me an occasional grocery-store giftcard.
In any case, most of these things shouldn't be an issue for you unless you lose your job. I think you could pay it all off pretty quickly (well, the cards, not the student loan, but that's different.) And you'll feel so much better when you do. It's really worth it.
You didn't mention whether you were still using the credit cards, and I'm assuming you're not. But in case you are still using them here and there . . . STOP! (but since you have money now, I'm going to assume you don't use them anymore.)
posted by GastrocNemesis at 2:27 PM on January 18, 2011
I would suggest spending a few hours going over your November or December expenses with a spreadsheet to really make sure the expenses in your head match the expenses on paper. Once that is done you can write a budget with confidence. As others have mentioned it is probably best pay off your high interest credit card debt first, then build a emergency nest egg and then split your extra money between paying your student loans and saving for the future (house, retirement, whatever matters to you).
Also, your value as a human being is completely separate from the amount of money you owe some corporation based in Delaware. Don't let it get you down.
posted by ChrisHartley at 2:28 PM on January 18, 2011 [1 favorite]
Also, your value as a human being is completely separate from the amount of money you owe some corporation based in Delaware. Don't let it get you down.
posted by ChrisHartley at 2:28 PM on January 18, 2011 [1 favorite]
jdroth is right that your sloppy/loose estimations about what you spend may be a problem. It will serve you very well (to get out of your current problem as well as being financially sound in the future) to stop estimating what you spend and keep track of what you actually spend.
I have never had consumer debt and this is probably due to the fact that I am extremely anal about my finances ... so much so that I have tracked my spending on everything since quicken came out.
But even as a debt free person, the fact that you have debt does not make you any less of a human being in my eyes--you got in a little over your head (which I have done countless times in other arenas) but you are dealing with it, which is great. Beating yourself up won't help.
posted by murrey at 2:35 PM on January 18, 2011
I have never had consumer debt and this is probably due to the fact that I am extremely anal about my finances ... so much so that I have tracked my spending on everything since quicken came out.
But even as a debt free person, the fact that you have debt does not make you any less of a human being in my eyes--you got in a little over your head (which I have done countless times in other arenas) but you are dealing with it, which is great. Beating yourself up won't help.
posted by murrey at 2:35 PM on January 18, 2011
Getrichslowly and thesimpledollar are both good blogs to read.
It sounds like your credit card debt isn't so overwhelming that you couldn't look into doing a balance transfer. Find a card that gives you an 18 month 0% introductory rate and transfer all cards over to it. Just make sure you can pay off the balance before that time period expires. If not, I wouldn't advise trying this as the interest rates usually skyrocket.
From there, I would recommend building up a 6 to 12 month emergency fund. Keep it separate from your primary checking account (my credit union has a money market account that makes 1.5%)
After this, work on your student loans. You may want to look at how much interest you are paying over the year. If it is under $2500, then you may want to think about whether or not you want to pay this more quickly as you will get that $2500 back on taxes.
Also, make sure you are contributing to your 401k, and your roth if you have one.
I like one of dave ramsay's analogies. He says you have to attack debt with the intensity of some sort of really intense animal (I want to say cheetah, but who knows). The point is, keep that goal in the front of your mind and do everything you can to eliminate it.
You, in fact, are a great person for recognizing that you have debt and are wanting to do something about it. Most people live in denial and don't ever truly make the sacrifices they have to to get rid of it.
posted by TheBones at 2:35 PM on January 18, 2011
It sounds like your credit card debt isn't so overwhelming that you couldn't look into doing a balance transfer. Find a card that gives you an 18 month 0% introductory rate and transfer all cards over to it. Just make sure you can pay off the balance before that time period expires. If not, I wouldn't advise trying this as the interest rates usually skyrocket.
From there, I would recommend building up a 6 to 12 month emergency fund. Keep it separate from your primary checking account (my credit union has a money market account that makes 1.5%)
After this, work on your student loans. You may want to look at how much interest you are paying over the year. If it is under $2500, then you may want to think about whether or not you want to pay this more quickly as you will get that $2500 back on taxes.
Also, make sure you are contributing to your 401k, and your roth if you have one.
I like one of dave ramsay's analogies. He says you have to attack debt with the intensity of some sort of really intense animal (I want to say cheetah, but who knows). The point is, keep that goal in the front of your mind and do everything you can to eliminate it.
You, in fact, are a great person for recognizing that you have debt and are wanting to do something about it. Most people live in denial and don't ever truly make the sacrifices they have to to get rid of it.
posted by TheBones at 2:35 PM on January 18, 2011
Everyone's point about getting rid of that horrid interest-accruing debt s a good one. That puts your future on a better footing.
But: you have seven hundred and fifty dollars as your life's savings? Oh honey, that is terrifying. Now, you should look at your available credit and the nearness of family loans in the case of an emergency before deciding about how much savings you need. But: iff you are fired tomorrow, can you live for six months? Is there a room at your parents' house? Can you go into scary further debt with a stack of credit cards? Then... fine, for now, while you get rid of debt.
But in this day and age... well, when I ran out of work, I had six months of living saved up, thank God. I spent it! (And it lasted almost a year, actually, because I am lucky and thrifty and some other stuff we won't talk about. Heh.) But it's gonezo. And you do not replenish savings well when getting back on your feet. So while you are young, I'm assuming, it is never too early to have savings. Plus? Just like debt accrues interest, so does savings accrue value if you treat it right.
posted by RJ Reynolds at 2:42 PM on January 18, 2011
But: you have seven hundred and fifty dollars as your life's savings? Oh honey, that is terrifying. Now, you should look at your available credit and the nearness of family loans in the case of an emergency before deciding about how much savings you need. But: iff you are fired tomorrow, can you live for six months? Is there a room at your parents' house? Can you go into scary further debt with a stack of credit cards? Then... fine, for now, while you get rid of debt.
But in this day and age... well, when I ran out of work, I had six months of living saved up, thank God. I spent it! (And it lasted almost a year, actually, because I am lucky and thrifty and some other stuff we won't talk about. Heh.) But it's gonezo. And you do not replenish savings well when getting back on your feet. So while you are young, I'm assuming, it is never too early to have savings. Plus? Just like debt accrues interest, so does savings accrue value if you treat it right.
posted by RJ Reynolds at 2:42 PM on January 18, 2011
Your expenses are not really believable in ways people have pointed out already, so try to get that measured a little better. And I don't think your categories work so well either. One of the points of tracking your spending is so that you can make rational decisions about it, and lumping in "phone, gas, electric, Internet, and car insurance" into one category doesn't help with that. Neither does having an enormous and ill-defined slush fund for "family obligations, social things, various and sundry gift-givings." I don't even know what a "family obligation" is. Your car is always going to need repairs. You are going to spend some amount on that every year. Your cat will again at some point need veterinary care. You need to track and budget for those things too. Don't treat them like some sort of totally unexpected emergency because they aren't.
At the very least your spending tracking should have separate categories for:
Tax:Income
Rent
Utilities:Gas & Electric
Groceries
Dining (probably includes your "social things")
Auto:Fuel
Auto:Insurance
Auto:Maintenance
Telephone
Computer:Internet
Medical
Veterinary
Gifts Given
Interest Paid
Coincidentally, many of these were default categories in Quicken when I started using it 12 years ago and probably still are. So now you are able to actually see that you spend, say, $1000 a year on Gifts Given, or $1600 annually on telephone and telephone service, and that you should cut down on these things. Or exactly how much you're spending on interest in a given month, and you will be able to see how much that goes down as you pay off the bill.
posted by grouse at 2:49 PM on January 18, 2011
At the very least your spending tracking should have separate categories for:
Tax:Income
Rent
Utilities:Gas & Electric
Groceries
Dining (probably includes your "social things")
Auto:Fuel
Auto:Insurance
Auto:Maintenance
Telephone
Computer:Internet
Medical
Veterinary
Gifts Given
Interest Paid
Coincidentally, many of these were default categories in Quicken when I started using it 12 years ago and probably still are. So now you are able to actually see that you spend, say, $1000 a year on Gifts Given, or $1600 annually on telephone and telephone service, and that you should cut down on these things. Or exactly how much you're spending on interest in a given month, and you will be able to see how much that goes down as you pay off the bill.
posted by grouse at 2:49 PM on January 18, 2011
You are So not a bad person for accruing that debt - as you point out, it wasn't like you piled it up on a bad trip to Vegas, you used it for education and emergencies.
I threw Everything I Could at the credit cards until they were paid off. I scrimped, but I also cashed in my babysitting savings from 1987 and every other source of savings I could find so I could to get Rid of the cc debt first. Because, among other things, it made me feel like a Bad Person. I wasn't! You're not! But it Weighs You Down.
Yes, savings are great, but if you lost your job soon with some more savings built up you would still have high interest rates and debt to pay with those savings. So if I were you I'd 1) get rid of the credit card debt, 2) start building that 6 month cushion and then 3) start paying off the student loans faster. Good luck!
posted by ldthomps at 5:31 PM on January 18, 2011
I threw Everything I Could at the credit cards until they were paid off. I scrimped, but I also cashed in my babysitting savings from 1987 and every other source of savings I could find so I could to get Rid of the cc debt first. Because, among other things, it made me feel like a Bad Person. I wasn't! You're not! But it Weighs You Down.
Yes, savings are great, but if you lost your job soon with some more savings built up you would still have high interest rates and debt to pay with those savings. So if I were you I'd 1) get rid of the credit card debt, 2) start building that 6 month cushion and then 3) start paying off the student loans faster. Good luck!
posted by ldthomps at 5:31 PM on January 18, 2011
If you can pay for expenses in an emergency with a credit card (like groceries), you can consider paying down your credit card debt exactly the same as having "savings." You're paying it down now and you'll borrow it back later. You won't pay interest on it in the mean time.
If you can't pay for expenses with a credit card (rent?), save for that with cash in a savings account.
You're probably not going to get a 21% return on a Roth IRA, so avoiding credit card interest is a much better investment there. But I bet you can do better than 21% with some looking around.
posted by oreofuchi at 5:33 PM on January 18, 2011
If you can't pay for expenses with a credit card (rent?), save for that with cash in a savings account.
You're probably not going to get a 21% return on a Roth IRA, so avoiding credit card interest is a much better investment there. But I bet you can do better than 21% with some looking around.
posted by oreofuchi at 5:33 PM on January 18, 2011
I was going to suggest Get Rich Slowly, since it's a AskMeFi favorite, but I didn't know jdroth was also a member. So I'll just nth what he says. And don't let any sense of self-worth re:debt get in the way of fixing the problem. Lots of people are in much worse situations.
posted by zombieflanders at 5:48 PM on January 18, 2011
posted by zombieflanders at 5:48 PM on January 18, 2011
Two things that leap out:
1) Stop eating out.
2) Get rid of your car. I know you live in Los Angeles, but getting rid of your car will save you at least $300 a month. No more repairs, either.
posted by KokuRyu at 6:50 PM on January 18, 2011
1) Stop eating out.
2) Get rid of your car. I know you live in Los Angeles, but getting rid of your car will save you at least $300 a month. No more repairs, either.
posted by KokuRyu at 6:50 PM on January 18, 2011
I say this because you're telling us that your monthly surplus is $1400 ($3800-$2400), but you're also saying it's $1700 and then saying "but let's call it $1200". Which is it? There's a big difference between these numbers, and your imprecision leads me to believe that other things are slipping between the cracks.
I agree
posted by KokuRyu at 6:51 PM on January 18, 2011
I agree
posted by KokuRyu at 6:51 PM on January 18, 2011
"2) Get rid of your car. I know you live in Los Angeles, but getting rid of your car will save you at least $300 a month. No more repairs, either."
Whoa. As a long time LA resident I think you'd regret this move, unless you lived next door to work.
posted by The ____ of Justice at 7:27 PM on January 18, 2011 [1 favorite]
Whoa. As a long time LA resident I think you'd regret this move, unless you lived next door to work.
posted by The ____ of Justice at 7:27 PM on January 18, 2011 [1 favorite]
Response by poster: Thanks to everybody for the great advice and consolations/sympathies.
A few responses:
1. Everyone's point on my imprecision is well taken. For context: this posting was done in a panic in ten minutes after bringing my cat home from the vet. Stolen moments before heading back to work, cat covered in his own piss but unable to clean it due to a big cone on his head. It was gross and I was panicked by seeing my credit progress undone with one swipe of a card.
BUT I get it, I get it: I'm going to start with Mint as it's free, unless folks really feel that Quicken is superior.
2. I've got two credit cards with Citibank, both at the 21%. I've never been late on a bill, but they won't lower the rate. I went back and forth with them about this a year ago. It sucks. I hate Citi.
3. Mstayinskool, TheBones, and others, the second Citi card actually was part of some kind of "No interest for 6 months scheme" I was trying, where I moved debt back and forth. It was clunky because I could only do so much per month, there was a limit of a few thousand dollars, and there was a fee every time. In the end savings were minimal. Can anyone suggest a good card deal with 0% interest for several months and a higher transfer limit?
4. I do own my vehicle outright, jillithd. I'm going to look into getting a loan through a credit union, as you suggest, but my car is probably worth $2,000 max. Kelly Blue on it Fair is $2,145, but there's a replaced bumper and some other minor body damage.
5. To others' questions, I have not used the credit card for months, until my cat got sick last week and I couldn't afford it outright.
6. To drlith, oreofuchi, and others, this is exactly why I love AskMeFi. I'm terrible with finances as a concept (interest and all that), so your comment on saving interest on "emergency free" months is really helpful.
7. RJ Reynolds, thanks, I know, it keeps me up at night how low my savings are. But it helps that I have good job security: I'm represented by a union and much more fire-able people have stayed on the company dime for months while the firing process was going through. I also have about $2000 of vacation that I could cash out if I was fired, and it keeps growing. (This is not including the $2000 of vacation that I cashed out recently. Would cash out more but there are limits every half year.) So that's something at least.
8. KokuRyu, I would get rid of the car but I have to use it for work. The plus side is that my mileage reimbursement seems to be outpacing my wear and tear, so it is subsidizing debt-payoff a few hundred dollars here, a few hundred dollars there. (Though I save some for maintenance as well.)
So the Plan, to be modified as further suggestions hopefully roll in:
* First priority is going to be getting my savings up to around $1,500 over the next three months. So, $250 a month goes to that.
* The rest will go to paying off my highest credit card (they have identical interest). Assuming I have $750 left over at minimum after my savings money, that's $2,250 plus the $2,900 vacation I'm cashing out (I upped the dose when I got back to work today), for a total of $5,150 paid off by the end of April. That puts me at $4,650 debt plus whatever interest I gather.
*I'll go from there continuing to pay off at the full $1,000 per month until it's gone. Then I'll move onto my six month cushion.
* I'm going to check out jdroth's blog, as well as the Simple Dollar.
Thanks folks. Keep 'em comin'.
posted by kensington314 at 8:57 PM on January 18, 2011
A few responses:
1. Everyone's point on my imprecision is well taken. For context: this posting was done in a panic in ten minutes after bringing my cat home from the vet. Stolen moments before heading back to work, cat covered in his own piss but unable to clean it due to a big cone on his head. It was gross and I was panicked by seeing my credit progress undone with one swipe of a card.
BUT I get it, I get it: I'm going to start with Mint as it's free, unless folks really feel that Quicken is superior.
2. I've got two credit cards with Citibank, both at the 21%. I've never been late on a bill, but they won't lower the rate. I went back and forth with them about this a year ago. It sucks. I hate Citi.
3. Mstayinskool, TheBones, and others, the second Citi card actually was part of some kind of "No interest for 6 months scheme" I was trying, where I moved debt back and forth. It was clunky because I could only do so much per month, there was a limit of a few thousand dollars, and there was a fee every time. In the end savings were minimal. Can anyone suggest a good card deal with 0% interest for several months and a higher transfer limit?
4. I do own my vehicle outright, jillithd. I'm going to look into getting a loan through a credit union, as you suggest, but my car is probably worth $2,000 max. Kelly Blue on it Fair is $2,145, but there's a replaced bumper and some other minor body damage.
5. To others' questions, I have not used the credit card for months, until my cat got sick last week and I couldn't afford it outright.
6. To drlith, oreofuchi, and others, this is exactly why I love AskMeFi. I'm terrible with finances as a concept (interest and all that), so your comment on saving interest on "emergency free" months is really helpful.
7. RJ Reynolds, thanks, I know, it keeps me up at night how low my savings are. But it helps that I have good job security: I'm represented by a union and much more fire-able people have stayed on the company dime for months while the firing process was going through. I also have about $2000 of vacation that I could cash out if I was fired, and it keeps growing. (This is not including the $2000 of vacation that I cashed out recently. Would cash out more but there are limits every half year.) So that's something at least.
8. KokuRyu, I would get rid of the car but I have to use it for work. The plus side is that my mileage reimbursement seems to be outpacing my wear and tear, so it is subsidizing debt-payoff a few hundred dollars here, a few hundred dollars there. (Though I save some for maintenance as well.)
So the Plan, to be modified as further suggestions hopefully roll in:
* First priority is going to be getting my savings up to around $1,500 over the next three months. So, $250 a month goes to that.
* The rest will go to paying off my highest credit card (they have identical interest). Assuming I have $750 left over at minimum after my savings money, that's $2,250 plus the $2,900 vacation I'm cashing out (I upped the dose when I got back to work today), for a total of $5,150 paid off by the end of April. That puts me at $4,650 debt plus whatever interest I gather.
*I'll go from there continuing to pay off at the full $1,000 per month until it's gone. Then I'll move onto my six month cushion.
* I'm going to check out jdroth's blog, as well as the Simple Dollar.
Thanks folks. Keep 'em comin'.
posted by kensington314 at 8:57 PM on January 18, 2011
Response by poster: Correction:
The $1,500 savings is not "first priority," but rather a concurrent priority partly based on jdroth's advice on doubling my $750. Yes, I'm nervous about it. And embarrassed.
Meant to add that I'm checking out the "snowball" link sent by The _____ of Justice.
Also someone owes me $5,000, but it's contingent on a legal settlement. Long story. So if that comes through (around March, probably), my situation would be helped greatly.
posted by kensington314 at 9:05 PM on January 18, 2011
The $1,500 savings is not "first priority," but rather a concurrent priority partly based on jdroth's advice on doubling my $750. Yes, I'm nervous about it. And embarrassed.
Meant to add that I'm checking out the "snowball" link sent by The _____ of Justice.
Also someone owes me $5,000, but it's contingent on a legal settlement. Long story. So if that comes through (around March, probably), my situation would be helped greatly.
posted by kensington314 at 9:05 PM on January 18, 2011
Nth-ing the answers that recommend paying down the credit cards debt. The debt snowball is an easy concept to understand and you see it paying off sooner rather than later; that psychological boost is a good one. Boost your emergency fund, it's something I've been recommending to my sister as every time she tries to get out from under debt, an emergency happens and she gets knocked down again.
You're not a bad person and making the commitment to get control of it is a great step.
posted by arcticseal at 9:06 PM on January 18, 2011
You're not a bad person and making the commitment to get control of it is a great step.
posted by arcticseal at 9:06 PM on January 18, 2011
kensington314: "What I want to accomplish is this: have what is considered a reasonable amount savings and a reasonable amount of debt, ASAP. I want to prioritize whichever is most important right away, but I have no idea which is which."
You've framed your post primarily in terms of minimum payments. Minimum payments set by the lender to optimize interest and likelihood of being paid back in full. So meet them of course, but they shouldn't be a factor in determining where to allocate your extra income. You need to focus on total interest paid like a lazer. That means your credit cards, rather than the cheap, tax advantaged student loans.
To put this in concrete terms, lets look at that item to build up emergency savings: $250 a month. You're electing to put it into savings. In a month's time you'll earn 20 cents on that deposit at 1 percent interest. Meanwhile, there's 250 dollars in CC debt you could have paid off, and it's costing you $4.38 to not pay it back. Total benefit of this plan: -$4.18. Oops. More impressively, the interest the next month on that extra $4.38 is 7 cents, which further eats into your savings interest.
Hopefully you can see that paying off CC debt is a better savings plan. 4 months should hopefully clear your CC debt out, and you can drop month 5 (and 6?) into emergency savings. The point of emergency savings is to self-finance your next problem on more favorable terms, but don't fund building it by taking out a credit card loan or carrying a balance longer than you have to!
posted by pwnguin at 8:18 AM on January 19, 2011
You've framed your post primarily in terms of minimum payments. Minimum payments set by the lender to optimize interest and likelihood of being paid back in full. So meet them of course, but they shouldn't be a factor in determining where to allocate your extra income. You need to focus on total interest paid like a lazer. That means your credit cards, rather than the cheap, tax advantaged student loans.
To put this in concrete terms, lets look at that item to build up emergency savings: $250 a month. You're electing to put it into savings. In a month's time you'll earn 20 cents on that deposit at 1 percent interest. Meanwhile, there's 250 dollars in CC debt you could have paid off, and it's costing you $4.38 to not pay it back. Total benefit of this plan: -$4.18. Oops. More impressively, the interest the next month on that extra $4.38 is 7 cents, which further eats into your savings interest.
Hopefully you can see that paying off CC debt is a better savings plan. 4 months should hopefully clear your CC debt out, and you can drop month 5 (and 6?) into emergency savings. The point of emergency savings is to self-finance your next problem on more favorable terms, but don't fund building it by taking out a credit card loan or carrying a balance longer than you have to!
posted by pwnguin at 8:18 AM on January 19, 2011
How reasonable is it to think about lowering your rent? I don't know your local rental market (but $1000 doesn't seem high for LA, so you're probably doing not too bad there) and I didn't read if you said whether you have roommates already or not. BUT, there are a few positive directions you can go:
1. Sell your stuff on ebay and craigslist and move to a smaller place.
2. Find a roommate and halve your rent at your current place if you'll fit.
3. Find an apartment with someone else that gives you a net improvement.
The important bits here being (A) a large percentage of stuff that we as modern humans tend to accumulate doesn't do us any good (isn't used frequently) and costs us money to store and (B) having a gorgeous spacious apartment and swank stuff only impresses people who don't know how much debt you're in (C) any downgrading you do while you're paying off your credit cards can be entirely temporary.
In response to topic C, yes, it's temporary. You can move to a giant expensive place any time you decide you want to. Or maybe just one more month of low rent and extra savings first, it's up to you. Personal finance fans like to say that a downgraded lifestyle is its own reward, frugality is leads to a better definition of your personal values and a more meaningful life, and once the debts are paid off your outlook will have shifted such that you're not chomping at the bit to move out of your shared house into a shiny spacious 2-bedroom castle of your own. However, despite the fact that this worked for them or they wouldn't be blogging about it, that's 100% totally not true for everyone, AND, is a terrible attitude to take while you're trying to manage the short-term. (what? by the time my debts are paid off I will be so out of touch and uncool that I won't want to buy more awesome stuff?? Crap!)
posted by aimedwander at 9:52 AM on January 19, 2011
1. Sell your stuff on ebay and craigslist and move to a smaller place.
2. Find a roommate and halve your rent at your current place if you'll fit.
3. Find an apartment with someone else that gives you a net improvement.
The important bits here being (A) a large percentage of stuff that we as modern humans tend to accumulate doesn't do us any good (isn't used frequently) and costs us money to store and (B) having a gorgeous spacious apartment and swank stuff only impresses people who don't know how much debt you're in (C) any downgrading you do while you're paying off your credit cards can be entirely temporary.
In response to topic C, yes, it's temporary. You can move to a giant expensive place any time you decide you want to. Or maybe just one more month of low rent and extra savings first, it's up to you. Personal finance fans like to say that a downgraded lifestyle is its own reward, frugality is leads to a better definition of your personal values and a more meaningful life, and once the debts are paid off your outlook will have shifted such that you're not chomping at the bit to move out of your shared house into a shiny spacious 2-bedroom castle of your own. However, despite the fact that this worked for them or they wouldn't be blogging about it, that's 100% totally not true for everyone, AND, is a terrible attitude to take while you're trying to manage the short-term. (what? by the time my debts are paid off I will be so out of touch and uncool that I won't want to buy more awesome stuff?? Crap!)
posted by aimedwander at 9:52 AM on January 19, 2011
nth-ing the "Debt Snowball" solution. Especially in your situation where you have identical interest rates. I've actually been doing this for the past few months without knowing what it was called. It feels fantastic.
posted by lholladay at 2:46 PM on January 19, 2011
posted by lholladay at 2:46 PM on January 19, 2011
Response by poster: Hi folks. Wanted to give a quick update since everyone was so helpful.
I took the advice of the people who said that building up my savings to $1,500 would be way more expensive than just putting that money toward credit debt. So my savings are still at $750.
I've signed up for Mint.com.
I've started the "Debt Snowball," and totally shifted my priorities to the credit card with the lowest balance. As of today, payday, it's at zero.
On to the next one . . .
posted by kensington314 at 8:26 AM on February 4, 2011
I took the advice of the people who said that building up my savings to $1,500 would be way more expensive than just putting that money toward credit debt. So my savings are still at $750.
I've signed up for Mint.com.
I've started the "Debt Snowball," and totally shifted my priorities to the credit card with the lowest balance. As of today, payday, it's at zero.
On to the next one . . .
posted by kensington314 at 8:26 AM on February 4, 2011
Response by poster: Also I should add that I got all my non-bills spending this period down to $320. That includes food, outings, gas, and the various and sundry social engagements that were such a thorn in my fiscal side.
posted by kensington314 at 8:31 AM on February 4, 2011 [1 favorite]
posted by kensington314 at 8:31 AM on February 4, 2011 [1 favorite]
That's great! Congratulations on your good progress. Remember that your bills are not set in stone, either.
posted by grouse at 8:36 AM on February 4, 2011
posted by grouse at 8:36 AM on February 4, 2011
To add to grouse's comment, ask for lower rates for your other bills (phone, cable) and quote a special they are having or another company's rate. They will usually give you the rate if you ask.
posted by occidental at 8:13 PM on March 28, 2011
posted by occidental at 8:13 PM on March 28, 2011
Response by poster: Just thought I'd give an update to folks that were so kind to comment on this back in February/March.
As of today I have a $2900 balance on a 0% interest balance transfer credit card, through the month of September.
I am not paying interest on any credit card debt.
My bills are down to less than $100 per month, not including groceries.
I accomplished this through a combination of frugality and cashing out vacation days on two occasions.
My student loans payments have doubled as of this month, to around $800, but that's okay because I'd like to eventually pay about $1,500 per month into them. More if possible.
My next step is to start putting money in savings. After rent, bills, groceries, spending money, and a payment into my 0% interest credit balance, my monthly take home should be about $900, perhaps more (I just got a raise.)
My plan is to put all of that into savings until I get my savings up over $3,000. At that point I will probably reduce the payment into savings to $650, with the other $250 going toward my student loans, for a total monthly student loan payment of around $1,050, and with $10,000 savings in just over a year's time.
Obviously if there's more advice, I'd love it, but mostly just here to say thanks.
posted by kensington314 at 6:59 PM on May 13, 2011
As of today I have a $2900 balance on a 0% interest balance transfer credit card, through the month of September.
I am not paying interest on any credit card debt.
My bills are down to less than $100 per month, not including groceries.
I accomplished this through a combination of frugality and cashing out vacation days on two occasions.
My student loans payments have doubled as of this month, to around $800, but that's okay because I'd like to eventually pay about $1,500 per month into them. More if possible.
My next step is to start putting money in savings. After rent, bills, groceries, spending money, and a payment into my 0% interest credit balance, my monthly take home should be about $900, perhaps more (I just got a raise.)
My plan is to put all of that into savings until I get my savings up over $3,000. At that point I will probably reduce the payment into savings to $650, with the other $250 going toward my student loans, for a total monthly student loan payment of around $1,050, and with $10,000 savings in just over a year's time.
Obviously if there's more advice, I'd love it, but mostly just here to say thanks.
posted by kensington314 at 6:59 PM on May 13, 2011
Thanks for the update. Glad to hear you're making good progress.
posted by arcticseal at 11:00 PM on May 13, 2011
posted by arcticseal at 11:00 PM on May 13, 2011
Well, good job and congratulations. Wish I could cash out vacation without quitting!
You seem to have a reasonable plan for the next year. Personally, I think 10k is a bit much emergency savings, but your circumstances are dramatically different: my monthly student loan payment is 85 dollars and my interest rate is dirt cheap. The good news is that if you ear mark a portion of that savings as "student loan payment in dramatic career upheaval," you'll reach a point where the earmarked sum will be enough to lump sum pay off the bill, at which point you can just live with that smaller emergency fund.
Once you feel comfortably rich, you should start figuring out what you need for retirement, emergencies, and random purchases, and how to arrange them to maximize return and minimize taxation.
posted by pwnguin at 2:39 PM on May 15, 2011
You seem to have a reasonable plan for the next year. Personally, I think 10k is a bit much emergency savings, but your circumstances are dramatically different: my monthly student loan payment is 85 dollars and my interest rate is dirt cheap. The good news is that if you ear mark a portion of that savings as "student loan payment in dramatic career upheaval," you'll reach a point where the earmarked sum will be enough to lump sum pay off the bill, at which point you can just live with that smaller emergency fund.
Once you feel comfortably rich, you should start figuring out what you need for retirement, emergencies, and random purchases, and how to arrange them to maximize return and minimize taxation.
posted by pwnguin at 2:39 PM on May 15, 2011
Congratulations to you! That's really great news that it is working out so well for you. :)
posted by jillithd at 1:16 PM on May 16, 2011
posted by jillithd at 1:16 PM on May 16, 2011
This thread is closed to new comments.
Might not be the way everyone likes to do it, but the psychological effects of eliminating debt one by one seems to work for a lot of people.
He's also got recommendations on budgeting on his website.
posted by The ____ of Justice at 2:05 PM on January 18, 2011