Some saving and student loan advice PLEASE!

[Cabowabo84]

Hey all:

I just discovered this website and have done some exploring... what an awesome place!

Here's my story:

I'm 27 and I just got my Masters and have recently started paying off all my (Private and Federal) student loans, about $120k in total. In an attempt to save money, I recently moved back in with my parents until I sort out my life, financially. This is proving to be a lot more difficult than expected and am now regretting my college education. (Not my MA, that was free. But I do wish I had gone to a cheaper undergraduate school). Considering the housing market and interest rates as of late, I would like to buy a home. This has been a dream of mine for some time now. The problem is that the money seems to disappear, and I don't know where it's going...


Here's my financial background:
Assets:

Income: 60k
Savings: 2.5k
Stocks: 8k
401A: 4k
403B: 1K

Currently, about 30% of my check goes to my 401A.

Liabilities:

Student Loans (ca. 34k for Federal - 5k and 4.3k @ 2.1% and 17k and 9.7k @ 6.5%; ca. 80k for Private - 25k @ 7%, 30k @ 6.5%, 13k @ 4.5% and 11k @ 3%.)about 1.1k a month
Car Loan - $270 a month, 18k @ 3.3% for 7 year term, ocassionally double up on payments
Phone - $260 a month (Family Plan, pay for family since parents don't charge me rent)
Car Insurance - $400 a year
Credit Cards: $830 balance @ 16% and $2.5k balance @ 10.24%

Since I've started paying off my loans, I have been left in a financial mire. I consider myself lucky that I can pay these loans, but it just seems like that's all I can afford to do. I really would like to buy property soon, but more importantly, I want to be able to SAVE. Would it be a good idea to consolidate these loans? I've heard conflicting reports regarding consolidation. At the moment, I'm shopping around for different consolidation loans, but it seems that getting one is A LOT harder than applying for the private student loan, even with EXCELLENT credit and a history of automatic payments. Does it even make sense to consolidate? Should I contribute less to my retirement? More importantly, any recommendations on how to go about saving money? I've read on the posts that some people were able to pay off their student loans in crazy-short amounts of time... how did you do it? Is it stupid of me to even think about buying a home at the moment? Should I just take my savings/stocks and pay off all the credit cards? I have so many questions and no one to ask! Any advice you could offer me would be a HUGE help!

THANKS AGAIN!

[bjl584]

You can't consolidate private and federal loans together, but you can try to consoildate all the private loans, then consolidate all the federal ones.

Rule of thumb is to start with the highest interest rate first. I'd start by making the minimum payments on the car and the SL's and knock out the credit cards first. Then move to your car. Next would be the SL's. Hopefully you are able to consolidate.

the dream of a house should be on the backburner for now. Another rule of thumb is to have 20% down. You are going to need to rent at least for some time before you save up.

I learned to save by paying myself first. The first "bill" I wrote out each month was the money for me. For my savings and my investments. Then I learned to live on what was left.

[disneysteve]

Originally Posted by Cabowabo84

student loans, about $120k in total

I would like to buy a home. This has been a dream of mine for some time now. The problem is that the money seems to disappear, and I don't know where it's going...

Income: 60k
Savings: 2.5k
Stocks: 8k
401A: 4k
403B: 1K

Currently, about 30% of my check goes to my 401A.

Liabilities:

Student Loans
Car Loan - $270 a month, 18k @ 3.3% for 7 year term
Credit Cards: $830 balance @ 16% and $2.5k balance @ 10.24%

I consider myself lucky that I can pay these loans, but it just seems like that's all I can afford to do. I really would like to buy property soon, but more importantly, I want to be able to SAVE.

Should I contribute less to my retirement?

Is it stupid of me to even think about buying a home at the moment?

Welcome to the site! Congratulations on completing your MA and on starting to ask all of the right questions about your finances.

I think the main thing you need is to reorder your priorities. While it is very nice (and impressive) that you are putting 30% of your income into your retirement account, that alone pretty much explains why you can't seem to afford to do anything but pay your loans and basic expenses.

Cut the retirement contributions back to the minimum needed to get the full company match. If there is no match, I'd stop all together and put 5K/year into a Roth for now.

That should increase your take home pay by about $1,200/month. In 3 months, get the credit cards paid off and don't ever carry a balance on them again. If you can't afford something, don't buy it.

You have an insane car loan. 7 years! What is the car worth today? I would seriously consider selling it even if you take a loss in the process. Once the credit cards are repaid, sock away that $1,200/month in savings long enough to cover any upside down portion on that loan then sell the car. Replace it with something in the 5-8K range. That cuts your auto debt by about 1/3. Your next car loan should be for no more than 3 years with a payment of no more than 10% of your monthly take home pay.

As for buying a home, that needs to drop down on your priority list. You need to clean up some of the debt mess first, build at least a 6-month emergency fund and save up a 20% down payment. That's going to take a few years most likely unless your income climbs significantly.

[pdweaver]

Originally Posted by disneysteve

Welcome to the site! Congratulations on completing your MA and on starting to ask all of the right questions about your finances.

I think the main thing you need is to reorder your priorities. While it is very nice (and impressive) that you are putting 30% of your income into your retirement account, that alone pretty much explains why you can't seem to afford to do anything but pay your loans and basic expenses.

Cut the retirement contributions back to the minimum needed to get the full company match. If there is no match, I'd stop all together and put 5K/year into a Roth for now.

That should increase your take home pay by about $1,200/month. In 3 months, get the credit cards paid off and don't ever carry a balance on them again. If you can't afford something, don't buy it.

You have an insane car loan. 7 years! What is the car worth today? I would seriously consider selling it even if you take a loss in the process. Once the credit cards are repaid, sock away that $1,200/month in savings long enough to cover any upside down portion on that loan then sell the car. Replace it with something in the 5-8K range. That cuts your auto debt by about 1/3. Your next car loan should be for no more than 3 years with a payment of no more than 10% of your monthly take home pay.

As for buying a home, that needs to drop down on your priority list. You need to clean up some of the debt mess first, build at least a 6-month emergency fund and save up a 20% down payment. That's going to take a few years most likely unless your income climbs significantly.

After doing what Steve said, apply that money to your loans. Here is a breakdown and example of how quick you can pay them off.

Extra cash on hand after listening to Steve -

$1200/mo from 30% check
$100/mo car (sell and buy new car - new loan $170/mo)
$100/mo cc paid off
Starting April 1st an extra $1400/mo

Apply this towards the prvt student loan at 7%
Assuming your pmt is around $290/mo and adding the $1400/mo a pmt of $1690/mo Starting in April
25k will be paid off by 7/1/2013 - thats just over a year
Interest saved will be $9832(what you would have paid) - $1222(int you will pay doing this) = $8610 saved in a year.

Now apply the $1690 towards the 30k loan at 6.5% which Im assuming is a pmt around $340/mo
$1690 + 340 = $2030/mo starting in 8/2013
Loan will be paid off by 9/1/2014
Interest saved will be $10877 - $3583 = $7294

Now apply $2030 towards 9700 student loan at 6.5% which pmt is around $110/mo im assuming - starting 10/2014
This will be paid off by 1/1/2015

Over $16,000 in savings

At that point I would apply $2140 to savings - after a year you will have over $25k

This is how in 3 years you can pay off 64k of debt and in 4 years buy a home. The housing market will not be recovering overnight. Hang in there and you will be fine.

[jpg7n16]

Originally Posted by Cabowabo84

The problem is that the money seems to disappear, and I don't know where it's going...

Obviously, this is not optimal. Not knowing where your money is going is a problem, wouldn't you agree?

I'd recommend some sort of budget software to help track every dime you spend. I personally use YNAB (YNAB.com) costs about $60. And I know of other people who use Mint (www.mint.com) which costs $0 - it's free. But there's also Quicken, Money, or even MS Excel.

If you'd like to know exactly where your money's going, you just have to start tracking it Software makes that much easier.


I know YNAB allows you to enter the gross paycheck, then account for taxes, insurance, 401k, etc. But don't know if Mint does. (Only because I use YNAB and don't use Mint)

And I agree that saving 30% is in conflict with your goal of debt elimination, and also against goal of home ownership. Saving 30% is fantastic for a retirement savings goal. Which goal is more important to you?

[artwest]

If you buy your dream home when you are not financially ready, your dream home will turn into a nightmare. You are not ready to buy a house.

In my opinion you should stop investing in you r401A or at least cut it down drastically like to 5% or less.

Use the Debt Snowball to pay off your loans smallest to largest. If you are not aware of the Debt Snowball, here is how it works. List your debts smallest to largest. Make minimum payments on everything except for your smallest debt. Pay as much as you can on that smallest debt until it is paid. When it is paid, take all the money you were paying on your smallest debt, add it to the minimum that you were paying on the second smallest debt and pay that until you get that debt paid off. keep this up until you are debt free.

When you have all of your debts paid off, start building an emergency fund of 3-6 months expenses. Then start saving for that house. I hat e to be the bearer of bad news, but you are a few years away from being able to buy a house. If you want to speed up the process, you could try to pick up a part time job for a year or two and throw that money at your debt.

[Cabowabo84]

I just wanted to thank you all for the awesome advice, which I plan on taking very seriously. Even though I wish I had known a lot of this stuff early on, I'm grateful that I´m learning now and plan to help others out with what I learn here.

The car will be hard to part with... but there are few people who want it, so I'll be moving on that quickly.

Since I already have something saved up in my retirement plans, reducing my 403B contributions to the minimum for now won't hurt as much. Like JPG pointed out, I have to prioriize the goal which is most important to me.... which at this point is not retirement. While I do plan on saving as much as I can, I also want to enjoy (within my means) my life and everything my education's given me thus far and not limit myself now just to enjoy it in a few decades.

Buying a house is nice and all, but now I'm more focused now on just being financially sound/savvy.

Again, I really appreciate all your advice and help!

PS: Is it worth it to try consolidating my loans (I know you can't consolidate private with fed)? The bank has me jumping through hoops just to get approved, but if I follow pdweaver's advice (or some variation thereof) I can just pay a good part of it and deal with these banks a lot less than I'd otherwise have to.

[debtmediators01]

Debt consolidation is the best available method to pay off all previous debt and financial liabilities. In this method consolidation of debt is done by taking a consolidation debt loan. That means the debtor is taking a single personal loan to pay his all previous debts. This loan is just a way of consolidating debt and financial liabilities taken from different sources.