What should I do?

[moneymatters]

Wow CoryWM! To be as "semi-young" as I am, you have some wonderful insight on finance and I applaud your post

First off, I'd like to say that my 1 to 2 yr debt free goal was just an estimate. If it takes me another 3, 4, or even 5 years to pay everything off, then so be it. I just want to stop living from paycheck to paycheck and having no $$$ in the bank for myself.

When I first got my car (99 Lexus GS 300 BTW), I earned enough income to make the payments and save some money, but I was younger and saving money was not in my vocab then. In all honesty, I didn't buy it to impress my friends or family. I bought it because I WANTED to own a Lexus ever since I started high school. I wanted, and still want, nice things and created more bills to the point where I was living above my means. Silly me!

However, now that I know the importance of saving money and managing debt, I'm pretty sure that I'll know how to handle my money better after I'm completely get out of debt even when my income increases. All I'll have to keep in mind is how stressfull I am right now trying to become debt free. That'll keep me away from serious debt for good.

After I sell my car and buy a cheaper one, I'll probably end up saving or investing the majority of my income while paying off my credit cards and student loans.

Thanks again for the insight.

[Newbie]

That was a wonderful post, Cory

[disneysteve]

Originally Posted by CoryWM

There are 4 types of people in the economy.
1. People who can't afford.
2. People who can't afford, but buy anyway.
3. People who can afford, but don't buy.
4. People who can afford and do buy.

When you're born you start at #1. Hopefully sometime in your life, you'll make it to #4. 80% of americans are stuck at #2. I'd say if you're coming to this board, you want to move on to #3.

At the end of the day, it has nothing to do with how much money you make. It's how you spend what you do make. A guy making 1000 a month, buying a 20000 dollar car is in just as much debt as a Doctor who makes 50000 a month buying a 4 million dollar home. If either one of them got sick etc, they'd be just as screwed as the other.

This is a great post. I'm 42, my wife is 43, and we are #3 on the list. We can afford but choose not to buy.

I get a perspective on this that many of you don't. I'm a physician and there are 2 monthly journals dedicated to financial issues among doctors: Medical Economics and Physicians Financial Digest. Guess what kinds of articles appear month after month in those publications? Articles on dealing with credit card debt, ARMs, saving for college and retirement, living beyond your means, establishing an emergency fund, getting proper insurance, etc. Sound familiar? Magazines aimed at highly paid professionals focus on the exact same issues as articles in your local paper or Money or here on the boards. As CoryWM stated, it really doesn't matter how much you earn. Everyone faces the same money problems. So anybody who thinks all of their money problems would disappear if they just earned more is mistaken. Your money problems won't disappear until you make them disappear by changing the way you handle your money.

By the way, I currently drive a 1998 Toyota Camry with 101,000 miles that I bought used in August 98 as a dealer demo, just to give some perspective. Could I afford a "new" car? Sure, but there is no NEED to replace this car yet. In fact, I just put a new starter in it yesterday.

[moneymatters]

disneysteve,
I truly understand what both you and CoryWM are saying. After I become debt-free, I most definitely plan to be one of those people that can afford, but don't buy. My income will most likely increase within the next couple years as I'll have more working experience in my area of study, but by that time, I'll have more control over my spending habits.

Even if I were to make $75,000-$100,000/yr, I don't think I would go crazy and buy a $5,000,000 home, when there are nice singl family homes that costs around $500,000, nice cars that are $60,000 or less, etc...I would be able to save more and plan for early retirement!

[disneysteve]

Originally Posted by moneymatters

nice cars that are $60,000 or less

There are nice cars that are $25,000 or less. Personally, I would never buy a $60,000 car no matter how much I earned.

As for homes, that partly depends on where you live. Our home is worth about $275,000 currently and I think it is a perfectly nice single home, but I realize that values like that aren't available everywhere.

[anonymous_saver]

Originally Posted by moneymatters

anonymous_saver:
I live in South Florida, so transportation is easily accessible (bus, tri-rail, family, friends, etc...). I could probably take the bus or use one of my parent's vehicles until I save up enough cash to purchase a cheaper car.

The property (Ambrose, GA) I'm buying is sort of an investment, I guess. Is it not? I'm planning to either build a home on the land or put a mobile home on it until I can purchase a larger home (after I pay off my debts, of course).

A friend of our family takes care of the groceries, but I give my parents between $50 to $100 here and there to buy extra grocery when they need to. Also, I spend about $80/month eating out because I do not spend much time at home during the week. I purchase my own personal items as well.

Unfortunately, I need internet access at home to work on business and my class assignments. I currently taking web design/development courses, and it would be very difficult for me to complete the work without the Internet. My employer does not like me to use the Internet for personal business, although I do it anyway. However, I have to limit the amount of time I stay on the Internet at work.

My student loans aren't consolidated, but my credit cards are. I currently have two private student loans and two government student loans. One of the private loans, I pay $160/month, which the loan amount is $5700, and I have to pay this one while I'm in school. The other 3 loans are in deferment.

After I sell my car (hopefully, real soon), I want to pay off the credit cards first, then start paying off my student loans.

Hi again, it looks like you are getting pretty good advice. Honestly though, I would not get another job. I think you would be be over-extending yourself too much. You already are gone from home 4 days of the week from 7:30-10pm. You need some time to rest and study and do other things in your life. I don't think you are in that horrible of a spot that you NEED to get another job.

That's great that transportation would be available to you. I'm 25 years old and have never had a car because of the great transportation where I live. I've also never had a cell phone though.

With your $80/month eating out... maybe cut it down to $50/month, and then make bagged lunches from home other days of the week for at least one meal a day? You probably would end up saving money and eating healthier too (not that I know anything about your eating habits!).

Once your other school loans are not in deferrment anymore, I would consolidate the two government ones if you can. It would very likely save you money in the end.

How much longer do you have left of school?

One last thing, are you contributing up to your employers match in any retirement account they may offer? I would still do this while you are paying down debt, as long as they match up to a certain amount.

By the way, it would be interesting to hear an update about how you are doing in a couple of months.

[moneymatters]

anonymous_saver:
You're probably right about me not getting a second job right now. I'm so burnt out from working 15 additional hours/wk of OT during the last three weeks on top of going to school and studying late at night. All I want to mostly do on the weekends is sleep anyway, so I don't think getting a second job to pay off my debts is not a very good idea either.

If I can sell my car and fast, then it'll take some of the financial burden off of me. After I took my car to the dealer today, they said they'll only take the back if I trade it in for another used car on their lot. The price range on their cars range from $20,000 and up, so I told them, "NO FRIGGING WAY!" One of the salesmans recommended that I take my car over to CARMAX and find out how much they would give me for it (they'll probably offer me only pennies for it, but I'll see what they say).

I've been doing some online research as well on how to go about selling my car (the Lexus is my first car). This is all new to me so if you have some suggestions on how I should go about selling it, I'd greatly appreciate it.

I have about two more years left in school and hopefully, buy the time I graduate at least half of my student loan debt is paid. Could I consolidate the government loans while their in deferment?

As for putting money towards retirement, I don't think I earn enough to put anything up right now. I can barely keep up with my expenses on time. Once I free up some extra cash from reduced expenses, I plan to open up a retirement account separate from my employer and a savings account as well.

Thanks again for all of your input. After reading your posts and other threads on this site, I've learned more about finance than I ever have!

[anonymous_saver]

Originally Posted by moneymatters

I have about two more years left in school and hopefully, buy the time I graduate at least half of my student loan debt is paid. Could I consolidate the government loans while their in deferment?

As for putting money towards retirement, I don't think I earn enough to put anything up right now. I can barely keep up with my expenses on time. Once I free up some extra cash from reduced expenses, I plan to open up a retirement account separate from my employer and a savings account as well.

No. Don't consolidate the government loans while they are in deferment. I'm not 100% sure, but I'm pretty sure that payment starts 6 months after you consolidate loans. Plus, you may find the following link interesting. House approves lower student loan rates - Jan. 17, 2007

I agree that you shouldn't put extra money towards retirement right now because of your debt. I'm only suggesting that you put money towards retirement if your employer matches in a 401(k)/403(b)/whatever currently, that no matter what you should take advantage of that deal (up to the match only!).

I will let someone else chime in about cars as I do not have the experience in that area.

[Gruntina]

Originally Posted by moneymatters

Gruntina:
Your advice is good enough for me. Actually, I didn't think about refinancing the car, but wouldn't that extend the life of my current loan because the payments were reduced? I was thinking if I decided to trade it for a used car, lets say about $14,000, I'd have only $3500 or a little more with interest, and have reduced payments where I can pay the used car quickly. Bad idea?

If you do refinance the car, yes it does extend the life of your current loan.

If you buy a car between 12,000 and 14,000 like you were thinking of, you pay more in total cost on the car loan than what you have starting now with your current car loan. It may seem cheaper in monthly payment but the life of the loan will be longer or you will be paying more that your current payments monthly if you chose the same amount of life loan left you currently have. So if you refinance and extended the life of the loan, it makes no difference if you purchased a different vehicle of the same price.

Really it is a worse situation to trade in your current car for one of the same price or higher. Remember trade in value is not good and you will not get car value price as selling the car privately so you may not get as much credit as you think.

If you do not want to go without a car, I would first try to sell it (don’t get trap in making two car payments) and then purchase a used cheaper vehicle.

I have sold my new Toyota Tundra truck for a used 7,000 car and it did wonders to my finance and peace of mind. I really loved that truck but when I realize that the car did not do anything different than the truck and it took me places to places as the same, I loved the car as much! Actually better as I did not have to suffer financially.

[Gruntina]

Originally Posted by moneymatters

disneysteve,
I truly understand what both you and CoryWM are saying. After I become debt-free, I most definitely plan to be one of those people that can afford, but don't buy. My income will most likely increase within the next couple years as I'll have more working experience in my area of study, but by that time, I'll have more control over my spending habits.

Even if I were to make $75,000-$100,000/yr, I don't think I would go crazy and buy a $5,000,000 home, when there are nice singl family homes that costs around $500,000, nice cars that are $60,000 or less, etc...I would be able to save more and plan for early retirement!

I am not here to make you feel bad or anything. I just wanted you to be aware of how far money can go while you are still young. This way you can easily prepare what you looking into and I am jealous of the fact you are learning this now when I learned way to late.

It is really tough to afford a $500,000 home only making $100,000 salary. I live in the San Francisco Bay Area and you can’t really get a house much cheaper than that so many people are struggling here. This is why I want to encourage you to save as much as you can, pay off your debts and work hard not to get back into debts.

[Ima saver]

Cory, I loved your post. You have gotten the right idea and done it at a very early age. When I first got married, we lived on less than $5000 a year. Now we make over $50,000 a year and it is true, you will spend what you make. The trick is to pay yourself first, always, every paycheck.

[moneymatters]

anonymous_saver, that is an interesting article and some good news for me. Right now, my student loan rates are at 6.8% and the interest just keeps accumulating. I'm glad the government finally decided to help college students with student loan debts. Thanks so much for the link.

Grutina, trading and refinancing my car is out of the question for me. I want to get rid of the darn thing for good. I was planning to sell it first before buying a cheaper one in cash. Lord knows, I cannot afford two car payments. As I said earlier, I just want to get completely out of debt for good, and start saving as well as planning and investing for my retirement.

My parents are struggling with finances as well, and I try to help them out as much as l can. Many of my friends are in the same situation too but some are worse off in financial shape than I am. However, they continue to spend like there's no tomorrow (don't understand why?). I just can't keep living like this knowing that all it takes is patience and using my money the right way.

[My English Castle]

I think we're close to unanimous: ditch the car. If you're not convinced, listen to Dave Ramsay for a while--he'll tell you the same think.

As someone who teaches at a university, I'm asking you to also think longer term for a little. There are probably plenty of ways to cut daily expenses, bringing your own food to school, especially beverages etc.

But I would be careful how much I'd work during the school year.
I can't tell you the number of students I've seen who are completely burned out, miss all sorts of opportunities for special classes or internships or recommendations because they're working too much. Remember why you're in school. Be frugal, but also be frugal with your time and your energy.

Good luck! I'm impressed with your level of maturity and commitment!

[cptacek]

why are you paying for your mom's cell phone? And can't you get a tracphone or a cricket or something so you don't have to pay for all the minutes?

Get rid of the car and buy a beater. Like < $1500. If you get rid of your current car, you can buy that with cash, and if it breaks down, you have good public transportation and your parents' cars to get you out of trouble. Try to find some other poor sucker (student) to buy it

[neatdesign]

Originally Posted by moneymatters

After I become debt-free, I most definitely plan to be one of those people that can afford, but don't buy.

I think the point is that you shouldn't wait until you are debt-free to become one of those people. You need to get into the habit NOW, so that when you have more money at your disposal, you'll be better able to control your spending.

On another note, I'm surprised no one else has brought up the $220/month you give to your church. I understand that some people feel the need to tithe, but over 12% of your income? Why not cut it back to 5% of your take-home pay? That would free up $130/month to put towards debt repayment.

Alternatively, you could contribute to your church in other ways that don't involve donating money. Personally that's what I'd do if I were in your shoes.

~ Jenney

[tabbycat31]

Do you have anything that you could sell to increase your income? Like have a tag sale, sell stuff on ebay, etc.

I know that everyone has a lot of clutter around the house, perhaps unload some to ebay

[moneymatters]

My_English_Castle:
I'm so convinced that the car must go. As I matter of fact, I went to CarMax today to get it appraised, but they said the car was only worth $2k. I was like what! You've got to be kidding me! The Kelley Book valued my car at $10,800k, and cars of the same model I have are being sold on eBay at around $10k-$15k. I figured they'd give me only pennies for it, so I guess my best option is to sell it privately.

In the meantime, I'm going to cut back on some expenses, so I won't have to work too hard while I finish school. My cell phone bill has been reduced to $80/month, and I bought groceries to take with me to work & school next week (coupons go a long way after all ). Although I don't eat much, I don't eat healthy, but I believe that will change if I continue to eat out less.

cptacek:
My mom and I are on a family plan together. Paying the full phone bill is the least I can do since I do not pay the mortgage. As for the car, I plan to get rid of it asap!

neatdesign:
Jenney, you're right and that's what I'm starting to do now - trying to focus more on getting things that I NEED than things that I WANT. It will be tough for me in the beginning, but once I get my spending habits under control, I'm sure not buying things I can afford will be a piece of cake!

As for tithing, my pastor has always taught me to give at least 10% of my gross income to God (or the church), and that's what I'm doing and will continue to do. My gross income is $2210/month.

tabbycat31:
Actually, I never thought about selling on eBay, and I purchase items there very frequently. My room is filled with stuff I've never used (clothes, shoes, jewelry, movies, etc...), and I'm sure I could get something for them. I'm going to look into it.

Thanks so much for the tip! You're a sweetheart

[minnie1928]

I'm probably in the minority here, but how many minutes/month do you use your phone(s)? I have a prepaid plan through T-Mobile, I got some insane amount of minutes (I thought it was insane, but I don't use my phone often ) that lasted 1 year for $100. Since I didn't use them all when my year was about to expire I bought $25 worth of minutes and all my unused minutes rolled over. So, for 2 years of service I paid $125. I bought a similar deal for my mom and any time we call each other because we are both Tmobile customers the call is free.

I did have to buy the phone (they ranged from $39 on up, at the time).

Would this be feasible for you and your mom?

[moneymatters]

Wow! $125 for 2 yrs of service is a great deal! My mom and I were on a Cingular family plan of 1400 minutes/month w/free nights and weekends until today. The cost was $90/month plus tax. I changed the plan to 700 minutes/month at $70/month plus tax. We've been on the family plan for about 6 months and accumulated over 4000 rollover minutes. I don't use my cell phone much but she uses hers often, so I don't think getting a pre-paid plan with her is a good idea. We'd have to cancel our family plan if I decide to go with a solo pre-paid plan, but I'd have to pay a $300 early cancellation fee since I'm under a 2 yr contract with Cingular (that really sucks!).

[Daniel_Shop]

Yes moneymatters, CarMax valued your car such low because the salesman did recommend you to go there.

The salesman want you to swap cars so keep being a customer of them. They have a system for convincing people and that is CarMax

Sell your car for $10.000 and buy a motorbike or a beater as cptaceck advised.
I have a moto and I really enjoy it. It have very low expenses and have more status.

In fact, my moto does cost me less than a Public Transportation routine.