What should I do?

[moneymatters]

Hi all,

I'm a 20 year old college student and need some serious financial
advice on how I can completely pay off my debt within the next
year or two, if possible.

Also, please understand upfront that I'm not a big money spender of material things. I mostly buy what I need instead of what I want.

Anywho, my current overall debt is approximately $40,000 (What the heck was I thinking!??), and I'm really struggling to pay it off (living from paycheck to paycheck to be more blunt).

I work full-time and earn a net-income about $1800/month, but as I went over my finances, I discovered that my monthly expenses exceed my monthly income (so not good!).

Here is what my monthly expenses look like:

Mortgage = $0 (live with parents)
Car payment = $473
Church Tithing (a must for me) = $221
Car Insurance = $200
Auto Gas = $200
Credit Cards = $172
Student Loan = $160
Property/Land = $130
Cell Phone = $130
Health/Dental/Vision Insurance = $70
Food/Entertainment = $100
Internet = $15

My student loans are my biggest debt (approx. $21,000), my car loan balance is $10,500, property/land is $,7500, and my credit card debt is about $1450.

Now, as I went through my expense list, I found a few expenses I could reduce or elimimate, such as cell phone and food/entertainment. However, reducing these costs will not make a major difference.

I am seriously thinking of selling my car as it is my largest montly expense (almost $900!). I could be saving that money to buy a house! Only thing is I don't know if I should sell the car and save to pay cash for a used car, or just trade it in for another used car (maybe $12,000 or $14,000) to reduce the monthly payments.

If I sell the car, I'd like to save up and completely payoff my credit cards and student loans, then save to buy a house or condo.

In any case, getting completely out of debt as soon as possible is my #1 priority. I know I've made some pretty stupid financial decisions in the past, but I've honestly learned my lession. I just don't want to keep making the same financial mistakes my parents and a lot of my friends are making.

Please help!

Thanks in advance for your post

[anonymous_saver]

If your #1 priority is really to be debt free, then yes, I would sell your car. If you live in a metro area with a transit system, I would start taking the bus. If you live in a rural area, then I would buy a very cheap old car that you can pay with cash only.

Why do you have property/land that you don't live on? Can you explain what this is for?

Your cell phone is incredibly expensive. Get a cheaper one or get rid of it all together. (If you truly do want to get out of debt fast.)


What about groceries? Do you buy any? What about personal items like deoderant or toothpaste?

Get rid of internet. Do you have it at your work?

Is your student loan debt consolidated?

After your free up some money (in particular from selling your car), then use what you used to pay towards those things each month to pay off your highest interest debt first! That is, if your car costs you $900 a month (that's insane by the way, your car should not cost you 50% of your take home pay), then put that $900 towards your highest interest debt each month.

[QueenOphelia]

The car payment is just too much. Will you be upside down if you sell the car and buy a used one?

[Newbie]

You pay $130 a month for your cell phone? That's insane...

I'd get rid of that first and get a $30/$40 plan...

[Ima saver]

I would sell the car. I have lived all my life without a cell phone.

[disneysteve]

Originally Posted by moneymatters

Only thing is I don't know if I should sell the car and save to pay cash for a used car, or just trade it in for another used car (maybe $12,000 or $14,000) to reduce the monthly payments.

Are you saying you'd get $12,000 or $14,000 if you sold your car or that's what you'd be looking to spend on the replacement? If you'd get $12,000, that's great, but how much do you owe on the loan? If, however, you're considering spending that much, that's ridiculous. There is no way you need to spend anywhere near that much. You should be able to get a perfectly good used car for well under $10,000, some would even say $5,000.

[Gruntina]

I know this is not a great advice... if you were planning to get another car within the same price range as your loan or the like... can you just refinance your current car? This does mean it is not affordable and I go with a cheaper car but seems like you dont have the cash to even buy a cheaper car right now.

[moneymatters]

Thanks so much for your posts guys and gals. I sincerely appreciate all of your advice and most certainly won't let it go to waste.

Now to answer most of your questions:

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.

[moneymatters]

QueenOphelia:
I agree about the car payment. It is a luxury car and I'm definitely paying a high price for it (literally speaking). My parents tried to warn me before I purchased it, but like most young people, I thought I knew what I was getting myself into. Shame! However, it is a lesson learned for me.

I'll probably use one of my parent's cars to get around until I save up enough to buy a cheaper car.

[moneymatters]

Newbie:
My mother and I share a family plan with Cingular, which is $90/month + tax. The only extra features I have on it is phone insurance ($4.99 per month) and Media Net/text messaging ($9.99 per month). I pay for the entire bill. I think I'm going to talk to her and see if we can get a cheaper plan and cut some of the phone features as well.

[disneysteve]

Originally Posted by moneymatters

The only extra features I have on it is phone insurance ($4.99 per month) and Media Net/text messaging ($9.99 per month).

You don't need either of those extras. That will save you $15/month plus taxes and fees.

[moneymatters]

Ima_saver:
I agree with selling the car, but disagree with getting rid of my cell phone. I need it for business as well as emergencies.

[moneymatters]

disneysteve:
I owe approx. $10,500 on my car and could probably sell it for around $12,000, but what I was asking earlier is if I should trade my car for another used car that costs between $12,000-$15,000 to reduce my monthly payments?

[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?

[moneymatters]

disneysteve:
OK. No more phone insurance and Media Net/Text messaging for me then.

[disneysteve]

Originally Posted by moneymatters

disneysteve:
I owe approx. $10,500 on my car and could probably sell it for around $12,000, but what I was asking earlier is if I should trade my car for another used car that costs between $12,000-$15,000 to reduce my monthly payments?

I think it makes a lot more sense to sell the current car for $12,000 and buy a "new" car for perhaps $7,500 (just to pick a number). That would get you lower payments AND $6,000 to put toward your other debts.

[moneymatters]

disneysteve:
If I sell the car for $12,000, and I currently owe $10,500 then I'll only have $1500 or less left to play with right? I could save up to $5,000 to buy a used car and afterwards, use my earnings to pay off other debt.

[scfr]

On the income side of the equation, could you take on a 2nd job until school starts up again in the fall?

[moneymatters]

scfr:
Actually, I was thinking about getting a second job to aid paying off some debt, but I can only do so on the weekends. I go to work during the day and go to school during the night. My usual work schedule (Monday - Friday) is from 7:30 am to 4:00 pm and my class schedule (Monday - Thursday) is from 6:00 pm to 10:00 pm. I only get 3 one-week breaks per year at the college I'm attending and that's at the end of June, August, and the middle of December. (Crazy schedule, I know). The good news is my job has allowed us to work overtime for the past three weeks due to an increased workload and I was able to work some extra hours to pay off some debt. The bad news is that work is caught and overtime will no longer be available after tomorrow

[CoryWM]

I'll chime in as a 24yr Old. The first thing you need to understand, and only thing you need to understand is the turtle wins the race. The wanting to be out of debt, in 1-2 years, is a bad goal. Focus on the practices of saving money and spending it wisely. There is a reason, why it doesn't matter how much money you make, you'll be in just as much debt as the rest of america. If you focus on getting out of debt, and you actually do get out, you'll just end up getting a raise or new job, and think to yourself, I can afford bigger and better things! Tricking yourself into debt again.


Being semi-young still, I can see where my friends and I get into the most trouble. And by far, it's taking on a doable monthly payment that goes on for years.. Such as your car. When you got it, you might have had your job fo ra couple months, making 4x the money you used to make, cause you were in school. So you think, 500 bucks a month for a car payment will be easy, that'll still leave me with 1000+. Then you have your cell phone bill, and gas etc. So you start nearing your cap. You fill up your 1800 dollar a month paycheck, with stuff you need/have gotten yourself into. They become sorta stale, and you wan't to have a good time, because you deserve it... You're working full time right?! So you charge some gas to the credit card, and cell phone bill so you free up some money to have a night on the town, etc.

Now your goal should be to free up as much money as you can again. But don't be too harsh on yourself. Like if you were to sell your car, drop your cell phone and internet. That'd last a month.. before you'd get them back. You can't cut yourself off from your life to save money. Instead, what you need to do, is look at each thing you pay for monthly, and research why and how much you're paying.

For example, the best one yet in this thread. Your car. Takes up 25% of your income right? And you probably spend less than 10% of your life in it. But here's the hidden cost..... It's not the gas... It's the car insurance... But wait.. you'd have to have car insurance even if you owned a used car. Here's the difference, you don't have to have collision, because it's anot a brand new expensive car that the bank requires insurance on! That costs so much on a car for someone under the age of 25!


Change your plans on things. Now you've started by buying a piece of property, and are considering bulding a mobile home on it, then moving up to something else later. Why doesnt this apply to a car? I personally, bought a car for 5000 dollars. I didn't have the money upfront either. But I went with a personal line of credit.. Which basically means, I can spend that money on anything I want no questions asked. This means I owe the bank money, and they don't make me have collision. So while I pay a little bit higher% in interest, I actually save money each month from lower insurance. They don't make it cheap to be insured under 25. We're all hotheads trying out for fast and the furious movies!

Let's take this to your cell phone. Ditching texting, is a must. Even if you use it all the time, call people instead. Theres no point to have it do both, if you only text. You're paying the most for the voice interaction, so use it! As for the insurance. 5 dollars a month doesnt seem like much. But what are the chances you're gonna break your phone within 6 months? not vary likely. If you do, buy another one on ebay, and put in your sim card. BAM back in business.. And if you don't break it. Then you're saving money.

If I was in your shoes. I'd sell my car, buy a 3000 dollar used honda/toyota, get my cell phone bill down to 60 dollars a month T-mobile etc has family plans for 60 bucks a month. Get the bare minimum insurance + towing on the car.

The downgrading your car will save you 3 ways. Gas, insurance, monthly payment. You need to put things into perspective. Would you work 7 days straight, each month for 5 years to drive that car? I'm sure you would say yes, the first couple months you owned it. But in reality i'm sure it got a bit stale. Now you view it as mostly just a burden. There are different routes to go than being the biggest balla amoungst your friends. If you can say, I get 37 mpg in my honda, no one can really talk smack about that. If they do, everyone else will see them for an idiot.

For some reason the youth see material things as better if you pay more. It only applies to material things. If I buy a bigmac from mcdonalds for 2 dollars. And you're standing around with my friends, and say oh yeah, well my bigmac cost me 5 bucks.. you just look stupid. But if i say I drive a 2000 dollar car, and you say you drive a 20,000 dollar car, you'd look cooler. When at the end of the race I'm still ahead in money.

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.

None of this sunk in for me, till I had gotten my most recent job, where my income quadrupled. I talked to all my coworkers barely making ends meet.. And here I had too much money, with nothing to spend it on... Thinking about new cars etc. Until I realized, soon I'd be one of them.