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Pay credit debt with savings?

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  • martinb5
    replied
    Let me clarify the car situation. I bought it when I thought I had made up my mind to work full-time instead of continue my education. It wasn't a minimum wage job, either, I was working in production for a racing magazine, earning a decent salary for my age. I'm a car guy, and spent a good amount of my income on parts/maintenance for the car when I was making money. A little over a year ago I decided to go back to school, but continue to pay off the car. I've thought about selling it but I have way too much time, energy and money put into it to get what I have into it. I made some poor money decisions I know, but it's almost paid off and I have no intention of selling it until it is.

    I know if I stop my education and work full-time to pay all my debts off, it could be years before I enroll again, I'm trying to blaze through school now.

    Leave a comment:


  • disneysteve
    replied
    I agree about the car. OP, how much is the car currently worth if sold. You can get an estimate at kbb.com or edmunds.com. It might be worth selling and replacing it with something much cheaper, preferably bought with cash.

    Leave a comment:


  • boosami
    replied
    Originally posted by sandrark View Post
    In this case, it tells us that the OP is spending way too much on his car because of a car payment - on a $12K annual salary.
    I agree with Sandi... If OP can afford a ~$10k car on a $12k salary, it's ok for a person with a $120k salary to have a $100k car? With income that low, there should not be a car payment at all. I'd be driving a hand-me-down or a junker. When it broke down, I'd be bumming rides and taking the bus.

    I've done minimum wage work before and at that time in my life there is no way I even considered having a car payment. Ditch the car, and save the $300/mo car expenses until you can buy a car right out.
    Last edited by boosami; 07-09-2009, 05:40 AM.

    Leave a comment:


  • sandrark
    replied
    Steve, it's a guideline. They typically don't work well for people who make very little money, or, conversely, those who make a lot of money.

    In this case, it tells us that the OP is spending way too much on his car because of a car payment - on a $12K annual salary.

    Sorry, but a car payment with that salary is ridiculous. He's driving too much car for his income.

    Sandi

    Leave a comment:


  • disneysteve
    replied
    Originally posted by sandrark View Post
    I've read various guidelines that transportation shouldn't be more than 10% of your gross pay. So for OP, that would be $100 per month, INCLUDING gas and insurance....

    Sandi
    That would be impossible for many people because of gas and insurance costs. You can control the cost of your car but you don't have nearly as much control over the gas and insurance costs. If someone drives an average 12,000 miles/year and gets 20mpg at $2.50/gal, that's $125/month right there.

    Leave a comment:


  • sandrark
    replied
    Originally posted by disneysteve View Post
    Car payment is $190/month with an income of $1,000, so that's 19%. Is there some common rule of thumb for how much one should spend on a car? That doesn't sound like a lot to me. Assuming a 5-year loan, payments would add up to $11,400 which includes interest, so car might have been about $10,000. That seems reasonable, doesn't it?
    I've read various guidelines that transportation shouldn't be more than 10% of your gross pay. So for OP, that would be $100 per month, INCLUDING gas and insurance....

    Sandi

    Leave a comment:


  • Walt_Pennsyl
    replied
    Yes, you should totally pay off your credit card. Finance 101.

    Leave a comment:


  • disneysteve
    replied
    Originally posted by anonymous_saver View Post
    I'd say your car is too expensive for the amount of money you earn.
    Car payment is $190/month with an income of $1,000, so that's 19%. Is there some common rule of thumb for how much one should spend on a car? That doesn't sound like a lot to me. Assuming a 5-year loan, payments would add up to $11,400 which includes interest, so car might have been about $10,000. That seems reasonable, doesn't it?

    Leave a comment:


  • anonymous_saver
    replied
    I'd say your car is too expensive for the amount of money you earn. Would you consider taking public transit? That would save a ton of money! Or perhaps buy a used car outright? I mean this car (with gas and repairs) is eating up probably over half of your income!

    I like the idea of saving up $500, then putting every extra cent towards paying off those CC. Stop using the cards. You don't need them. With having most living expenses paid for, give yourself a modest amount of spending money each month, and stick to it.

    Good job on going back to school and looking at your money situation, you can do this!

    Leave a comment:


  • Tree0164
    replied
    I agree with getting the saving to the $500 point and then putting every extra bit towards the credit cards.

    You also need to do a budget-find out where your money is going each month.

    Leave a comment:


  • swanson719
    replied
    Put $500 in savings, then knock out the CC debt. It does you no good to be paying off the CC's and then need money for something important and have to put it on credit. Hence the $500 set aside.

    Leave a comment:


  • Walt_Pennsyl
    replied
    Get rid of your CC debt. Rule #1 for being an adult!

    Leave a comment:


  • sandrark
    replied
    Originally posted by martinb5 View Post
    Yes, I am working part time because I am enrolled in the local community college, hopefully I will be transferring to a 4 year school soon. My monthly expenses are

    $190 Car payment
    $180 Car insurance

    And my parents have been kind enough to take care of everything else since I made the decision to go back to school. The rest of the money I have left over seems to be used up by random expenses, gas and food primarily.
    Martin, that CCD debt will just get more burdensome once you're at a university.

    $50 a month to savings is secondary to getting the cards paid off. $400 for the car is OK (although *why* do you have a car payment if you're only making $1K per month??!!)

    My advice: save up to $500. After that, every extra penny should go to pay off the cards.

    Put the credit cards away and stop using them. Write out a budget, and limit the cash you carry - if you don't have cash or a debit/credit card on you, you can't spend more than budgeted. You should be able to pay $600 a month on the cards if you're disciplined. That will have them paid off in 5 months.

    If you want it done faster, work more. Even when I was full time at Berkeley, I worked 30 hours a week (plus two choirs, with rehearsals and performances). It can be done, while maintaining a good GPA.

    Get to work. The focus is the key. Good luck.

    Sandi

    Leave a comment:


  • disneysteve
    replied
    Originally posted by martinb5 View Post
    I make around $1k a month

    My monthly expenses are

    $190 Car payment
    $180 Car insurance

    The rest of the money I have left over seems to be used up by random expenses, gas and food primarily.
    You earn $1,000/month. You have $370 in fixed expenses. That leaves $630/month. That's a lot of money in your situation. Even if you spend $100 on gas and $100 on food, that still leaves over $400/month unaccounted for. You need to figure out where it is all going. "Random expenses" is not an answer. Start a written spending log. Every time you spend money on anything, write it down. After a month, review the list and you'll be amazed at what you learn.

    Leave a comment:


  • martinb5
    replied
    Yes, I am working part time because I am enrolled in the local community college, hopefully I will be transferring to a 4 year school soon. My monthly expenses are

    $190 Car payment
    $180 Car insurance

    And my parents have been kind enough to take care of everything else since I made the decision to go back to school. The rest of the money I have left over seems to be used up by random expenses, gas and food primarily.

    Leave a comment:

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