Lost Job Last Year - Working to Get Back On Track

[LegHead1]

Hello -

I was laid off in November of 2008. I was living in CA, making about 80k/annualy in software sales.

After struggling for months to find a job, I took an internship in Washington, D.C. The internship paid 1k/month, so about 760 after taxes. Eventually, I was hired on to staff at 30k/annually, then after 5 months received a raise of 40k annually. During this time of little to no income, I obviously acquired a significant amount of debt, and am looking to get back to where I was a year ago.

Current Expenses:

Rent: $400
Utilities: $81
Loan: $297 (7500 remains, out of 9k)
Car Loan: $240 (9400 remains, out of 14k)
Gym: $90

*Car is in garage, I use metro system to save money, so no insurance/gas/maintenance. Cell phone and metro passes are paid for by my job. I have health insurance but no dental and no vision.

My take home after taxes is $2,221. I put $300/month into my 401k, and it is matched. I put $300/month automatically into a high yield, but just started this last month.

Now, to tackle the debt. I had 13k in cc debt. I used all but 1k of my emergency fund to pay off the highest interest. So that brought it down to 9k. I then consolidated this onto a personal loan (see loan $297) to be paid off in 3 years.

I recently ran into more trouble with my landlords failure to return my security deposit on my apartment that was riddled with bedbugs (fun times). So I am again in the whole for some change, with 1300 on a cc.

I currently have 1k in emergency savings.....

I found out I will be receivng a 4k bonus at the end of the year.

My goals:

1. Be debt free by the end of 2010, with the exception of the car loan.
2. Have 3k in emergency savings.
3. Begun saving for a down payment on a house.

Any advice as to how to get out of this would be greatly appreciated. So ideas I have considered....

1. Cashing out my 401k (8k now)
2. Getting a second job (I work 50plus hours a week right now).

I just turned 26, have a college degree, and did not expect life to be this difficult in terms of finances. Please advise.

Thank you!

[skydivingchic]

Don't touch the 401k. Unless you are in danger of losing your home or life and there is absolutely no where else to turn, forget that money even exists until you retire. I would also advise you to continue contributing at least to the employer match - that is free money.

You don't have a full budget. After the expenses you have listed, you still have $1113 left over each month ($813 left if you subtract the $300 to savings). Where does that money go? You haven't listed groceries, renter's insurance, medical costs, entertainment, etc. If you don't know how much you spend, you need to spend a month or two writing down every single penny you spend. Then you can start to see areas that could be trimmed. Anything left over should be going to debt. When you get the bonus, apply all of it to debt. If you post a full budget, the people on this forum are great at picking through budgets to find areas of savings.

Why do you have a car that you don't use? While you may not be spending on gas, insurance, and maintenance while it sits, you are paying $240/month toward a depreciating item which you have demonstrated you can live without. Sell it, pay off the loan and then concentrate on the personal loan.

[wincrasher]

Sounds like you are actually on a good track. Good advice on developing a more detailed budget. Also agree with selling the car.

I don't understand why, if you are making $70k a year now, that you only are taking home $2200 a month after taxes. Sounds like your withholding is way high and you are overpaying. Look into that and adjust your w-4 accordingly.

[LegHead1]

Don't touch the 401k. Unless you are in danger of losing your home or life and there is absolutely no where else to turn, forget that money even exists until you retire. I would also advise you to continue contributing at least to the employer match - that is free money.

You don't have a full budget. After the expenses you have listed, you still have $1113 left over each month ($813 left if you subtract the $300 to savings). Where does that money go? You haven't listed groceries, renter's insurance, medical costs, entertainment, etc. If you don't know how much you spend, you need to spend a month or two writing down every single penny you spend. Then you can start to see areas that could be trimmed. Anything left over should be going to debt. When you get the bonus, apply all of it to debt. If you post a full budget, the people on this forum are great at picking through budgets to find areas of savings.

Why do you have a car that you don't use? While you may not be spending on gas, insurance, and maintenance while it sits, you are paying $240/month toward a depreciating item which you have demonstrated you can live without. Sell it, pay off the loan and then concentrate on the personal loan.

Oh yeah, I have that planned out as well, here goes....

Food - $350/month... I spend about 60/week at the store, the rest is going out to eat.

Necessities (shampoo, soap, etc.)- $40/month

Clothes - $100 or so, depends I what I need. I wear a suit and tie everyday, so there is also dry cleaning/alterations, etc.

Sooo I have roughly $300 leftover, give or take, which I most likely spend on nights out, etc....so already I see an area here that can be reduced, although I am 26, single, no home, so I dont want to eliminate this area completely, maybe just tone it down.

Thank you!!!

[LegHead1]

Sounds like you are actually on a good track. Good advice on developing a more detailed budget. Also agree with selling the car.

I don't understand why, if you are making $70k a year now, that you only are taking home $2200 a month after taxes. Sounds like your withholding is way high and you are overpaying. Look into that and adjust your w-4 accordingly.

My mistake, I actually make 40k now, it was a raise to 40k, not a raise of 40k. My annual income before taxes is 40k, and this began in June.

$3,333/month. I claim 0 on my W-4.

I dont want to sell the car because I eventually will need it, I like it, worked hard to get it, and the loan is only 4.0% interest.

Thanks!!!

[wincrasher]

Well you should still adjust your W-4. Don't give the gov't a free loan by engineering a big refund each year. Plan it out so you get nearly zero back. At 40k, you should be paying very little.

[skydivingchic]

I agree with wincrasher - you should be able to adjust your withholding to get back more with each paycheck.

What are the interest rates on the loans and CCs? Not counting any interest, to meet your goals you will need $10,800 ($1300 CC, $2000 emergency fund, $7500 loan), which calculates out to $830 each month from December 09 until December 10. I ran a quick calculation using an average interest rate of 12% on the $8800 of debt you want paid off. That came out to a total debt payment of $725/month for 13 month. Plus you want to add $2000 to your EF, so add $153/month for a total payment of $878/month needed to meet your goals. Right now you are only paying ~$600/month towards those goals ($297 to loan plus $300 to EF). So you need to come up with ~$278/month additional to reach all your goals. Interestingly enough, this is not much more than your car payment, so getting rid of that would pretty much take care of your other goals.

There are two basic schools of thought on which order to pay off your debts. The way to save the most money is to pay the highest interest rate first. Pay only the minimums on all debt and send every extra penny to the highest interest rate debt. This makes the most mathematical sense. The other option is to pay the lowest balance first in order to give you quick wins and keep you motivated on the way. In your case, your lowest balance is the CC which may also be your highest interest rate. Either way, decide which method to use and follow it. After you pay off the first debt, continue using the money you were sending to it to pay off the next debt in line.

[creditcardfree]

The IRS website has a withholding calculator so you can determine the amount of withholding for your situation. If you adjust it now, make sure to reevaluate it again with your first paycheck of 2010.

Withholdings do not need to match the number of people in your household. We are a family of 4 and are able to claim 9 for withholding purposes. This is different than what you claim on your income tax return.

[Scanner]

My favorite expense to pick on here is the cellphone.

I use a Tracphone and I probably spent about $10/month on cellphone usage in the last 3 years. So, if the average person spends $50/month, I have saved about $1500. This is the first year I actually had to add minutes before my year was up. Even then, it's still cheaper, although sometime it doesn't seem that way because you often have to lay a lot out at once. Just don't talk a lot. . .use it for basic communication.

For about $100, you get about 60 minutes/month. Every text is .30 minutes. I dropped $200 in one year. . .so that's $16.00/month. Most people pay $49 to 89/month.

Cable TV is another. . .go with an unlisted basic package or none at all. I am amazed since I moved out of the house from my kids how little TV I do watch. I could actually go without it but keep it around b/c of my parents.

Another trick to do is have a landline with local carrier only and then buy a calling card for long distance.

You could also forego internet service and just check email at work or a local library.

Communications (TV, phone, internet) are a huge expense driver in the American household.

[LivingAlmostLarge]

You could sell the car and get another one when you really need it. How long do you forsee staying in your current position?