Debt vs Emergency Money

[Dolce7]

Well, I am going back to school and I need some advice on what to do with money. I am 23 years old with a bachelor's degree in liberal arts (yep I know), and I am working as a massage therapist currently. I am at 19,500 in debt with student loans, and the average interest on those loans (all federal) is 5%. I also had to buy a car this year, and I owe 11,000 at 3.4% interest with monthly payments of $237. At the moment I make about 3000 a month, and I save half of that. By August, I will have about 12,000 in savings. In the fall, I will be going back to school for computer science at a public school. I will still be working and able to cover all of my bills during school and save 500-750 a month if all goes according to my plans now. Tuition will cost around 15,000 for a second bachelor's degree which will take me two years to complete.

So what do I do with my money? I am a bit paranoid and I have always been a saver, so I like the idea of a decent emergency fund and 4500 would be three month's worth. That still leaves almost 8000, plus the 500 a month I can put away starting in the fall. Do I...

*pay off car at 3.4% interest, the lowest, and have no more car payments (snowball effect)
*pay off some existing student loans at 5% interest
*pay for most of second bachelor's degree out of pocket that has a lower interest rate of 3.4%
*save even more money for emergencies
*invest


Thanks everyone I appreciate it!

[Nebraska girl]

You asked if you should save even more for emergencies. How much do you have now?

I guess I would suggest selling car and getting a 3-4k to last you a while. I wouldnt worry about investing yet. If you sold the car and would have $12,000 by August and $500/month after that you could put a huge dent in student loans and paying for that second bachelors degree. Then you could save to pay cash for car and begin investing!

[Dolce7]

Thanks for the response.

I just bought the car in September and I need it for work and transportation. Where I live there's very little public transportation and I would have no way to visit family since they all live 2 to 4 hours away. I bought a car that only has 27,000 miles because I want it to last for about 10 years or more.

I probably wasn't very clear. In August I will have a total of 12,000 in savings and I want to use 4500 for emergencies. I was asking how to best manage the rest of that money

[Mr.smith]

you can borrow money with little percent, you should register as personal investor.. then you will increase your amount and you will never be in debts

[thomasdan]

this is what i would do if i was in your situation. but this is not for everyone.

by August, you said that you'll have 12,000.

i would put 1000 start in emergency fund*( step 1 dave ramsey)

then put 11,000 towards your car payment. knock it out..1 last bill to worry about. trust me. its a bittersweet. its hard dropping 11,000 at one time.. but thats one last bill you wont see..

then slowly start saving again and also be super agressive with your school loan. i would put off going back to school for 1 year..its not the end of the world to go back now. becasue you'll just put yourself in more debt..

if you read up on your credit report..the 3 major bureaus do not like it if you have 3 or more installment loans.

installment loans are car loans and school loans. your credit will go down even alittle though you make your payments on time. to many loans taken out at one time is not a good thing.*(read up on this, very important*)

we people in today society, honestly feels like its school school school. thats whats gonna help me in the future, and i do agree.. dont get me wrong.. but when your just adding more debt on top of more debt.. its gonna bite u in the a$$ in the future with all these debt. again this is my honest thought only. take care of your prior responsibilty before you add more to your plate.

imagine this sencerio..

you owe
car payment -11,000
school loan 1- 19,000
school loan 2-15,000

and lets say u are trying to get into a house.. now that’s a mortage on top of your debt.. with only making 3000.. ITS NOT GONNA WORK OUT FOR YOU. LIKE I MENTION BEFORE.. TAKE CARE OF YOUR PRIOR RESPONSIBILTY BEFORE YOU ADD MORE TO YOUR PLATE.

[Dolce7]

I like hearing all the different ideas! It's hard to choose which theories to go with though.

I have read it is a good idea to keep at least 3 month's worth of expenses before paying down debt or saving more. This would mean 4500 for an emergency fund. Good idea or too much? I have no credit card debt, and I manage almost every penny I make and spend including cash tips. I have no plans on buying a house until I make real money.

Long story short, I worked close to 70 hours a week at times to pay for college. The student debt I have is almost entirely from massage school. Now I make around 3000 a month no thanks to my useless bachelor's degree, oh and did I mention that I work 3 jobs, am taking 2 prep classes, and work about 50 to 60 hours a week to make that 3000?

So that's why I want to go back to school. I have thought about putting it off another year, and I still struggle with that. But, the school I want to go to for computer science claims that 70% of their graduates are offered jobs before graduation, and the average starting salary is 65,000/year. A friend of mine graduated last May from there and is now making 80,000 a year. So I see it as a good investment to pay an extra 15,000 or 23,000 (I would totally pay it off early though) total after 10 years of interest, to make far more than double what I make now. Want to know what else is fun about being an independent contractor for massage? I owe 2400 for taxes this year, wooohooo.

Basically, my car loan will have a total interest amount of 1000 after 5 years. I can pay it off fully very soon, but I am wondering if it would be best to pay off like half of my student loans which have a higher interest.

[~bs]

I am not a huge fan of blowing all your money on paying down debt. If you have 12k, and blow it all on student loans or car loans or whatever else (versus just making the minimum payments), then something major comes up that requires, say 2k? you're sh*t out of luck. Paying down debt is for someone that can afford it. Maybe you can afford to do a couple grand, but not the entire amount.

[~bs]

I like hearing all the different ideas! It's hard to choose which theories to go with though.

I have read it is a good idea to keep at least 3 month's worth of expenses before paying down debt or saving more. This would mean 4500 for an emergency fund. Good idea or too much? I have no credit card debt, and I manage almost every penny I make and spend including cash tips. I have no plans on buying a house until I make real money.

Long story short, I worked close to 70 hours a week at times to pay for college. The student debt I have is almost entirely from massage school. Now I make around 3000 a month no thanks to my useless bachelor's degree, oh and did I mention that I work 3 jobs, am taking 2 prep classes, and work about 50 to 60 hours a week to make that 3000?

So that's why I want to go back to school. I have thought about putting it off another year, and I still struggle with that. But, the school I want to go to for computer science claims that 70% of their graduates are offered jobs before graduation, and the average starting salary is 65,000/year. A friend of mine graduated last May from there and is now making 80,000 a year. So I see it as a good investment to pay an extra 15,000 or 23,000 (I would totally pay it off early though) total after 10 years of interest, to make far more than double what I make now. Want to know what else is fun about being an independent contractor for massage? I owe 2400 for taxes this year, wooohooo.

Basically, my car loan will have a total interest amount of 1000 after 5 years. I can pay it off fully very soon, but I am wondering if it would be best to pay off like half of my student loans which have a higher interest.

Do not put too much stock in the "70% offered jobs before graduation" unless you actually get the facts on what the 70% of jobs mean. Most colleges will pad the job figures with student help, internships, or jobs not even related to the degree.

I think it's a bad idea for students to take on car loans. You're already saddled with debt, why take on more unnecessarily? just buy a cheap used car that runs decently well. That being said, you already spent the money, so might as well live with it.

There's nothing wrong with working as an IC, you just have to realize that you're responsible for all taxes on your own, and make sure you're paid accordingly. Paying someone as an IC is a lot easier for the business that way. Rule of thumb is, if you're paying tax, you made money.

[Dolce7]

In response to not "blowing all my $ on debt" that's exactly what I'm afraid of doing and why I am hesitant on paying off my car asap. And in response to being an IC.... that was just a bitter joke. I had a separate savings account and I oversaved $925 for taxes this year.

Why did I buy a newer car with low mileage (26k miles, 33-40 mpg, 12k price tag, downpayment of 2500)? Because my pos ford Taurus had 130,000 miles on it and for a year and a half I was putting about 800-1000 to fix repairs every other month or so. I had spent 3000 between maintenance and mostly repairs and it still made a scary crunching noise every time I would brake as if the wheels were going to fall off, the I think water heater (not sure if I got that right) needed to be replaced, and my power steering was leaking and about to brake any day. I wanted a car that wouldn't cost me a lot of repairs and would last me 10 years or more. Yes it hurt taking on more debt, bit I felt it was worth it. At the time when I bought the car, I was seriously considering getting a masters in occupational therapy. After doing much work in the field like working with a quadriplegic and doing shadowing, I decided against that. The plan was to take 2 or 3 years off in between undergrad and grad school and save money. GrAd school would have cost me anywhere from 25,000 to 80,000 depending on which competitive school I got into. So 15k for comp sci which is in high demand helps me sleep better at night.

But you guys really have me thinking. I could hold off going back to school for another year, but from what I hear comp sci is booming and I do enjoy it. Tuition also goes up every year that I wait, and being a workaholic basically, I would only be making about 650 less a month than I make now while going to school. So it makes sense to go now, but I also wouldn't mind saving more money and waiting a year.

Thanks everyone

[~bs]

^

Part time school, maybe? You said 2 years of classes right? So what is that 16-20 classes total? Could enroll half time during the regular year, take 2 summer school classes, and you'd finish school in 3 years instead of 2.

The problem with a "booming industry" mentality is that different job markets go up and down, much like the economy in general. In response to a perceived boom, students rush into the field, causing a overage of people entering the workforce a few years from now when they all graduate, the market is flooded with applicants, causing many unemployed ____ majors. Rinse repeat. Not saying not to do it, but just to keep things in perspective.

[Goldy]

You said the average student loan is 5%, are there some with higher interest rates you could target with the extra cash you have? Also, I don't know anything about this but could you put your current student loans into deferment if you go back to school? I would only do that if the interest doesn't accrue.

If you can keep working and go to school full time I don't have a issue with you doing it. You seem to have a good work ethic and have been diciplined enough to save a nice chunk of money so the odds seem to be in your favor.

[Dolce7]

I actually am curious about how I can pay certain student loans. I pay a little every month even though nothing is due, but I haven't figured out how to pay a certain loan it just goes towards all of them. Maybe I should call them.

After getting my second car statement, I'm leaning more towards paying off my car first even though it has a low interest rate. I just look at what I'm paying in interest and it bothers me! The student loans won't be due for about three years, and right now I'm paying a little over $200/month for my car. So I figure even though it has a lower balance and lower interest, I can pay that off by around December and then put the money I was paying for my car towards previous student loans.

I know everyone says the economy is terrible, but I am sort of blind-sighted because I have never been more well off. Massage is booming and as long as you're not flaky, you can get as much work as you want basically from what I'm experiencing. I want to quit my other part time job during school, but keep doing massage. Internships for computer science (which are not hard to come by) generally pay $20/hour, and more after school, so it's hard to be super worried.

I've heard a minimum of 3 months is necessary for an emergency fund. Do others agree? Should I keep $4500 in savings for that?

[bigdaddybus]

I agree that you should keep 3 months saved away as an emergency fund minimum. If you were older, married, with dependents like me I would push that out to 6-9 months.

You are right, computer science is booming. Where I am employeed we have been hiring 150 systems analysts a month for the past 18 months with another 1500+ located offshore in India. Keep in mind that you are getting into a field that where there is an abundance of Indian resources with masters degrees willing to work for .50 on the dollar to US workers. Its a cut throat world out there. I wish you the best, sounds like you have a pretty good financial sense so make sure you listen to what your gut tells you

[fosho]

If you go back to school can you defer your loans? I know it would push back the actual date you paid them off but if I'm not mistaken federal loans would not gain interest while your in deferment.