How and how much should I save when I have this much student loan debt?

[TheKayla]

I really want to begin saving more (I hardly have an emergency fund to my name, and I know that's wrong!), but I have debt that is over double my annual salary. Below are a list of my debts, the vast majority of which are student loans. My salary is $40k before taxes. What are your guys' opinions on how or how much I should save each month vs. debt repayment? I've done a lot of research on the topic, but I've found my situation to be pretty rare.

Car Loan (yes I regret it) - $18,551 @ 2.9% (minimum $442)
SL1 - $18,291 @ 7.65%
SL2 - $12,289 @ 8.25%
SL3 - $8,905 @ 8.25%
SL4 - $20,771 @ 4.25% - $6.55%
SL5 - $8,246 @ 5.35% - 6.55%
SL6 - $11,225 @ 2.77% (variable)
(total student loan minimum: around $650)

I try to live as frugally as possible, which will be going down even more as I've found a place to live that is half my current rent (around $300 a month). I'd say I net about $1,600 after my minimum loan payments, so far of which I've been throwing, rather sporadically, at additional loan payments. I do some freelance work on the side too, but it's not necessarily a regular source of income -- I may get $1-$2000 once every few months.

How should I go about starting some cash savings? I already have a retirement account open contributing only 3% right now (I'm 24) too.

[ctigers0714]

I disagree with the previous poster. I think you should put your extra money towards the highest interest rate loans, especially considering how long it will take you to pay off all this debt. It's not impossible, but it will take a few years and the interest that will accumulate on the higher rate loans over this time will be significant if you don't handle them first.

[TheKayla]

I already have a plan to pay off the debt, including what to pay first, how often to pay, etc. I've done all the math and can see which will save me the most money between the different balance amounts, interest rates, and minimums in consideration. The thing I'm concerned about most is how much I should be saving at this point, and if anyone has any advice as to methods for me to save more money, all while paying down this debt. What do you guys think the minimum I should be saving each month is? Each paycheck? Do you think I should gradually be building up a cash reserve (since I'll be in debt for so long anyway), or set a EF limit and then send everything towards my debt once I reach that?

[MonkeyMama]

I'd just save the cash first and then hit the debt hard. I sense you are doing well and hustling and that is all good. But, how do you save faster? Find more work. It's going to be a rougher road up front, but will pay off as you start to snowball the debts down (& hopefully you get raises, etc.). Anything you can do to bulk up income now, is what you need to do. Just keep in mind it isn't forever and you won't have to work as much as your salary increases and you knock out some of the debts.

Three schools of thought for cash savings:

1 - Should have a minimum of 3 month's income saved (I don't even know if you really need to include the student loan payments in this calculation as they can probably be deferred in a hardship situation?)

2 - Dave Ramsey recommends a $1,000 baby emergency fund. Given the assumption you are single and childless and a renter, and you probably have a relatively new car, this might be most sensible for your situation.

3 - I personally believe in a $5k baby emergency fund.

I don't believe "saving" should be a goal of yours at all, except for setting up something up front and then moving on. I think you should probably revisit one the debt is more under control though. Just, not right now.

[TheKayla]

I'd just save the cash first and then hit the debt hard. I sense you are doing well and hustling and that is all good. But, how do you save faster? Find more work. It's going to be a rougher road up front, but will pay off as you start to snowball the debts down (& hopefully you get raises, etc.). Anything you can do to bulk up income now, is what you need to do. Just keep in mind it isn't forever and you won't have to work as much as your salary increases and you knock out some of the debts.

Three schools of thought for cash savings:

1 - Should have a minimum of 3 month's income saved (I don't even know if you really need to include the student loan payments in this calculation as they can probably be deferred in a hardship situation?)

2 - Dave Ramsey recommends a $1,000 baby emergency fund. Given the assumption you are single and childless and a renter, and you probably have a relatively new car, this might be most sensible for your situation.

3 - I personally believe in a $5k baby emergency fund.

I don't believe "saving" should be a goal of yours at all, except for setting up something up front and then moving on. I think you should probably revisit one the debt is more under control though. Just, not right now.

Thanks for the advice! I think I'll start with a $2000 baby fund as my average frugal living expenses are about $500 a month, so that will give me 3 months plus some wiggle room. I'll then save say $100 or so per paycheck each month to build to it, but primarily focus on my debts.

Right now I'm putting $1050 each month towards my car loan because it has the biggest minimum and I feel like it's holding me back with my other debt payments, despite it being a lower interest rate. With that and a few extra freelance payments/bonuses/etc thrown at it, I should be able to pay that off in a little over a year. I can then start throwing that $442 at my debts, on top of my minimums and what I'm already paying over in discretionary income.

[MonkeyMama]

Thanks for the advice! I think I'll start with a $2000 baby fund as my average frugal living expenses are about $500 a month, so that will give me 3 months plus some wiggle room. I'll then save say $100 or so per paycheck each month to build to it, but primarily focus on my debts.

I think that sounds pretty sensible. Good Luck!

[YLTL_Dan]

Just because you made a bad decision on the new car doesn't mean you must continue to live with it! I was in a very similar position as you back in 2005. I sold my beautiful ride and downgraded to something much cheaper. This was very encouraging as it was like takiing a machete to my debt total. You have to get drastic if you want to get rid of this stuff, and I think downsizing the car might help

[TheKayla]

Just because you made a bad decision on the new car doesn't mean you must continue to live with it! I was in a very similar position as you back in 2005. I sold my beautiful ride and downgraded to something much cheaper. This was very encouraging as it was like takiing a machete to my debt total. You have to get drastic if you want to get rid of this stuff, and I think downsizing the car might help

Unfortunately I'm not in a position to do that right now, I bought a used Prius intentionally because I drive 70 miles a day. It's not a matter of me wanting to get a cheaper car, as I've already calculated that I've saived $5k in gas per year vs a traditional car, but rather I needed a car like this and just wish I would have save up a bit first. I already have it now that and should have it paid off in about a year, so that's what I'm doing. I've already stopped taking on any more debt though, including credit card debt and I'm waiting longer to buy a house than I had originally planned.

[bjl584]

Unfortunately I'm not in a position to do that right now, I bought a used Prius intentionally because I drive 70 miles a day. It's not a matter of me wanting to get a cheaper car, as I've already calculated that I've saived $5k in gas per year vs a traditional car, but rather I needed a car like this and just wish I would have save up a bit first. I already have it now that and should have it paid off in about a year, so that's what I'm doing. I've already stopped taking on any more debt though, including credit card debt and I'm waiting longer to buy a house than I had originally planned.

What kind of a car did you have before? $5000 will buy over 1200 gallons of gas if gas were selling for $4 a gallon.

If you drive your Prius 25,000 miles a year and it gets around 50 mpg, then you are looking at burning about 500 gallons of fuel a year.

If you drive some other car the same way, then it would have to get something like 15 or 16mpg for you to save that much in fuel costs.

[TheKayla]

What kind of a car did you have before? $5000 will buy over 1200 gallons of gas if gas were selling for $4 a gallon.

If you drive your Prius 25,000 miles a year and it gets around 50 mpg, then you are looking at burning about 500 gallons of fuel a year.

If you drive some other car the same way, then it would have to get something like 15 or 16mpg for you to save that much in fuel costs.

It was a very old car, I'm not sure of gas milage anymore. It was my high school car. Anyway, that savings included all my travel and distance beyond the minimum of 70 miles a day commute to work. Anyway, I'm not going to sell my car at this point as I get a lot more use out of it living in a big city, it just can't possibly fit my lifestyle to downgrade my car anymore, especially since I'm a year out from having it paid off entirely and it's a quality one that will last me far longer than any downgraded car.

[workinabroad]

It's definitely not worth it to pay off the smallest balance first in your case. Put $150 away each month as savings and then send off your minimum payments. After that put extra on your highest interest debt. The interest will only keep building and you'll lose more money and time by ignoring it. I know you're thinking, "But I can be putting that $400 on other debts and put them down faster." The problem is how much you'll waste on interest only.

You should do a calculation of how much interest will be spent on each account if you only pay the minimum each month. I tried the smaller debt first method but after the calculation, I could have cried at the money wasted. It thrashed all the excitement of seeing a $0 balance. We can't get back time. And that's the only way to build wealth and cut debt.

By the way, learnvest has a great tool for calculating those for you. Don't be afraid to look.

[TheKayla]

It's definitely not worth it to pay off the smallest balance first in your case. Put $150 away each month as savings and then send off your minimum payments. After that put extra on your highest interest debt. The interest will only keep building and you'll lose more money and time by ignoring it. I know you're thinking, "But I can be putting that $400 on other debts and put them down faster." The problem is how much you'll waste on interest only.

You should do a calculation of how much interest will be spent on each account if you only pay the minimum each month. I tried the smaller debt first method but after the calculation, I could have cried at the money wasted. It thrashed all the excitement of seeing a $0 balance. We can't get back time. And that's the only way to build wealth and cut debt.

By the way, learnvest has a great tool for calculating those for you. Don't be afraid to look.

I actually have already done all the math, and by paying off my car quickly and then re-applying that payment to future debt and following the highest interest rate method then, I do save more more money in the long run, vs only being able to put about $500 or so extra per month towards the highest interest rate for the next 4 years, and $442 for the next 4 years towards my car. Essentially I'm being forced to pay down the principle on my car the fastest, even though I'd like to do it on the highest interest rates. This usually doesn't work in most situations mathematically, but because my car loan minimum is so high, that's why there's an exception. (I do math for a living by the way, I've calculated this down to the T )

[Financeman]

Cut The Savings

Maybe cut out long term saving as your still long and have plenty of time. The debt and the interests rates are more of a concern now