My plan to get out of debt! Suggestions are welcome!

[Brayman]

I just turned 21 and I have a boat load of debt:

Student loan: $10,000
Car: $15,500
CC: $700
Mattress: $900

My annual income after taxes last year was $40,000

My monthly bills and various expenses are as follows:

Rent: $550
Cable/internet: $120
Car Insurance: $120
Electricity: $100
Water: $60
CC: $30
Mattress: $90
Car payment: $320
Phone: $80
Charitable donations: $40
Student loan: $115
Groceries: approx $400
Gas: $60

My monthly income is not set. I have the ability to work overtime, and typically work 6-10 hours of overtime each week. Closer to 6 though. Last year my company was booming and I put in a lot of overtime. Income from overtime was $11,000.

My plan was to cut off the cable, but keep the internet, and get a phone plan with my boyfriend to save money. Also, I've ended all of my monthly charitable donations.

Savings:

Cable: $70
Charity: $40
Phone: $5 (assuming I pay the entire bill, but we've discussed taking turns paying it.)

I was going to put these savings toward the mattress first because the monthly payment is larger than my CC payment. Then, once that is paid off, tackle the CC.

Then, the car payment. The main reason I am focusing on the car payment before my student loan payment is because this is the first time I have ever financed a car, and that makes me nervous. Also, I can put my student loan into forbearance and make payments toward the interest on my own time.

While doing this, I have also set up a savings account for my emergency fund. $200 will deposit into it every month. That's $100 out of every check, and with all unnecessary spending cut off, that shouldn't be a problem.

It is worth noting that my boyfriend lives with me, and does contribute to some of the bills. He doesn't make as much money as I do, but some weeks he works in the field, and ends up with a sizable check, and will pay some of the bills.

For instance, this month he will contribute $200 towards the rent, he paid the light bill, and will pay the water bill. Occasionally, we split the cost of groceries.

So, this is my plan. Any money saved from my boyfriend paying bills will also be put toward debt payments.

Does anyone have any advice? I've made some poor decisions financially (like financing a car for my 21st birthday, when I already had a car I owned free and clear with no payments and cheaper insurance) but I'm trying to get a handle on my finances before it gets completely out of control.

My goal is to pay off my car, CC, mattress, and at least half of my student loan, and then hopefully get a house(more debt!). That's a few years down the road though. I would feel better about making a mortgage payment than making a rent payment.

Oh, and it's also worth noting for anyone trying to figure out WHY I have so much debt when my living expenses aren't THAT high compared to my income from last year... last year my bi-weekly checks were closer to $1,500, but recently they've only been about $1,100. And last year I moved into my first apartment and had absolutely nothing. Nada. I had to buy furniture, dishes, a vacuum cleaner...everything. Then my spending just went awry.. and since I was already used to being broke constantly, it didn't really bother me that I was still broke after my income increase 5x. I guess it is true that the more you make, the more you spend. Trying to fix that though!

[danthecashbackman]

You are on your way

To me, it looks that you are on your way to being debt free just because you are preoccupied by the matter and you consider options. The right attitude will take you far in life (with finances or anything else) - just keep applying the correct principles, stay out of trouble (risky investments), etc. Good luck!

[Retired To Win]

Looks like your largest monthly debt payment is the car loan payment. Think about going back to a paid-up car. Sell this one. Eliminate your payment. Take (hopefully) the left-over cash from the sale and buy outright a less expensive car. That in turn will free up a lot of money for you to throw at your other debts.

(Here is a post I wrote on the subject of cars and car payments. It may give you some ideas.

My Frugal 1996 Dakota:

http://retired-to-win.savingadvice.com/2014/03/26/my-frugal-1996-dakota-keeps-on-trucking_107944/

Good luck.

[Brayman]

Looks like your largest monthly debt payment is the car loan payment. Think about going back to a paid-up car. Sell this one. Eliminate your payment. Take (hopefully) the left-over cash from the sale and buy outright a less expensive car. That in turn will free up a lot of money for you to throw at your other debts.

(Here is a post I wrote on the subject of cars and car payments. It may give you some ideas.

My Frugal 1996 Dakota:

Good luck.

Getting rid of the car is not an option. I might break even if I sold it, but that's not worth it to me. I love my car. I spent months searching for this car. It was very hard to find a car that fit all of my requirements, and was in my budget. So, for all the mental anguish I had to suffer to get it, it's not going anywhere.

And sorry I had to remove your link. Apparently, I haven't posted enough to put links in my posts.

[disneysteve]

I have a boat load of debt

It was very hard to find a car that fit all of my requirements, and was in my budget.

Bingo! There's your problem. This car WAS NOT in your budget. Otherwise, you wouldn't have a "boat load of debt". When you accept that fact, you'll be all set.

I earn 3 times as much as you and didn't borrow that much for my car.

I suggest changing your mindset. That's the only way to clean this up.

[Petunia 100]

I don't see a line item for retirement savings/investing. You need to remedy that.

[Brayman]

I don't see a line item for retirement savings/investing. You need to remedy that.

I hadn't thought about retirement... I'm 21... I have a VERY long time to go before I retire.

Wouldn't it be better to pay off my debt first, then save for retirement?

[riverwed070707]

Agree with the others you need to change your mindset. IDK what your boyfriend makes but if its even half what you do, you're living on more than what I support my entire family on, and I'd bet you drive a nicer car too. Going to need to set your priorites and be willing to make some changes in your expecations. This group offers a lot of great advice and has helped people tackle mountains of debt. If you follow their suggestions, you will be happy with the results.

I like to start with a snowball calc like the one one www.whatsthecost.com to see how much faster I can pay my debt off by playing with how much extra I have to put toward debt each month. It motivates me to see how a little extra can make a big impact.

[riverwed070707]

I hadn't thought about retirement... I'm 21... I have a VERY long time to go before I retire.

Wouldn't it be better to pay off my debt first, then save for retirement?

The sooner you start planning, the easier it will be. Your very first step before you do anythign else should be to see what retirement plans your employer offers (you could be missing out on free money!) and start contributing 10% ASAP.

[snafu]

I'm disappointed that boyfriend isn't paying his fair share on top of your other debts. If his income is variable there needs to be a tracking system in place for him to play catch up with the bigger pays. If his annual income is considerably less, then work out contribution based on percentages. For example if his annual income is 10% lower than yours, he pays 40% rent, utilities, food etc. while you pay 60% of these joint costs. What interest rate are you charged for your various debts [SL, CC, car & mattress loans]? You still pay your personal debt SL, CC, car, gas, auto insurance, mattress and cell. BF pays his auto expenses, SL, cell, CC etc.

riverwed nailed it, the best money you can contribute to retirement is money your employer offers [free] as match and your early contributions which double, triple, and quadruple just based on time. Keep it simple, no cost, low fee Index Fund. You even get a tax deduction for the contribution to kick start the following year.

If you got/are getting an income tax rebate, I suggest you keep 10% for having fun and apply the rest to the debt you are focussed on.

[Brayman]

Snafu,

I don't like to include his money when making a budget, because there's no guarantee that he will help. I love my boyfriend. Probably more that I've ever loved anyone. It took almost a year of living together for him to pay a single bill. I used to support him 100%. I've finally gotten him to the point where he'll help out. He's not happy about it, but he does contribute. Any time I try to discuss our finances, bills, anything about money or our future together, anything at all, he gets very defensive and it turns into an argument. I've just decided it's not worth it. Now, I offer up a few bills for him to pay each month, and he either will or he won't. I don't rely on his help though.

I'm not sure on all of my interest rates, I'll need to look it up. My car is 6.99%

I'll post the rest later.

[Brayman]

Oh, and i didn't get an income tax refund this year. I had too many exemptions on my w-4(?) but I have fixed that. Now I am claiming single and none, with an additional $10 withheld each paycheck. So, hopefully I won't owe anything next year.

[hamchan]

Snafu,

I don't like to include his money when making a budget, because there's no guarantee that he will help. I love my boyfriend. Probably more that I've ever loved anyone. It took almost a year of living together for him to pay a single bill. I used to support him 100%. I've finally gotten him to the point where he'll help out. He's not happy about it, but he does contribute. Any time I try to discuss our finances, bills, anything about money or our future together, anything at all, he gets very defensive and it turns into an argument. I've just decided it's not worth it. Now, I offer up a few bills for him to pay each month, and he either will or he won't. I don't rely on his help though.

I'm not sure on all of my interest rates, I'll need to look it up. My car is 6.99%

I'll post the rest later.

You're really young. I have been there. I financially supported my ex husband for years, starting from when I was about 20. It did not take long for me to start to really resent the fact that he didn't contribute. This is something I very rarely would recommend, but I would not continue this relationship if I were you. It's not just that he isn't paying his fair share, it's the fact that he actually argues with you when you even bring it up. This is not a healthy relationship. I'm not saying that to be mean or judgemental. I am saying that out of love and concern for you, because I used to be you. My ex husband utterly crippled me financially, and the effects of that went on for many years after we divorced. It really sucks to be in love with someone who is not good for you, but this guy is not good for you. You can do so much better.

[doingitallwrong]

I'm a little concerned that your boyfriend seems to object to paying (less than) his fair share. I understand that if he's not making much, he's not able to contribute much -- been there, done that with my then-boyfriend, now-husband, but mine was always willing to contribute what he could to the household budget. The fact that your boyfriend gets angry and defensive when you try to talk to him not only about money, but about your future together, does not bode well for your actual future together. It gives the appearance, from the outside looking in, that he just sees you as a way to avoid having to pay rent, groceries, bills, etc. I know that's not what you want to hear, and of course we're only getting a brief picture from what you've said, so maybe it's not the reality, but I think sooner rather than later you're going to need to sit down with him and calmly and rationally figure out a plan where he is regularly contributing to the budget. Make an appointment with him to do it, rather than just bringing it up at random, so that he can be prepared and not feel blindsided. Tell him you don't want to argue, you're not making demands, you just want to talk about it because it's not fair for you to pay for everything. If he were on his own he'd be paying a heck of a lot more than whatever you might ask him to pay, after all. I agree with snafu, base it on percentages if you can, but even getting a commitment from him for maybe $50-100 a month, or say 25% of his take-home pay, with him paying extra whenever he can, is going to put you on better ground for your financial future. Any extra he contributes can go toward whatever debt is your current focus.

Moving on.

I agree, the first thing you need to do is start participating in your 401(k) plan, contributing up to the company match (if any). You will have far more money at retirement age if you start saving a little bit now rather than trying to "catch up" later. I don't think I can post links yet, but Investopedia has an article about "delayed retirement savings" which points out that if you start saving $100 per month at age 21, assuming a 6% return, you'd have $253,000 by age 65; if you start saving that same amount at age 31, with the same return, you'd have only $132,000 at age 65. You'd need to almost double your contributions starting at age 31 to make up the difference by age 65.

Putting money into an emergency fund is a great plan, but I wouldn't go full-out with it at this point. You won't make nearly as much interest in a savings account as you're paying on your debt. Get your EF up to $1000 or so, and then take that $200 a month and use it toward your debt repayment. The calculator riverwed posted is a good one (choose the "Snowballing" option on the left side). Depending on your interest rates, it looks like you could be rid of all of your debt in about 3 years (and that's without putting the student loans into forbearance).

Don't buy a house until your other debts are paid off. Once you're debt-free, take the money you were paying and build up your emergency fund to a comfortable level (at least 6-8 months of expenses), then start saving for a downpayment on a house. You want to have at least 20% down to avoid escrow and mortgage insurance.

Kudos to you for getting all of this figured out now! You're on a good path to become and remain debt-free.

[riverwed070707]

Snafu,

I don't like to include his money when making a budget, because there's no guarantee that he will help. I love my boyfriend. Probably more that I've ever loved anyone. It took almost a year of living together for him to pay a single bill. I used to support him 100%. I've finally gotten him to the point where he'll help out. He's not happy about it, but he does contribute. Any time I try to discuss our finances, bills, anything about money or our future together, anything at all, he gets very defensive and it turns into an argument. I've just decided it's not worth it. Now, I offer up a few bills for him to pay each month, and he either will or he won't. I don't rely on his help though.

I'm not sure on all of my interest rates, I'll need to look it up. My car is 6.99%

I'll post the rest later.

This is very alarming. I would not live with someone who wasn't willing to contribute to the expenses. He sounds like a child, not a boyfriend. I especially would not be combining finances with him. Think of is this way - by supporting him, you're hurting your financial future. You're taking longer to pay your debt, paying more in interest and reducing the amount you could be investing and saving by keeping someone around that has no respect for you and clearly has some growing up to do yet. Don't blame you for not wanting to break up with someone based one what a group of people on a message board says because relationships are more complicated than money, but it WILL become a tension point for you and its better to tackle it now rather than later when youre married or own a house together. Sounds like you need to have a very real conversation with him about what your goals are and how you can get on the same page and contribute equally to your finances. Do you really want to live (or worse marry) someone who is unwilling to support themselves?