Where to start?

[shehadeh82]

Hello,

I need some advice on how to pay off my debit. My total debit is 60K:
- 34K student loans (6% interest)
- 8.5K car loan (5% interest)
- 17.5k CC (3% intrest until the end of next year)

I have now 16K in saving (pretty much doing nothing) and I would like to use 12K to apply for my debit and leave 5K for emergencies.

My monthly income is 5K and most months I can save ~ $1500 after paying all bills.

I would like to pay off my car loan first to get it out of the way the start on credit cards. Any other advises on how to reduce my debit? my goal is to pay off the CC and car loan by the end of the year after cutting my spending.

Thanks,

[snafu]

hi shehadeh82, welcome to SA. Congratulations on saving up 16K and desiring to rid yourself of debt. I wonder if you have already actioned a specific plan to pay off $ 17,500. CC debt before year end 2015 since the interest rate will jump alarmingly from 3% ? As I see it, you need to be paying about $ 1,300. a month to beat down that debt. Could you please check the value of your car on KBB to compare with what's still owed? Is insurance adequate and competitive with other providers?

Life happens and when you least expect it, things go awry making an Emergency Fund more valuable than most people realize until it's needed. How much would be needed to pay your most basic expenses? I wonder if you are willing to share how you distribute your net income. That would allow us to offer suggestions that might help improve your cash flow. List what you spend in the various categories like rent/mortgage, utilities [heat/light/water/trash], cell ph., internet, cable, auto payments/operation/maintenance, food/restaurant/non edibles [paper good/detergent], entertainment, clothes, insurance [auto/life/home] and Student Loan. Do they tell you how much goes to principal, how much to interest each month?

[Eagle]

Hi Shehadeh82 welcome to the forums!

*Re: Savings & Steady Job
You have a good job making 5k a month. The good thing is you have a 16k emergency fund in savings. You’re monthly expenses are about 3.5k currently. If you keep 4k and use 12k to pay off some of your debt you will only have about a month’s worth of expenses saved up. What happens if you lose your job?

*Re: Additional Income
You can do one of two things: Increase your income or cut your spending. Preferably both. Is there any additional part-time jobs you can get on the weekend? Or maybe mow yards or paint houses? Check out Tips for making Extra Money while in Debt

*Re: Cutting Spending
As far as cutting spending… It would probably be helpful to post your budget so we could help you see if there are any areas you could reduce your expenses. Have you heard of www.mint.com ? A lot of people recommend it on the SA forums. We’ve used it ourselves for a few years and it’s a great way to track expenses.

*Re: Sample Budget
What were your monthly expenses for May 2014? Here's a sample list to get your started...

Rent/Mortgage: ?
Utilities: ?
Groceries: ?
Eating Out: ?
Entertainment: ?
Gas: ?
Car Insurance: ?
Cell Phone: ?
Internet: ?
Cable/Satellite: ?
Student Loans Payment: ? (What are the individual account balances and interest rates?)
Car Payment: ?
Credit Card Payment: ?
Other: ?

[Eagle]

I would like to pay off my car loan first to get it out of the way the start on credit cards. Any other advises on how to reduce my debit? my goal is to pay off the CC and car loan by the end of the year after cutting my spending.

Re: Cutting Spending - Some questions Shehadeh82:
1. Do you have cable/satellite/home phone?
2. How much do you pay on internet monthly?
3. Do you have a cell phone and data plan?
4. When was the last time you got a car insurance quote?
5. How often do you eat out?
6. How much do you spend on entertainment each month?

[dczech09]

I would start on the credit cards if I were you. They may be at the lowest interest rate for now, but that will not last. By applying $12k to it, then paying some money monthly, you should be able to wipe that out very shortly. Afterwards, you can go after the car loan.

Ultimately, you do not want to wake up with a balance on that credit card that is subject to an APR. Credit card rates can be crazy!

You could go after the car loan first, but you run the risk of running into credit card issues.

If you are serious about getting out of debt, then live on a balanced budget and avoid racking up a new balance on the credit card at all costs!

I would leave the student loans for last. It is the largest balance and will take the longest to clean up. By eliminating the other items, you free up some cash flow which can help paying down the student loans.

[shehadeh82]

Thank you all for the replies. Here is where my mony is going:

Rent: $1290
Utilities: $100
Groceries: $700
Eating Out: $50
Entertainment: $100
Gas: $200
Car Insurance: $55
Cell Phone: $60
Internet: $40
Cable/Satellite: don't have one
Student Loans Payment: $275
Car Payment: $230
Credit Card Payment: $550

For now I'm trying to cut on groc and entertainment to keep it ~ $500. My plan was to pay the car first then use the $1500 I save monthly for CC's and before the end of last year I should have it all paid off before interest rate spike to 18%. For now I'm also thinking to keep only 4K for emergencies.

any other thoughts?

[Eagle]

For now I'm trying to cut on groc and entertainment to keep it ~ $500. My plan was to pay the car first then use the $1500 I save monthly for CC's and before the end of last year I should have it all paid off before interest rate spike to 18%. For now I'm also thinking to keep only 4K for emergencies.

any other thoughts?

For entertainment & groceries for the next 12-18 months consider a Netflix account. You can stream and get 1 DVD rental for under $20 a month... (by then too you should have your car loan and CC paid off) The rest of your bills seems minimal.

I agree with Dczech09 tackle the credit cards (CC) first. If you pay off 12k of your CC debt you'd only have 5.5k left. You could pay the rest 5.5k in about 4 months or less. Then tackle your car loan. You should then be able to pay off your car loan in less than 6 months. So you should only have you student loans by April 2015.

Is there anymore work you could do on the side to increase your income by a few hundred dollars a month?

[snafu]

where does the money go?

$ 2,495. of $ 5K net, has your day-to-day living costs nearly 50 %
$ 1,055. of $ 5K net, [SL, CC, auto] nearly 21 %
$ 1,500. of $ 5K net nearly 30 %

Does your employer offer any retirement program with matching funds? It's really important to take advantage of any ' free money. Also the sums contributed early in your career will have time to appreciate significantly over the long term.

Life happens and having an Emergency Fund is incredibly valuable so I suggest setting aside a minimum of three month of basic expenses like rent, utilities, food, cell. Is your rent 'average' in your community? Can you reduce cost with a room mate or find something less costly? Would you be willing to find a supplementary part time job for the short term to rid yourself of debt faster? Is there anything you no longer need, no longer use that you could sell?

You could pay off car before year end with your regular payment $ 230. each month plus a payment of $ 1,000. directly to principal June - December. Do the terms of your car loan have any restrictions on when you can make direct payments to principal and how they are to be made?

You will really need to stay focussed and determined 2015, concentrating on CC paying $ 1,500. every month until balance zero. Having that account revert to 18% will be very expensive and will also negatively affect your credit score. For that reason, in your shoes, I'd start with the CC

What are the terms of your SL? How much of each $ 275. payment goes to principal, how much goes to interest? I don't think you'd want to have that as an albatross, affecting your choices for more than 10 years.

[autoxer]

Have you resolved the underlying issue that caused you to rack up so much in CC debt?

I'm going to go against the majority and suggest that the credit card should be tackled first and the student loan's next, leaving the car loan to be the last thing paid off. The first priority should be to make sure the CC gets paid off before the rate increase, because it will inevitably increase. The second priority should be the debt with the highest interest rate. If the goal is to get out of debt and stop paying the banks interest, then you should minimize how much you pay in interest, by paying down the higher rate first. Emotionally this may not be as rewarding as attacking the easy target, but look at it from a different perspective and it'll be easier. Start tracking how much you pay in interest every month on the student loans and you'll be emotionally ready to knock them out.

[YolandoAmaya]

AS you have more bills or debt to pay every month you can take a debt consolidation. By taking loans to pay off your other loans. It is a good thing that you saved 16k and it will be really helpful.

[shehadeh82]

Update...

I paid off the car and the 8K CC using my saving. Now I have 4K in savings and will be paying off the 12K CC next. APR is currently zero but will go up to 16% next September.

Now I have $425 extra a month to pay off my rest of the debit.

My goal is to only have only student loan debit but May next year...

[JulieAlbright]

Thanks for posting the update!

It sounds like you are making great progress. Way to go!