Achieving Goals With Significant Debt

**EconDiva** · 07-26-2012, 06:25 PM

Welcome to the board

I just wanted to commend for you doing so well so far...$65k @ 25 years old is very good income, and you have done well to establish a savings of $11k along with an emergency fund and contributing to get a match with your 401k. Wish I had done all of that when I was 25! On top of all of that, you have no credit card debt and no car payment, which I commend you for. It takes discipline for a young person making a good income to do these things and make the decision to stay at home for a while to save money...sounds like you have a great financial mindset

I don't have any advice because I'm a newbie here myself...but I'd like to take a stab at GUESSING what the other more seasoned members on the board here might suggest (if for no other reason, this gives me an opportunity to see how well I'm coming along in my financial decision making

)

I'm going to guess others MAY chime in and suggest that you not contribute much to the emergency fund right now. The ROTH is probably a good idea to max out if you can now, since you are so young. However, I'm willing to be most people will say you need to throw all of your extra money towards the student loan debt. That's just my guess though....

**laurend1985** · 07-27-2012, 07:31 AM

I follow the Dave Ramsey plan and it goes as follows:

Baby step one: $1000 baby emergency fund to get you started in case something happens so you won't use a credit card

Baby step two: List your debt smallest to the largest and pay the smallest first and minimums on the others. After paying off the smallest debt apply what you were paying to the next smallest debt so forth and so on.

Baby step three: Go back to baby step one and save three to 6 months of your monthly expenses.
Baby step three b: Save for a home

Baby step 4, 5, and 6 are done together. Fund your retirement, save money for your children's college fund, and pay off the house early.

I don't following him on everything but doing the program has helped me a whole lot.

**snshijuptr** · 07-27-2012, 08:35 AM

I am a fan of maximizing your returns. My recommendation is to get your 401k match then pay off your student debt. For now add to your savings (leaving your current e-fund separate) then use it when the student loans start.

Of course this all depends on what the Bank of Mom & Dad agree to. You're living off their charity right now so they get a say in your savings/spending. Get a timeline from them as to your move out and then work to save for that.

**bjl584** · 07-27-2012, 10:37 AM

Definitely take advantage of your company's 401K at least up to the company match.

Your student loan debt doesn't seem that crazy given your salary. You can accelerate it if you like, depending on the interest rate and your feelings about carrying debt.

For the house, it should be your goal to save up a 20% down payment and a 3 to 6 month emergency fund. Also, don't buy a house that is more than 3 times your annual income and you should be fine.

That's a good place to start. Good luck!

**snafu** · 07-27-2012, 12:58 PM

Congratulations on working hard and getting through all that reading, course work, papers, and dissertation, its an exhausting road. Terrific that you have a good job, great starting salary and an awareness of the need to plan your financial journey. Delighted you have joined the 401K and signed up for matching sums to take advantage of 'free' money. Starting young is the big secret to compounding wealth.

I'm guessing you're driving a car supplied by parents but covering operational costs and insurance. What are your priorities? Is it your plan to live at home until you have a 20% down payment? Do you wish to start with a condo and trade up? How important is a new[er] car? A lot of financial plans are predicated on a time-line. If you have a 5 yr. investment window, I suggest starting a monthly Vanguard Index Mutual Fund. If that makes you nervous, a Dividend MF.

You didn't mention the interest rates on your student loans but paying $710. a month likely clear the debt in 10 years. Is there any likelihood of loan forgiveness? Sounds like a lot but your salary will increase and there will be tax rebates to help ameliorate the shocks.

Living at home without credit card or car debt reduces the need for a significant emergency fund. Making monthly contributions to a portfolio has huge potential even in this crazy economic environment. I'm guessing you can make a plan and stay with it.

Wishing you every success.

**cup of tea** · 07-27-2012, 02:05 PM

My husband and I live with his parents after we got married. Everyone thought we were crazy. We had a goal and we gave his parents some money for household expenses. We lived with them for 2 years. We paid off our student loans and we saved $50,000 for a down payment on a house. We lived in the city, so we didn't have car expenses. Those two years were sometimes difficult, but it was worth it financially.

**Gailete** · 08-02-2012, 05:21 PM

That $1100 a month for food, gas and phone sounds pricey. Are you eating at home? Are you contributing to the upkeep of the home? It isn't fair with your income to be spunging off of mom and dad for several years unless they are loaded and really truly want you there. Make sure you are contributing your share. If they don't want to be paid, tell them to save it and give it back later but I think it is important to have some idea of what it really costs to have a home. My first husband lived at home until we got married when he was 27. He had no concept of what it costs to set up and run a home. Other than the mortgae and utility bills nothing went into the house, nothing went to me and nothing went towards the kids when we had them. We had been married 7 years when he asked me how to adjust the thermostat. Not saying you are that dumb, but it pays to understand that homes have genral maintenance like paint, new curtains, etc. at intervals. Which is why when I hear of guys and girls still living at home I wonder if they are living there like they did as kids or are they being adult about it and pitching in on chores and costs. Probably not what you were looking for.

I think you make a great salary and see no reason to not have your own apartment or place to live. Yes, it might take longer to buy a house, but it will help you feel so much more independent. If you know those student loans are coming up, start setting the payments aside now so that you can dump a big payment down at the beginning and pay them off as soon as possible. I had a small loan for nursing school and I always rounded the check up to an even number, and ended up paying it off months sooner. It always pays to pay off loans as soon as possible because it saves so much in the long run.

**breathemusic** · 08-03-2012, 11:10 AM

With such low expenses, I think you should do a combination of things. Definitely contribute enought to get company matching and then max out the Roth IRA. After that, I think you should put some money in savings and some money toward paying off the loans. If your loans are anything like mine, you don't just have one big loan. You probably have a few, with varying interest rates yes? I'd work on paying down the one with the highest interest rate (rather than the lowest total) but then also work on building up your savings for both the emergency fund, as well as for an eventual house downpayment. Personally, I don't see any problem with hanging onto a little student loan debt if the interest isn't too high. In my case, I have 2 loans that are around 5% and one loan that is way down at 3%. I'd rather build up some savings toward an eventual home purchase than throw every spare penny at my loans. So I make some extra loan payments, but then also make sizeable savings contributions.

Plus, since you don't already have a mortgage, having some student loans on your credit report can actually help your score if it shows you're making regular payments (and if it's not too much to make your debt look crazy). It might not make a huge difference, but it could make some.

**kalikala1980** · 08-03-2012, 02:01 PM

You have a really good starting salary for a 25 year old. You should definitely put money in your company's 401(k) up until the point they match. My company offers a 4% match, so I put in up to that amount each month. Next thing I would do is, which it seems like you are already planning on, is to open a Roth IRA and max that baby out. I started my Roth IRA when I was 24 and I am almost 32 now. I have a nice chunk of change in their for the "old me." While paying off student loans is important (and I have some myself), you can never get the time you could have been saving for retirement back. For me, saving for retirement is my top priority. I don't have any credit card debt (please stay out of credit card debt, that is the best thing you can do for yourself) or a car payment. Buying a home is a commendable goal but make sure you plan on staying in that house for at least five years.

Achieving Goals With Significant Debt