Pay off or save?

[swaymonae]

I'm 24 and I barely have any savings, also just started my 401k.

Does it make more sense to use all my extra money to pay off the debt as quickly as possible, so I can have a bunch of extra cash, or should I save at the same time?

If both, should I save more than I pay off or should I pay off more than I save?

^Does that make sense? blah.

[project15]

It depends. Can you list out your debts and their interest rates?

[swaymonae]

Sure


5500 @ 3.9
1500 @ 7.9
1000 @ 11.9
900 @ 14.9

Car loan 15000 @ 14

[project15]

Do you currently contribute more than the minimum payments to any of these debts?

[swaymonae]

Absolutely, I usually pay 200%+, with the exception to the car.

[disneysteve]

I'm 24 and I barely have any savings

Car loan 15000 @ 14

I see a huge disconnect between these two quotes. Barely any savings but you went out and spent at least 15K on a car and borrowed that money at 14%.

You need to get your priorities in order. You can choose to live beyond your means, borrow money to get wants and live paycheck to paycheck or you can choose to live below your means, save for the future, only buy things that you can afford, minimize your debt and become financially secure.

How much can you get for that car if you sell it? I'd be looking to unload it, even if you take a loss in the process. You can't afford it and the interest rate is insane.

[maat55]

I think focusing on one thing at a time is more motivating. If you want an EF, save for it, then if you want to get out of debt, use all funds for that purpose.

[m3racer]

900 @ 14.9

Car loan 15000 @ 14

Ouch!!!

[swaymonae]

I see a huge disconnect between these two quotes. Barely any savings but you went out and spent at least 15K on a car and borrowed that money at 14%.

It's not a matter of funds, really.. I've made pretty good money for a couple years now.. I just recently started thinking about my financial future.. Before a year ago, I couldn't have cared less about savings, 401k, etc. but now it's a huge priority to me.. It also comes with a little debt, but my debts have been cut in half in less than a year.. so I'm headed in the right direction... but I'm curious whether it makes more sense to save more than pay off debt at this point? My job is extremely stable, in this economy, we're actually growing and increasing in revenue, but just reading the news makes me uneasy about only have a few grand in savings.. But if I pay off all my debts first, I'll save money and then all my money can be concentrated on savings.. so which makes more sense? Or do I stick with 50/50?

And the APR comes from a BK acquired due to medical bills.. before that I had excellent credit but a bad car accident left me with a 6-figure bill, and unable to work.

[disneysteve]

I just recently started thinking about my financial future.. Before a year ago, I couldn't have cared less about savings, 401k, etc. but now it's a huge priority to me.

I'm curious whether it makes more sense to save more than pay off debt at this point?

Congrats on making saving a priority.

I think doing both is the way to go, especially now with the stock market in the toilet. You don't want to wait a couple of years to start investing and be kicking yourself that you didn't buy in when the market was really low.

If you have a 401k with a company match, at least invest enough in that to get the full match. Even if there is no match, the tax savings can make passing up contributing a no-brainer.

You do, however, need an adequate EF as well. Ideally, at least 6-months were of living expenses.

[Bimmer]

First off, its great you found this site and are open to thoughts/suggestions. You are at a very good age to get started on organizing and maximizing your financial future (I wish I had started in my mid-twenties...).

What is the monthly payment on the car? Do you have any savings at all? If you can sell the car for more than you owe, do it ASAP. If you can cover a small loss with some savings, do it sooner rather than later. Cars can be financial killers; they are a big reason I fell into financial oblivion in my twenties. Its easy to get hooked on more car can than you can afford.

At this age, you at least have some options. I tend to agree with Maat55, you might just want to focus on one thing for now, whether it is EF or CC payoff or car. At your age, I would say clear debt before getting into heavy savings and retirement investments. If you do not want to address the car issue at this point, so be it, but you need to seriously look at getting out of it sooner rather than later.

If you post your full income/expenses (rent/mortgage, car, CC's, food, utilities, entertainment, other living expenses, etc), the number crunchers on this forum can analyze and figure out a plan. They are very good at this!

[disneysteve]

I think doing both is the way to go

I want to modify this statement.

You have some very high interest debt. I would attack that before worrying too much about saving, other than setting aside a decent EF, at least 3 months worth of expenses.

The exception would be if you have a 401k with a match. While your investments aren't likely to earn 14.9% or 11.9%, when you add in a 50% match, you will come out ahead. So get the full match but put everything else toward the high interest debt.

[bdizzle]

I was in a similar situation and I decided to pay off my debt. Primarily because I hate owing money. In the last 3 months I've paid ~$5000 paying off debt. I have no money in a savings account and very little in retirement (I'm 26). I had to ask myself, which would make me feel better about myself? Having a lot of cash but knowing that I owed a lot of people a lot of money? Or having know savings temporarily but being debt free? I decided I'd rather get out of debt. Right now I owe one CC a little over 15k, and less than 1k in misc accounts, and I should 100% debt free in about 7 months.

Good luck with whatever you do. I know it's somewhat risky because at any time my income can drastically reduce, but so far everything's working good for me and I feel really good know I've paid off my car and paid off 2 CC's.

[Beckybee]

It's really hard when you don't have a lot of money to know what the right course is. You know that if you save, you are setting yourself up for emergencies as well. On the other hand, if you pay off debt first you will be able to save more later. The danger with that is that if you have no savings, and you have to buy something or pay for a financial emergency, you will more than likely have to put it on credit and you will be back to square one.
Personally I would save a little, and pay more off your debt. That way, you are still paying down debt as quickly as possible whilst still preparing yourself for future emergencies and expenses.

[Bluestreak]

I would pay the debts off. By doing so, you are setting yourself up to to be rich in the future by handling your money effectively today. Owing others money always sits on your brain. You never forget it. You may make a few extra bucks doing some other form of investment, yet you can never replace the benefit of freedom. It's priceless. The money is excellent when it's free.