Savings vs. Debt Repayment

[SpecialK32]

Hey there,
I'm new to this but not many people I know personally like to discuss finances or know what they're talking about. I just want to make sure my plan of action is as smart as it can be.

At 24, I currently have $65,000 in student loans (4 loans of various sizes). I just moved back home with my parents and am working hard to pay off my debt using the snowball effect. However, I want to limit my time at my parent's house to Dec 2014 at the latest so I need to make sure I have a decent savings in place to make it on my own once I move out.

My plan is to save $500/month. I found a savings account with 0.1% interest and I plan to do direct deposit so I don't even see that money. From my full-time paycheck I'll pay $250/month to debt and then I babysit, do side jobs and run a side resume business which adds up to $1000 on average to debt. I'm continually working to increase my extra income, which all goes towards debt.

By the time I move out I should have about $10,000 in savings and $42,000 in debt (my 2 largest loans). Is that the smartest way to do this? Any suggestions?

[Singuy]

Well there's really no other way if you want to move out by 2014.

It's definitely more financially sound for you to pay off your student loans off as fast as you can (I say put 100% of you money in it, screw EF or anything else..your parents are there for you, incase something terrible happens)..and then save up enough to move out. Student loan interests(6.8%?) is higher than any mortgage or bank CDs, so you are just giving away money the longer you extend your loans.

[phantom]

I think your plan sounds reasonable. It's hard to say for sure whether a $10,000 emergency fund is too high or too low without having a better idea of what your expenses will be once you move out. If you're not sure about your expenses either, I'd err on the high side. You can always make a massive payment on your debt once you settle into your new place and get a better idea of what you expenses will be.

I would shop around for a better interest rate on your savings account. You should be able to get something closer to 1%. It's still going to be much, but you can do 10x better than 0.1%. I suggest looking into Ally or another online bank.

[cherryblossom]

I wouldn't call myself an expert either.. but what is the interest rate you are paying on your loans? Why is 2014 your limit for living at home? If you are living rent-free and your parents don't mind you staying, could you stay longer? I lived home until I was 29! In our area where rent runs $1000 a month it was a huge savings for me.

[snafu]

Paying off student loans quickly is an admirable goal. What are your expenses? Does your employer offer a retirement [401K] plan with any matching contribution ? Where do you see yourself after 5 yrs?

[SpecialK32]

My expenses are gas (I work remotely full-time so I give myself $50/paycheck) and otherwise I have some spending money ($100/paycheck) and miscellaneous money for necessities (shampoo, participating in weddings, car fixes etc. ($100/paycheck). The rest goes towards savings and debt while I'm living at home. I make $850/paycheck at my full-time job and then I pick up any side work I can.

My employer does offer a 401K and I give 6% and my company matches 3% (if I remember correctly).

I'm honestly not sure what my plan is for 5 years from now. I am guessing I will need a newer car by that point and I want to be able to support myself. I should have more than an entry level job but having a decent savings should anything happen is comforting to me. My parents do not have any means to support me financially besides letting me live in their home so if anything expensive should happen, I need to be able to cover it myself.

I'm not sure if $10,000 is too much with all the debt I have but having a little freedom to move and support myself in whatever situation comes up down the road seems worth it.

[SpecialK32]

My expenses are gas (I work remotely full-time so I give myself $50/paycheck) and otherwise I have some spending money ($100/paycheck) and miscellaneous money for necessities (shampoo, participating in weddings, car fixes etc. ($100/paycheck). The rest goes towards savings and debt while I'm living at home. I make $850/paycheck at my full-time job and then I pick up any side work I can.

My employer does offer a 401K and I give 6% and I believe they match 3%. I forget the specifics but I contribute plenty.

I'm honestly not sure what my plan is for 5 years from now. I am guessing I will need a newer car by that point and I want to be able to support myself. I should have more than an entry level job but having a decent savings should anything happen is comforting to me. My parents do not have any means to support me financially besides letting me live in their home so if anything expensive should happen, I need to be able to cover it myself.

I'm not sure if $10,000 is too much with all the debt I have but having a little freedom to move and support myself in whatever situation comes up down the road seems worth it.

[JustBill]

You haven't stated what your total income and other expenses are, so it's hard to give a specific answer. But, with living at home with your parents, assuming no housing expenses, then I suspect 1k a month on debt is too light if you're working full time plus side business and childcare.

Props to you for recognizing the need of an EF as you begin life on your own, and for wanting to kill those student loans.

I'd also suggest you look at Barclays for a 1.0% return on your online saving dollars. You can easily do better than .1%. Not that 1.0% is worth writing home about...

Good luck.