Author Topic: Money and Debt Allocation Help  (Read 1321 times)

just1nh

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Money and Debt Allocation Help
« on: January 22, 2018, 06:44:54 PM »
My salary is $62,000.  I have about $10,000 saved up in cash.  My apartment lease ends in the spring, rent is $900/mo.  I also have lingering debt acquired through my 20's before discovering mustachianism: $30,000 truck @4.25%, $15,000 misc. debt @9.5%, $35,000 student loans @4.5%.

I've come to a crossroads and I'm not sure which to do...

A) Use $10,000 to buy a house.  In my city a decent house runs between $150,000-$175,000. Then rent a room out and pay my debt down.

B) Use $10,000 to pay debt now.  Rent apartment for another year @ $900/mo, then reevaluate house buying in a year.

Which route makes more sense?

Riff

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crispy

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Re: Money and Debt Allocation Help
« Reply #2 on: January 22, 2018, 07:08:45 PM »
Can you get rid of the truck? That would kill a good portion of your debt in one fell swoop. Then focus on getting rid of the credit card debt possibly using some of the 10k for that. Buying a house doesn't make financial sense right now...you owe more than your yearly income.

wordnerd

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Re: Money and Debt Allocation Help
« Reply #3 on: January 22, 2018, 07:15:51 PM »
Pay down the 9.5% debt. Taking on more debt right now (buying a house) is not the answer.

Also, consider posting a case study to see how you can optimize your finances. Not sure how long it took you to save $10K, but folks here should be able to help you increase your savings rate.

just1nh

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Re: Money and Debt Allocation Help
« Reply #4 on: January 22, 2018, 07:17:54 PM »
Can you get rid of the truck? That would kill a good portion of your debt in one fell swoop. Then focus on getting rid of the credit card debt possibly using some of the 10k for that. Buying a house doesn't make financial sense right now...you owe more than your yearly income.

It's a bit underwater.  However, I can use a portion of the $10k to get it even and then get out of it.

marty998

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Re: Money and Debt Allocation Help
« Reply #5 on: January 23, 2018, 01:43:12 AM »
+1 vote for taking the cash and paying of the 9.5% debt.

Immediately.

Like, login to your banking and process the payment now.

just1nh

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Re: Money and Debt Allocation Help
« Reply #6 on: January 23, 2018, 05:49:57 AM »
+1 vote for taking the cash and paying of the 9.5% debt.

Immediately.

Like, login to your banking and process the payment now.

Thanks.  I'm going to send most of it to the 9.5% debt.  However, I'm going to send a small portion at my truck to get the loan even and get something a lot more economical.

Ryland

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Re: Money and Debt Allocation Help
« Reply #7 on: January 23, 2018, 11:44:40 AM »
You're ambitious and that's great!

Think of your situation like this. You have a friend. That friend has $80,000 in debt growing at 4.25 to 9% guaranteed. But that friend is also wanting to buy a house with $10,000 of cash, but isn't 100% sure it's the right move... What would you advice your friend?

You probably want to enjoy yourself and have a good time as you pay back that $80k as fast as possible.

So look, I'd recommend keeping ~2-6 months of lifestyle cost in a savings account. That's your buffer in case things go bad, ability to pull from to take a trip once/twice a year and replenish while continuing to focus on paying off the debt.

You've got to sell the truck, pay back it's loan and use the extra to build the cash reserve and start paying off the growing debts.

I was where you're at about 4 years ago. I had a Nissan Xterra that I sold to pay of $7k in debt and then got a job and built my cash reserve with mustachian speed. It's been 4 years and I now have $100k+ net worth and am really optimizing my lifestyle.

You 100% can do this! You just need to upgrade your truck to something better for your situation, build that cash reserve so you can enjoy your life while the loans get paid back, optmize your spending to pay it off faster and start investing, and potentially focus on building an income stream with a side gig. One thing at a time though! First is the truck and a big avalanche on that debt.

PM me if you want to chat more about what to do that's best for you.👍
Ryland @ The Hidden Green
www.thehiddengreen.com

robartsd

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Re: Money and Debt Allocation Help
« Reply #8 on: January 23, 2018, 11:58:29 AM »
Thanks.  I'm going to send most of it to the 9.5% debt.  However, I'm going to send a small portion at my truck to get the loan even and get something a lot more economical.
I agree with sorting out your transportation before paying off the 9.5% debt. 10K might be enough to dump the truck and purchase a reasonable car from a private party with no debt. Your previous car payment along with savings on gas and insurance can go towards the 9.5% debt. Once you eliminate the 9.5% debt, you can turn all that money towards saving for a down payment.

Lady SA

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Re: Money and Debt Allocation Help
« Reply #9 on: January 23, 2018, 12:27:14 PM »
Do you have an emergency fund? You need to establish a few month's worth of emergency fund before I'd pay off even a 9.5% debt. If you don't have a EF, any unexpected emergency (unexpected tax bill, medical bill, fender-bender, covering a security deposit on a new apt, even losing your job) could land you even further in debt.

Get an emergency fund in place, THEN think about where to allocate the leftover. I agree with everyone else to kill as much from the 9.5% misc debt and get rid of the truck, those should be next.

See https://forum.mrmoneymustache.com/investor-alley/investment-order/
https://www.earnest.com/invite/lillian2 --> Use this referral to refinance your student loans with Earnest and get a $200 bonus!

robartsd

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Re: Money and Debt Allocation Help
« Reply #10 on: January 23, 2018, 02:24:34 PM »
Do you have an emergency fund? You need to establish a few month's worth of emergency fund before I'd pay off even a 9.5% debt. If you don't have a EF, any unexpected emergency (unexpected tax bill, medical bill, fender-bender, covering a security deposit on a new apt, even losing your job) could land you even further in debt.

Get an emergency fund in place, THEN think about where to allocate the leftover. I agree with everyone else to kill as much from the 9.5% misc debt and get rid of the truck, those should be next.

See https://forum.mrmoneymustache.com/investor-alley/investment-order/
"News Flash: Your Debt is an Emergency"

If you could easily borrow more money at about 9.5% there is little point to saving an emergency fund - if new debt would cost ~15+% then a bit of padding to avoid new debt would be wise.

Finances_With_Purpose

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Re: Money and Debt Allocation Help
« Reply #11 on: January 23, 2018, 08:00:06 PM »
Agree w/ whoever said your hair is on fire.

Cut up the credit cards.  Make a small emergency fund.  Resolve not to go into more debt. 

Pay your debts off.  Then, and only then, consider saving for a house.  You have debts at 9+%!  Work hard and it'll improve. 

See Dave Ramsey re: what to do when you are underwater in an expensive car.  He's great on vehicles. 

babybug

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Re: Money and Debt Allocation Help
« Reply #12 on: January 24, 2018, 05:37:23 AM »
Thanks.  I'm going to send most of it to the 9.5% debt.  However, I'm going to send a small portion at my truck to get the loan even and get something a lot more economical.
I agree with sorting out your transportation before paying off the 9.5% debt. 10K might be enough to dump the truck and purchase a reasonable car from a private party with no debt. Your previous car payment along with savings on gas and insurance can go towards the 9.5% debt. Once you eliminate the 9.5% debt, you can turn all that money towards saving for a down payment.
This makes sense.

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just1nh

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Re: Money and Debt Allocation Help
« Reply #13 on: January 24, 2018, 07:01:26 AM »
Thanks for the input all.  I should also get $6,000-$8,000 in bonuses this year, and I'm supposed to get promoted to a project manager which will bump my base salary to Mid-$60k.  I also just moved back to a cheaper city where I was once financially free.  Most of my debt happened when I moved out west after College and got caught up in offroading, expensive ski passes, mountain biking, etc.  I will shred the debt fast and build a small safety savings.

wordnerd

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Re: Money and Debt Allocation Help
« Reply #14 on: January 26, 2018, 06:35:08 AM »
Awesome! Good luck!

Livingthedream55

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Re: Money and Debt Allocation Help
« Reply #15 on: January 26, 2018, 08:08:37 AM »
Thanks for the input all.  I should also get $6,000-$8,000 in bonuses this year, and I'm supposed to get promoted to a project manager which will bump my base salary to Mid-$60k.  I also just moved back to a cheaper city where I was once financially free.  Most of my debt happened when I moved out west after College and got caught up in offroading, expensive ski passes, mountain biking, etc. I will shred the debt fast and build a small safety savings.

Awesome! Great to hear! Keep posting 0on these boards and you will get plenty of cheer leading and insightful advice!



just1nh

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Re: Money and Debt Allocation Help
« Reply #16 on: February 13, 2018, 08:19:27 AM »
Thanks for the input all.  I should also get $6,000-$8,000 in bonuses this year, and I'm supposed to get promoted to a project manager which will bump my base salary to Mid-$60k.  I also just moved back to a cheaper city where I was once financially free.  Most of my debt happened when I moved out west after College and got caught up in offroading, expensive ski passes, mountain biking, etc. I will shred the debt fast and build a small safety savings.

Awesome! Great to hear! Keep posting 0on these boards and you will get plenty of cheer leading and insightful advice!

Thanks.  I went ahead and paid off $6,000 on the truck.  I will be make 2-3 more payments of $1,000 and then getting out of it around April/May.  I also applied $2,000 toward the 9.5% and I'm keeping a few thousand as cushion.