Author Topic: Case Study: Can I be debt-free by 30?  (Read 1506 times)

nonprofit noodle

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Case Study: Can I be debt-free by 30?
« on: August 23, 2017, 10:56:12 AM »
My apologies in advance for any errors I made. I'm very new to personal finance and trying my best. Gathering all of this information was pretty overwhelming, and I'm still missing things. Math is not my forte. I appreciate any assistance/gentle face-punching you can give me.

Life Situation: 27yo, single, no dependents, Chicago IL

Gross Salary: 40,000/yr (hourly, so paychecks fluctuate)

Pre-Tax Deductions:
- 403b: 4%
- Health Insurance: Approx. $134 a month

Other Ordinary Income: I average $100 a month from babysitting. Unfortunately that income is hard to predict.

Qualified Dividends & Long Term Capital Gains: N/A
Rental Income, Actual Expenses, and Depreciation: N/A

Taxes: These vary, because Iím hourly, but hereís an example from one paycheck:
-   FITW: $140.73
-   IL: $52.89
-   MED: $22.71
-   SS: $97.11

Adjusted Gross Income: Approx. $2,400 a month (I think??)
this is coming mainly from looking at Mint over the past few months

Current Monthly Expenses (TOTAL: $2,361)
- Rent: $1,000
- Utilities: $174 (Gas, Electric, Internet. Everything is as basic as possible but it's an old, inefficient building)
- Public Transportation Pass: $100 (I have a bike, and Iím trying to use it more often, but Iím very afraid of riding in heavy traffic. I have a near-panic attack each time)
- Renterís Insurance: $12
- Life Insurance: $60
- Spotify: $11
- Groceries: $200
- Entertainment/Misc: $200 (I have steadily decreased this amount over the last 6 months, tracking trends via Mint)
- Current Credit Card Payment: $200
- Student Loans: $354 (paying $10 more than required on one of these)
- Phone: $50 (my portion of a family plan)

Assets:
Savings Account 1 (Ally): $361.72
Savings Account 2 (US Bank): $1,820.06
403b: $3,355.61
Old 401k rolled into IRA: not sure, have to dig it up, but I think approx $4,000 in there
Total Assets: Approx. $9,500

Liabilities:
Student Loan 1
- Balance: $1,791.90
- Interest: 6.550%
Student Loan 2
- Balance: $3,520.34
- Interest: 6.550%
Student Loan 3 (a combo of Stafford Unsub and Sub with different interest rates, but I think I worked out the overall interest rate)
- Balance: $9,376.61
- Interest: 4.48%
Student Loan 4
- Balance: $1,315.91
- Interest: I cannot for the life of me find this and the website is awful and buggy, I will try again later
Credit Card
- Balance: $4,210.19
- Interest: 19.99%
TOTAL DEBT: $20,214.95

Solutions in motion:
- Just negotiated my credit card interest rate down to 17.99% by calling my bank. I haven't used the card for months, trying to break dependency and be more aware of spending
- Using Mint to track and understand spending habits
- Moving in with my partner when my lease is up in November, which could save me approx $300 a month or more
- Trying to find a new job
- Working hard to bring down entertainment spending slowly without shock of deprivation, as that tends to make me emotionally over-spend

Lucky Recardito

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Re: Case Study: Can I be debt-free by 30?
« Reply #1 on: August 23, 2017, 11:15:27 AM »
One immediate reaction: you have no dependents -- why do you have life insurance? ... and why does that life insurance cost $60/mo, which is an insane rate for someone your age if you are reasonably healthy? Unless there are mitigating circumstances not explained here, drop this tomorrow!

nouveauRiche

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Re: Case Study: Can I be debt-free by 30?
« Reply #2 on: August 23, 2017, 11:24:38 AM »
Quote
- Current Credit Card Payment: $200
- Student Loans: $354 (paying $10 more than required on one of these)

I would direct extra money to the highest interest loan (credit card) rather than to the student loan.

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #3 on: August 23, 2017, 11:35:25 AM »
One immediate reaction: you have no dependents -- why do you have life insurance? ... and why does that life insurance cost $60/mo, which is an insane rate for someone your age if you are reasonably healthy? Unless there are mitigating circumstances not explained here, drop this tomorrow!

Back in 2013 I was referred by a friend to a financial planner at Northwestern Mutual. I had just graduated and didn't have a full time job with benefits yet. I think it's a permanent life policy plus a disability policy from NM. I was sold it with the understanding that it's kind of a savings account? At the time, I discussed it with my parents and they have a similar policy, so it seemed like a good idea. I can find the policy information when I get home from work today to be sure. I agree it is expensive. If MMM experts think I should ditch it, I'd try to do so.

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #4 on: August 23, 2017, 11:36:39 AM »
Quote
- Current Credit Card Payment: $200
- Student Loans: $354 (paying $10 more than required on one of these)

I would direct extra money to the highest interest loan (credit card) rather than to the student loan.

Thanks for the advice! I am already paying about $80 more than my minimum cc payment, but I could switch this $10 over for sure. I feel pulled in so many directions that I try to do everything at once :(

Dicey

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Re: Case Study: Can I be debt-free by 30?
« Reply #5 on: August 23, 2017, 11:47:58 AM »
Focus on killing the CC debt first. Have you tried getting a zero % card?

+60 on killing the life insurance.
I did it! I have a journal!
A Lot Like This
And hell yes, I am still moving confidently in the direction of my dreams...

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #6 on: August 23, 2017, 11:52:53 AM »
Focus on killing the CC debt first. Have you tried getting a zero % card?

+60 on killing the life insurance.

To be honest I don't think I should have a credit card at all until I learn how to use it responsibly, and that just isn't happening yet. I've thought about doing a balance transfer once I get the current balance down to about half and decide I can trust myself not to use either card/can feasibly pay the rest off during the 0% interest window

Capt j-rod

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Re: Case Study: Can I be debt-free by 30?
« Reply #7 on: August 23, 2017, 12:00:19 PM »
So to answer the question of debt free by 30? With the numbers you posted the simple answer is no. If you are moving in with another person then why is your savings only$300? You will merge utilities as well as rent. This should be a minimum of $600. I would not suggest a balance transfer until you have the money to attack it.

calimom

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Re: Case Study: Can I be debt-free by 30?
« Reply #8 on: August 23, 2017, 12:04:51 PM »
What about ramping up your babysitting income by becoming a provider for care.com? Absent that, would it be possible to pick up a few weekend shifts as a server/bartender somewhere close by?

You're smart, you're eager, and your debt load is not horrific. Good on you for wanting to be shed of it and build savings.

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #9 on: August 23, 2017, 12:13:16 PM »
What about ramping up your babysitting income by becoming a provider for care.com? Absent that, would it be possible to pick up a few weekend shifts as a server/bartender somewhere close by?

You're smart, you're eager, and your debt load is not horrific. Good on you for wanting to be shed of it and build savings.

I am already on UrbanSitter, which is similar, but I could add Care.com to increase traffic.

Thank you!

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #10 on: August 23, 2017, 12:19:44 PM »
So to answer the question of debt free by 30? With the numbers you posted the simple answer is no. If you are moving in with another person then why is your savings only$300? You will merge utilities as well as rent. This should be a minimum of $600. I would not suggest a balance transfer until you have the money to attack it.

It will probably be more, but it depends if I can afford to move to a cheaper neighborhood if/when I change jobs. Unfortunately we can't stay in my current place, and it's a steal for a 1bed in my area of the city (most are $200-300/month more). I'm trying to be conservative about savings that I can't really nail down at this point in time.

I agree with you about the balance transfer. Thanks for commenting!

Lucky Recardito

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Re: Case Study: Can I be debt-free by 30?
« Reply #11 on: August 23, 2017, 12:26:45 PM »
One immediate reaction: you have no dependents -- why do you have life insurance? ... and why does that life insurance cost $60/mo, which is an insane rate for someone your age if you are reasonably healthy? Unless there are mitigating circumstances not explained here, drop this tomorrow!

Back in 2013 I was referred by a friend to a financial planner at Northwestern Mutual. I had just graduated and didn't have a full time job with benefits yet. I think it's a permanent life policy plus a disability policy from NM. I was sold it with the understanding that it's kind of a savings account? At the time, I discussed it with my parents and they have a similar policy, so it seemed like a good idea. I can find the policy information when I get home from work today to be sure. I agree it is expensive. If MMM experts think I should ditch it, I'd try to do so.

Permanent life insurance is not beloved around these parts... it mixes life insurance ($$ to cover your dependents' needs if you should pass away) with savings, and therefore does kind of a crappy job of both. Lots of history here on this subject... a sampling:
https://forum.mrmoneymustache.com/investor-alley/why-whole-life-universal-life-insurance-is-a-bad-idea/
https://forum.mrmoneymustache.com/ask-a-mustachian/whole-life-insurance-policy-challenging-mustachian-wisdom/
https://forum.mrmoneymustache.com/welcome-to-the-forum/high-cash-value-whole-life-insurance/
https://forum.mrmoneymustache.com/ask-a-mustachian/should-i-keep-existing-whole-life-insurance-policy/

When you really need life insurance (which is when you have a kid or a mortgage, and your partner could not cover those obligations comfortably if you should pass away... so at a minimum, several years away for you, and maybe longer), you can buy a term policy pretty cheaply, specifically for the length of time that you need it.

Disability insurance is another discussion, and can be useful in some circumstances... but (unless you have existing health problems) there are lots of ways to get this elsewhere, probably for cheaper, later on when you're in a better spot.

Take that $60 and throw it at that CC!


nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #12 on: August 23, 2017, 12:54:55 PM »
One immediate reaction: you have no dependents -- why do you have life insurance? ... and why does that life insurance cost $60/mo, which is an insane rate for someone your age if you are reasonably healthy? Unless there are mitigating circumstances not explained here, drop this tomorrow!

Back in 2013 I was referred by a friend to a financial planner at Northwestern Mutual. I had just graduated and didn't have a full time job with benefits yet. I think it's a permanent life policy plus a disability policy from NM. I was sold it with the understanding that it's kind of a savings account? At the time, I discussed it with my parents and they have a similar policy, so it seemed like a good idea. I can find the policy information when I get home from work today to be sure. I agree it is expensive. If MMM experts think I should ditch it, I'd try to do so.

Permanent life insurance is not beloved around these parts... it mixes life insurance ($$ to cover your dependents' needs if you should pass away) with savings, and therefore does kind of a crappy job of both. Lots of history here on this subject... a sampling:
https://forum.mrmoneymustache.com/investor-alley/why-whole-life-universal-life-insurance-is-a-bad-idea/
https://forum.mrmoneymustache.com/ask-a-mustachian/whole-life-insurance-policy-challenging-mustachian-wisdom/
https://forum.mrmoneymustache.com/welcome-to-the-forum/high-cash-value-whole-life-insurance/
https://forum.mrmoneymustache.com/ask-a-mustachian/should-i-keep-existing-whole-life-insurance-policy/

When you really need life insurance (which is when you have a kid or a mortgage, and your partner could not cover those obligations comfortably if you should pass away... so at a minimum, several years away for you, and maybe longer), you can buy a term policy pretty cheaply, specifically for the length of time that you need it.

Disability insurance is another discussion, and can be useful in some circumstances... but (unless you have existing health problems) there are lots of ways to get this elsewhere, probably for cheaper, later on when you're in a better spot.

Take that $60 and throw it at that CC!

Thank you for the helpful links! I will do some reading up on this.

SimpleCycle

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Re: Case Study: Can I be debt-free by 30?
« Reply #13 on: August 23, 2017, 02:50:54 PM »
This is a little thing, but have you done the math the public transportation pass?  For me it's slightly cheaper to not have a pass than to have one, but only because I work from home once a week and rarely use public transit on weekends.  You can look up your number of trips for the last month on the Ventra page.

JanF

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Re: Case Study: Can I be debt-free by 30?
« Reply #14 on: August 23, 2017, 03:44:49 PM »
Current Monthly Expenses (TOTAL: $2,361)
- Rent: $1,000 can your partner move in with you instead? Which would save more money?
- Utilities: $174 (Gas, Electric, Internet. Everything is as basic as possible but it's an old, inefficient building)
- Public Transportation Pass: $100 as SimpleCycle said, is it worth it? Also, what about riding in side street to avoid more traffic?
- Renterís Insurance: $12
- Life Insurance: $60 I'm no expert but I would get rid of this if possible
- Spotify: $11 unnecessary. Make due with Pandora and put up with the ads for now
- Groceries: $200 I think you can drop that by another 30-50 if you try
- Entertainment/Misc: $200 this is a lot. I would not spend more than $50 on this category
- Current Credit Card Payment: $200
- Student Loans: $354 (paying $10 more than required on one of these)

That's about $200 extra
- Phone: $50 (my portion of a family plan) how much of it do you use? Can you cut the price with "pay as you use?"

theotherelise

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Re: Case Study: Can I be debt-free by 30?
« Reply #15 on: August 23, 2017, 03:52:59 PM »
If you can find your last life insurance statement, it should have on there a cash value amount for terminating the policy. You should get a little bit of money back when you close out that policy and you need to throw that immediately at the credit card.

I think you could totally be debt free by 30. You're just going to need to make a few changes. But you're already going to be bringing down those living costs and you're looking to increase your income as well. If you don't have an obvious path for moving into a higher paying job soon, then I'd consider looking for a second job to take on until you pay off the credit card.

After that is done and you can breathe a bit more (imagine having $600+ extra each month after you make the move and pay off that debt!), then I'd focus on whatever steps you need to take to advance in your career.

As a motivation, my now husband had 54k in student loans and was making 25k in a MCOL area four years ago when he was 25. We got married, got better jobs, and paid the whole thing off together in less than two years. So increasing your household income can help too ;)

dcamnc

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Re: Case Study: Can I be debt-free by 30?
« Reply #16 on: August 23, 2017, 04:15:01 PM »
Personally, I would:

Income: Get a part time job

Expenses: (go through EVERYTHING line item by line item, to kill off expenses)
Moving in w/partner would help rent outlay immensely
Keep utilities as low as possible
Ditch the life insurance
Ditch the Spotify
Lower entertainment
Can you get a cheaper phone plan?

Debt:
Any gap between your income and expenses should go to the credit card first and student loans after the card is paid off. If you really want to get out of debt as soon as possible, you need to raise that income, cut some of those expenses, and not take on any more debt. You have enough cash on hand to cut up your credit card and use debit, this will force you to budget a little more (which you should try to do anyway).




Lucky Recardito

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Re: Case Study: Can I be debt-free by 30?
« Reply #17 on: August 24, 2017, 08:00:35 AM »
Missed that you are in Chicago! +1 to SimpleCycle's note about checking whether Ventra monthly is really worth it for you. Depends on your commute.

And about that commute... Chicago is a pretty great biking city: flat and tons of bike lanes. In my experience, most (though of course not all) drivers are cautious and kind around cyclists. To get rid of the jitters, start slow with short trips. And research your route before you go to build confidence! The biking directions on Google Maps are not perfect, but they do a pretty dang good job of identifying streets with bike lanes. And just run a search for "Chicago Bike Map" to find other resources and recommended routes. Figure out a few short jaunts you can bike regularly (eg a friend's place that's not too far away) and slowly work up to the stuff that feels harder.

The best biking weather is starting NOW -- this week is glorious.

ETA: Does your work offer a Transit FSA? If so, make sure you're using that to load up your Ventra card -- that'll net you some tax savings. My work's FSA plugs directly into Ventra--my card loads directly from my paycheck, and it's super-easy.
« Last Edit: August 24, 2017, 08:04:29 AM by LucyWreck »

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #18 on: August 24, 2017, 08:49:42 AM »
Missed that you are in Chicago! +1 to SimpleCycle's note about checking whether Ventra monthly is really worth it for you. Depends on your commute.

And about that commute... Chicago is a pretty great biking city: flat and tons of bike lanes. In my experience, most (though of course not all) drivers are cautious and kind around cyclists. To get rid of the jitters, start slow with short trips. And research your route before you go to build confidence! The biking directions on Google Maps are not perfect, but they do a pretty dang good job of identifying streets with bike lanes. And just run a search for "Chicago Bike Map" to find other resources and recommended routes. Figure out a few short jaunts you can bike regularly (eg a friend's place that's not too far away) and slowly work up to the stuff that feels harder.

The best biking weather is starting NOW -- this week is glorious.

ETA: Does your work offer a Transit FSA? If so, make sure you're using that to load up your Ventra card -- that'll net you some tax savings. My work's FSA plugs directly into Ventra--my card loads directly from my paycheck, and it's super-easy.

Yeah, I ran the numbers and the monthly Ventra pass makes the most sense--I'd be losing money if I paid as I went.

Thank you for the biking advice! I am doing my best to take small trips on weekends to get more familiar with that mode of transportation and minimize anxiety, but I'll admit I also enjoy the luxury of the bus so I can read on the way to work (library books, only! ha). I know a lot of folks, my partner included, who bike year-round. Unfortunately I also know all of their stories about being doored, hit by cars, injured if not killed, etc., and most of them are conscientious bikers who follow laws of the road. I'm a pretty risk-averse & high-anxiety person in general so it's hard for me to look past that, but I'm working on it.

I really wish we had a Transit FSA but alas, I work for a nonprofit that has a pretty bare-bones benefits package.

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #19 on: August 24, 2017, 08:58:33 AM »
Current Monthly Expenses (TOTAL: $2,361)
- Rent: $1,000 can your partner move in with you instead? Which would save more money?
- Utilities: $174 (Gas, Electric, Internet. Everything is as basic as possible but it's an old, inefficient building)
- Public Transportation Pass: $100 as SimpleCycle said, is it worth it? Also, what about riding in side street to avoid more traffic?
- Renterís Insurance: $12
- Life Insurance: $60 I'm no expert but I would get rid of this if possible
- Spotify: $11 unnecessary. Make due with Pandora and put up with the ads for now
- Groceries: $200 I think you can drop that by another 30-50 if you try
- Entertainment/Misc: $200 this is a lot. I would not spend more than $50 on this category
- Current Credit Card Payment: $200
- Student Loans: $354 (paying $10 more than required on one of these)

That's about $200 extra
- Phone: $50 (my portion of a family plan) how much of it do you use? Can you cut the price with "pay as you use?"

Thanks for your thoughtful reply and suggestions! I am working on getting the entertainment category down, slowly but surely, in a way that hopefully won't backfire and cause me to feel deprived and overspend as a result. Mint has really helped with tracking trends. So far this month I actually will nearly halve my grocery budget, but that's probably in part because I am part of a community garden and a lot of my fresh veggies have been free!

Unfortunately my current apartment won't be available after my lease ends in November, so my partner and I will be looking for new accommodations. I really do hope we can find something in a similar price range! But until we do, I'm trying to be (admittedly maybe too) conservative about the savings I'll get from cohabiting.

Imma

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Re: Case Study: Can I be debt-free by 30?
« Reply #20 on: August 24, 2017, 09:43:14 AM »
I get that you're scared to transfer the balance on your credit card to another card because you're not comfortable with using a credit card at all at this point (very smart choice in your case). The interest on the card is still ridiculous though. It might be worth investigating if it's cheaper to get a personal loan from a bank, pay off the debt and pay back the bank at a lower interest rate.

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #21 on: October 03, 2017, 10:27:30 AM »
Keeping track of my progress in a Journal now, thanks again all for your tips and punches!

thesis

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Re: Case Study: Can I be debt-free by 30?
« Reply #22 on: October 19, 2017, 12:11:27 PM »
$200 for entertainment is a lot. Visit your local library, and you may find there is actually quite a lot there in movies and sometimes also music. If you do take the suggestion of getting a part time job, you could probably easily get a few nights a week at a local movie theater, and get free tickets with it :)

And yes, attack that credit card debt. 20% is crazy, and that's how much you are robbing yourself from being able to pay off the other debts.

Props for the food budget, though. Mine is almost double :( I should reconsider how I'm spending that money
"With respect to luxuries and comforts, the wisest have ever lived a more simple and meagre life than the poor." - Thoreau

nonprofit noodle

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Re: Case Study: Can I be debt-free by 30?
« Reply #23 on: October 19, 2017, 12:34:14 PM »
Thanks for chiming in, Thesis! It's a balancing act--we all have our struggle areas. My entertainment budget mostly goes to live music and eating out. I'm definitely more of an experiential spender than a "things" spender. Still kicking myself for not getting Tom Petty tickets :(