Feeling trapped! 26 y/o living at home w/ $90k debt & leased car

[Maverick1]

The most important thing you can do in my opinion is to invest in yourself by completing the CPA designation.  I don't know the figures in the US, but in Canada the average wage of a CPA vs. someone with an accounting degree is significant.  Plus, with all the time you'll spend studying you'll have less time and temptation to spend money frivolously :)

[reginna]

marioarm2,

You have gotten great advice and I have nothing to add in that area. However you are excepting the suggestions without excuses and taking immediate action. Very impressive! You will get this sorted!

Gina

[Bee21]

Well, at least you were able to face your problems.

If I were you, I would study night and day for that exam. Look for a better paying job in the area. You are young, you have plenty of time to fix this. Get a side job, like driving uber or delivering pizzas or whatever. This will also take care of your entertainment spending, ie you won't have the time and energy to socialise and spend money.impose a moratorium on spending. Give yourself say 6 months, when you are spending the absolute minimum to survive. Take it as a short term challenge and see how much of your debt you can pay off.

[Gilly]

Question about your 547(b). I know you indicated you are temporarily going to stop contributing to it, but do you have a traditional option? I know my employer offers both, so even if it isn't optimal in the long run for tax purposes, you may be able to still contribute some and get a tax advantage. For the level listed in your original posting, it would probably save you about 9 dollars a paycheck.

[marioarm2]

Question about your 547(b). I know you indicated you are temporarily going to stop contributing to it, but do you have a traditional option? I know my employer offers both, so even if it isn't optimal in the long run for tax purposes, you may be able to still contribute some and get a tax advantage. For the level listed in your original posting, it would probably save you about 9 dollars a paycheck.

Yes, they offer both a traditional and a Roth option!

[Gilly]

The other thing to remember about a 547(b) is that when you leave employment with the government you can use those funds without penalty. Obviously you have to pay proper taxes on them, and for Roth the growth is taxed if you are under 55 (but not the principle).
Clearly, withdrawing from retirement accounts is not this site's preferred way, but it is an option you should be aware of and consider if you get a better paying non-government job and it will buy you some breathing room.

[Feivel2000]

I was more or less in the same situation you are in at 26, except that I had a $325.00 car payment (loan, not lease) on a brand new pick up truck, and my student debt was  less (about $75k), but I had about $10k in credit card debt (stupid me).  I was making just about what you are making and living with my parents, albeit I did not have my parents helping me with my payments.

What I also did not have at the time, and what you have, is the benefit of being on the path to FIRE and being a part of this forum.  Being financially responsible was not even on my radar at 26 (see above), so you are already ahead of the game. 

To move out of my parent's house, I relocated to a higher paying job (50% pay increase) and consolidated my student loans to a longer repayment period.  I still lived well below my means (rented a studio in a basement), unless you count all of the money I wasted going out to bars (which you should not do).

Don't extend your loans unless you can get a good interest rate.  Otherwise, throw everything you can at them.  You will make more money as you get older, and they will be easier to pay off, so don't sweat extending payment now if you can get a good rate.  Not so sure if staying with the govt will get you there though, so think about the private sector.

When your lease is up, get yourself a cheap, used, Honda, Toyota, etc. VW's are expensive to maintain and don't last as long.

I'm 35 now, have plenty of money in the bank, maxing out the retirement accounts, and support a wife (stays home) and two kids in a nice house (that we own) with ocean views.  26 seems just like yesterday, and I was more or less where you are when I was that age. I too felt trapped and never thought in a million years I would be able to live the way I am today.

I guess my point is that it will work out if you make smart choices, and you will make much smarter choices than I did because you have way more resources just by reading MMM and being on this forum.  In hindsight, if I had come across MMM when I was your age, I would be in much better shape, which is already pretty good.  In other words, don't worry so much: you can do it!  You should be enjoying your 20s and not crippling yourself with anxiety.  Just find ways to enjoy it without wasting your money.  There will be light at the end of the tunnel if you just take one step at a time.

FYI:  I no longer drive that shiny new pick up.   I proudly commute in a 11 year old Honda Civic with over 150k miles.  Runs great, $0.00/month car payment,  and cheap repairs!

Thanks for sharing your own personal story. It definitely makes me feel a lot better about the poor situation I've gotten myself into! myself in. I've always been a very hopeful person, but that hope quickly disappears when I think about how slowly my debts are being paid off.

I've taken a look at consolidating/refinancing my loan for an extended term, but the fixed rate offered is above my current 3.85% average. I was offered $586/mo for 20 years @ 5.41%F and $680/month for 15 years @ 4.74%F. A solid $200-$300 lower monthly payment, but the interest rates are higher and the extended term adds another 5-7 years. I'm assuming both those options are not very MMM friendly, and I should rough out my $910/mo just to be done sooner at lower interest.

Good to see that you didn't took the advice to refinance at max length even with higher interest.

[MrSpendy]

I'm personally still in the re-fi camp.

OP has ~$1200 expenditures under current situation (before any cuts) and ~$910 of debt service and takes home ~$2000 / month (before parental loan payoff assistance).

I calculate based on the payment amount and rate the existing loans have about a 10 yr weighted average term, so over the next 10 years w/ no extra payments, he/she will pay about $18K of interest, ~$1,500 / year, it starts around $3,400 / years and goes down like any amortizing loan.<---let me know if I'm off here, I'm just using a straight 3.8% rate rather than giving the benefit of paying the higher cost loans off first, so it won't be perfect.

If OP extends to 20 years at 5.4%, payment goes to ~$614, total interest over the course of the loan w/ no extra payments goes to $57K (~$2,800) / year, starting at $4,800 / year run rate and decreasing thereafter.

that $40K difference in incremental total interest paid is a big scary number, but not if it frees up ~$3,500 / year of cash flow over the next ten years ($35K), and offers greater overall flexibility. Plus that $40K of extra interest is a the maximum that would be paid and doesn't take into account any job changes which are highly likely. Extra principal payments  (from parents, and raises) will decrease the payment further to the point where it becomes but a footnote in his/her budget.

OP has an amortization / cash flow problem and an income problem moreso than an expense / interest problem. Extending term helps the cash flow problem and is a Band-Aid until the income problem (new/better job offer in hand) is solved.

I don't disagree with everyone that if OP gets a new more sustainable job situation TOMMOROW that the lower rate quicker amort loans should be kept in place, I would simply value the extra breathing room. AND not to mention the whole dynamic where the parental assistance covers a greater portion of the debt burden when the payment is lower. The flip side / happier version  of that is the lower payment makes it potentially easier for OP to NOT have to rely on that $400/month. If some cuts were made, the whole debt service could be covered from the meager take-home pay at a $600/motnh payment more so than a $900 / month payment.

In short, I understand why people think it's bad advice to extend, but I think the benefits outweigh the costs.

Also OP. The state of new jersey will pay you back your contributions to the pension when you leave (with interest if you stay for 3 years). that's $3,100 / year (trapped in a retirement account) that you are saving that you aren't keeping track of/aren't seeing, so that's nice from a mental perspective.

EDIT:
Just to further elaborate here, if you made minimum $900 payments on a 10 year 3.8% loan, you'd pay it off in 10 years. if you did the same with a 20 yr 5.4% loan @ $600/month, you still have $56K left after 10 years. If you took the ~$300 / month savings and did nothing with it, just put it in the bank earning 0% you'd have $36,000 cash and $56,000 debt. So you're $20K behind after 10 years; that's the cost of extending IF you make the minimum payment only. If you used that $300 in after tax cash flow to put $300-$400 in your 457/403b/401k  in vanguard wellesly (30% stocks 70% bonds, conservative given your cash poor indebted risk profile and available with your NJ 457 plan) and made 3% nominal, you'd have $40K-$53K ($300-$400) in a retirement account

So in ten years would you rather be debt free and have no assets. Or have $56K of 10 yr debt at 5.4% and a $40-$50K start to the investment nut. You'd still be behind the shorter term lower rate scenario, but not by that much $10K in 10 years is trivial in the context of your future earnings power and $300/month TODAY is a big deal.

In reality, I think you'll be much better off than either of those situations. Just saying it's not as simple as longer term higher rate = worse off

[Feivel2000]

The math you have provided made it even more clear to me that he shouldn't refinance (at all costs).

His debts are serviceable, even without the parental help and with barely any lifestyle adjustments, so why pay the bank another 40k?

But he is seeking a better paid job and is implementing MMM lifestyle adjustments, so he can redirect any additional income and savings towards retirement.

Also, "hey Mom and Dad, I have refinanced my student loans, so now I hope you support me for 20 years instead of 10. But this allows me to save more money for my early retirement!" is a strange conversation to have.


Edit: also, ten years from now, if he is debt free and would like to have some investments, he still could get a loan and invest the money.

[MrSpendy]

The math you have provided made it even more clear to me that he shouldn't refinance (at all costs).

His debts are serviceable, even without the parental help and with barely any lifestyle adjustments, so why pay the bank another 40k?

But he is seeking a better paid job and is implementing MMM lifestyle adjustments, so he can redirect any additional income and savings towards retirement.

Also, "hey Mom and Dad, I have refinanced my student loans, so now I hope you support me for 20 years instead of 10. But this allows me to save more money for my early retirement!" is a strange conversation to have.


Edit: also, ten years from now, if he is debt free and would like to have some investments, he still could get a loan and invest the money.

it would only be an extra $40K if OP took that $300 a month and blew it on stuff (and made no extra payments in 20 years of receiving raises/potential better job). It's an extra $20K if OP made no extra payments for 10 years and just put the cash flow in the bank at 0% (then paid them off). the incremental cost of extension declines further with additional mustachianism / income gains along the way.

I hear everyone on the shittiness of the whole "maximize the parental assistance thing", which is why I point out that a lower payment also leads to a quicker achievement of independence without a change in job or anything.

anyways, I think I'm alone on this one and it's OP's choice to do what's right for him. just making the case for greater flexibility and quantifying the downside of going that route (which is highly variable and somewhere between $0 and $40K over 20 years and based on all that we know I'd say it's much likelier to be toward at the low end of the range).

[MrSpendy]

to beat a dead horse I ran the following scenario.

In scenario 1, OP has a 10 year loan at 3.8%. OP bulks up his moustache muscles to an extreme degree and starts paying the full debt burden on his own. His parents still kick in $400 / month which goes straight to principal. In this scenario $13.6K of total interest is paid and the total cash going to the loans starts at $1300/ month and goes down from there. Debt free in month 104. Minimum payment is $903 and goes down as the extra payments reduce the balance.

In scenario 2, OP has a 20 year loan at 5.4%. OP bulks up his moustache muscles slightly more so than today and pays the full debt burden Parents still keep kicking in four hundo which goes straight to principal. An extra $289 a month (in month 0) in cash flow is there in case something bad happens, but OP just throws that against the loan. In other words the scenarios are cash flow neutral. Whatever extra cash OP has from extending the loan he throws at the loan. In this scenario, $21.9K interest is paid and payoff occurs in month 123. $8K over 10 years is the cash flow neutral price of flexibility.

If I remove the cash flow neutrality from the equation, scenario 2 pays $31K of total interest and payoff is in month 161 ($18K cost of extension BUT over the life of scenario 1, scenario 2 requires $13K less cash). the minimum payment starts at $614 and goes down from there and the total payment with the extra from the parents starts at $1000 and goes down from there.

this is a pure hypothetical to better quantify the price of flexibility.

Scenario 2 is much better to me. It takes 8 years before scenario 1 has a lower payment than scenario 2 and the increased flexibility of a starting payment that is $289 lower is pretty big at the OP's current income (that's 14% of his takehome pay!). There are additional interest cost in scenario 2. there is no free lunch.


Please check my maths as I did this on the side at work. things may not be exact and don't accept these as precisely correct. just as directional information.

[Calvawt]

I also wanted to echo the sentiment that a CPA is not the only path for accountants.  I am a CFO with a finance degree (and MBA), but no CPA.  In fact for most, a CMA is more applicable unless you always want to be an auditor or in public accounting.  I do agree that a CPA can help you boost your income, but I think you could find a higher paying job with an accounting degree and 1 year of experience right now.  Good luck either way!

[Villanelle]

Get a job on the weekends.....bar tending or waiting tables would be fine.  With tips you could earn several hundred dollars a month and get some free social interaction out of your dad's house.

This.  Get a second job.  It could be bookkeeping since that is more or less in line with your day job, or it could be anything, really.  Get a second job, immediately.  And start looking for a better first job, immediately.  It's not like your current one pays super well or is convenient, or is remarkable in any other way, so start looking.  Today.

That said, is there some reason you need to stay in NJ?  In your shoes, I would be aggressively job searching.  If you can find a job with the same pay in a much lower COL area, or a slightly higher pay in a somewhat lower COL area, you would likely be better off, even if you have a small rent payment (like renting a room from someone).   It doesn't sound like there is much tying you to your current location other than habit and a somewhat crappy job (as far as pay).  So remove the requirement to stay local from the equation and see if you can do better elsewhere, even if the added expense of rent. 

[Broadway2019]

You do not need a second job, you just need a better first job. I do not know anyone in the Northeast making below $60k w/ an accounting degree. Honestly, go network and be proactive. I have never found it difficult to find a new job in finance or accounting. Tons of analyst positions open, especially in the Northeast. Like I said in an earlier post, I did a search and many analyst jobs came up near Toms River, NJ. Start applying.

[twell1]

You don't always need a CPA designation as an accountant to be successful.  My brother is VP of Tax for a Fortune 500 company.  He started at a big 4 firm without the designation and left to go into a company's tax department, getting a masters of tax on the weekends.  For most companies, a CPA is not a requirement within the tax department.  For a Big 4 or smaller firm, which I used to work and recruit, we wanted either a CPA, JD, or masters to be promoted to manager, but didn't push it till close to promotion date.  Don't immediately rule out an accounting firm and consider tax jobs.  It can be quite rewarding.

[pumpkinlantern]

First off, have some hope!  I graduated with $140,000 in debt and have effectively paid it off on a salary of $50,000-$60,000.  So you can do it!

Major task:
You need to work on getting a better job.  Work really hard on your exams and network/job hunt/negotiate NOW.

In the meantime:
(1) Cut your expenses dramatically.  You need to stop the bleeding.  You should not be spending anything on eating out (plus junk food is bad for you).  Groceries should cost less than $200/month even in a high cost of living area.  And I don't know what the miscellaneous costs or the various insurances are, but look at each one and see what you really need and what you can cut/reduce.

(2) Find ways to improve your income - can you get some part-time work for extra cash?  Maybe help people do taxes during tax season or tutor some high school/university kids?

(3) Are you able to find ways to either cut down the cost (time and money) of your commute?  Find work closer to home?  Maybe work 4 days a week for longer hours instead of 5?  Be creative.

[Snowman99]

Thanks for sharing your own personal story. It definitely makes me feel a lot better about the poor situation I've gotten myself into! myself in. I've always been a very hopeful person, but that hope quickly disappears when I think about how slowly my debts are being paid off.

I've taken a look at consolidating/refinancing my loan for an extended term, but the fixed rate offered is above my current 3.85% average. I was offered $586/mo for 20 years @ 5.41%F and $680/month for 15 years @ 4.74%F. A solid $200-$300 lower monthly payment, but the interest rates are higher and the extended term adds another 5-7 years. I'm assuming both those options are not very MMM friendly, and I should rough out my $910/mo just to be done sooner at lower interest.

I agree.  Your proposed refi rate is too high.  Unfortunately, you are going to need to suck it up and make the payments on the shorter timeline to keep your 3.85% interest rate.

[Ocon]

I know at least one good thing you have going for you: you're 26 years old and concerned about your debt. You might be the only other person my age who is as concerned as I am about our debts (mines 30k). I'm certainly not qualified to give you advice like the other MMMs on here, but I can say you're not alone. We appear to have started this journey at the exact same time in our lives.

I have a friend who is an engineer, and went to a state school: ~140k in debt. He makes, I think ~120k, because he works TONS of overtime, and he's not paying off his debt. I don't even think he is concerned. Now, I've learned comparing your debt to others debt is an easy way to justify relaxing and you shouldn't do that - I did that for awhile. But sometimes perspective can be useful.

We shall fight together friend! I'd say good luck, but realistically, you and I both know what we have to do, we just have to stick with it, and do it. To the trenches!

[StockBeard]

I wanted to added to the voice of the people who have told you your expenses in groceries + restaurants feel a bit high. Our family of 5, living in a very HCOL area, was spending on average $550 a month in those. You're at $500 for one person, I'm convinced you can cut some fat in that category. To me this looks like the most "low hanging fruit" in your expenses list.

[AliInKY]

When I contracted with state government for almost two years, I joined a vanpool.  For my $40 monthly contribution, I'd carpool in a van with 6-9 other people.  My favorite thing in the world?  Nope.  I saved a lot of money though, and avoided wear on my vehicle.  And I actually met a couple of folks that I stay in contact with to this day.  Totally worth it.  You should dump that leased vehicle, get a junker for local driving, and vanpool to work. 

In a 10 second Google search I found this vanpooling information for the state of New Jersey.  I also ran a quick calculation to see what your savings would be (see attachment).  Look into it.  http://www.state.nj.us/transportation/commuter/rideshare/vanpool.shtm

[marioarm2]

When I contracted with state government for almost two years, I joined a vanpool.  For my $40 monthly contribution, I'd carpool in a van with 6-9 other people.  My favorite thing in the world?  Nope.  I saved a lot of money though, and avoided wear on my vehicle.  And I actually met a couple of folks that I stay in contact with to this day.  Totally worth it.  You should dump that leased vehicle, get a junker for local driving, and vanpool to work. 

In a 10 second Google search I found this vanpooling information for the state of New Jersey.  I also ran a quick calculation to see what your savings would be (see attachment).  Look into it.  http://www.state.nj.us/transportation/commuter/rideshare/vanpool.shtm

This is awesome! I'll definitely be looking into this.

[Larsg]

Life Situation: 26 y/o, single, no dependents, living at my dad’s house for free in Toms River, NJ. Currently commuting approx. 97 mi RT to Trenton, NJ as an Accountant for the State of New Jersey. B.S. in Accounting/Business. Trying to get free from my debts so I can move out of NJ.

When I was about your age in a similar situation, the fastest path out was to be willing to relocate anywhere in the US while you're young either within your current firm or seek jobs in other firms that will pay to relocate you. Employees willing to relocate can win big financially. It shows flexibility, adaptability, and helps you build skills for both your career and in life. Also, when you get a a job in a new firm that pays for your relocation (they come and pack your stuff, they will move 1 car, they will give you a move and sometimes and apartment allowance when you arrive in your new state/city for up to 3 months, etc), they usually also pay a signing bonus - low end is 10K when you are young in your career, as you progress these will get larger up to 30K mid range career and higher than that if you stay in the work force and increase your trajectory over time. I did this several times in my career w/out hesitation. I took the bonuses to pay off debts, fund apartment deposits, and start savings.

This is where I would start as it can solve a lot of problems in one whack.

Start looking on lined in at firms you might want to work at - I have said this a few time on the boards and will say it again, if you have a functional skills - HR, IT, Finance, Law, etc., it pays big to look at the companies in tech that pay the most - FB, Google, Apple, Microsoft, etc. It does not matter that  you are not an engineer. These functional roles are highly paid in these firms. They all need accountants, finance minds, HR People, and so on and they pay for you to relocate, they pay a high salary, you will get bonus and stock. Unless you are working at a firm that you love, there is no excuse not to pursue these companies as it will be the highest dollars for your time, the same pain as anywhere else, and an early path to regiment. I would skip the bay area entirely and look at some of their outlet locations - e.g. Google has call centers in Chicago and they probably has some functional support staff in that branch as well. FB has branches in other locations, check them all out. They have one is Seattle and I would be watching AMZN for where they land next (Hopefully much cheaper living than Seattle) and start looking for a functional role their as soon as they land it. Even if you get turned down, develop tenacity and keep trying until you get a hit. Get out of NJ. There are better places to explore, especially while you are young.

No regrets about my moves. I learned a lot, worked with some of the most intelligent people in the world and will RE. All those I started with are still stuck in the city they started in because of all of the "I can't move excuses" and are absolutely in debt and miserable.

[Malum Prohibitum]

Forget staying within a 30 mile radius of your Dad's house.

GO WHERE THE OPPORTUNITY IS.

If you can make $65k in Nebraska, you situation changes immediately.  Just pack up and go.

Looking in one little geographic area is hamstringing your job search.  Look everywhere for more money.