Author Topic: Looking to cut down LOTS of debt by end of 2018  (Read 3166 times)

LP-Roadster

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Looking to cut down LOTS of debt by end of 2018
« on: July 25, 2017, 09:40:10 PM »
Hey guys, I've been here off and on reading for about a year now. I feel it's finally time to get some advice from the experts.

So I'll get straight to the numbers and write out plans afterwards.

ME:

-22 years old
-3 years in banking
-$38,000 base salary, give or take around $3500-5000 in commission annually, not including investment referrals
-Series 6 & 63 licensed
-Life and Health
-Looking to qualify through referrals to take Series 65 so I can begin selling

DEBT:

-$16,200 car loan @ 2.0% interest
-$8,000 new installment loan to cover medical bills @ 12.99% :(
-$13,200ish student loans with fixed rates that vary from 3.5-4.5% (4 seperate loans)
- $0 in CC debt and have over $35K+ in available credit, I use the Chase Sapphire Preferred for all spending and pay it off weekly

BILLS:

-$479 rent (my portion)
-$353 car loan (I've been paying 375-450 depending on month)
-*EDIT* $160/month car insurance for full coverage, (I pay every 6 months to get this rate if I were to break it down)
-$181.20 for the new loan (i believe, i just got it so I'd have to look again at my docs)
-$150 student loan (minimum is 143.54 or something)
-$100 for phone and wifi combo
-$12 renters insurance
-$10 gym membership (not giving up, I'm very active and use it at least 4-5X a week)
-$8 netflix
-$300 savings (i count this as a bill)
-around $165 goes into 401(k) monthly with about $220 matching

ASSETS:

Not including my car, I have around:
-$4500 in emergency savings
-$1500 in general savings
-$700 in 401(k), been at the new job a couple of months now
-$12,850ish in Roth IRA

My primary goal is to cut down debt, however, I want to always be contributing to my savings and 401k for the match. I recently rolled my last employers 401k to my IRA and dumped some more money into it out of my savings to put it up. So this is where I'm starting with.

After bills are paid, I have close to $500 in disposable income. As a banker and someone who works with numbers, I know that realistically I have enough in emergency savings for something to happen and I can cover it, and if it was toooo expensive, a CC as a last resort. My question is, should i cut down my 401k and savings in order to have more money to apply towards debt?? Or should I continue how I am and just make quarterly large payments with my excess cash?

I want to pay down that $8k loan by next year as well as cut my car down. Not looking to buy a home for another 2 years at least and i think with my salary and potential upside through commissions, I can definitely cut even more down. I am predicting another $300/month minimum in bonus.

Please drop a reply and I will be back tomorrow for updates and clarification if needed! Thanks guys.
« Last Edit: July 25, 2017, 09:43:47 PM by LP-Roadster »

MDM

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #1 on: July 25, 2017, 09:49:04 PM »
My question is, should i cut down my 401k and savings in order to have more money to apply towards debt?
See Investment Order for some thoughts on this.

czr

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #2 on: July 26, 2017, 11:55:56 AM »
Looks like you're still 3.5 years in car payment land. You could sell it and get a beater to free up monthly cash flow. Keep contributing to the 401k up to the max every paycheck and if you are only working 40 hours a week you could get a side job to accelerate that medical debt repayment. At your income, it probably makes sense to contribute to ROTH IRA also but with your plans for a house you'll need 20-25% for a house down payment. Looks like a balanced approach and you'll do well in the long-run if you keep focused.


ysette9

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #3 on: July 26, 2017, 12:17:13 PM »
I agree with the previous poster about the car. At your income level and net worth I thinks better  use of your money is pretty much anything other than paying interes for a depreciating asset. Downsize your car to something you can pay cash for and then throw that cash each month at the high interest debt.
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ketchup

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #4 on: July 26, 2017, 12:32:02 PM »
Step zero is to stop paying more than the minimum on your student and car loans, and throw at at your 13% medical debt instead.  Kill that.  Kill that as fast as you can.

What do you use your car for?  What is your car currently worth?  With your income and debt situation, $16k for a car loan (even at 2%) seems like a bit much.  If you dump that and buy something cheap (cheap means $3-5k, my current car cost me $1800) in cash (and don't need full coverage insurance on), that'll free up your monthly cashflow quite a bit to throw at the medical debt.

You also don't say how close you are to work, or how much money you're spending on gas.  What is "phone and wifi combo" ($100/mo line item)?

Keep contributing to your 401(k), but right now while in debt-payoff mode, don't go beyond the match.

Laura33

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #5 on: July 26, 2017, 02:33:08 PM »
1.  Stop prepaying everything.  Keep your 401(k) contributions where they are, and hang onto your EF.  Throw all extra cash and your general savings at your medical bill -- 13% is high.  Knock this out as fast as humanly possible.

2.  Once that is done, I would fund a Roth IRA given your current low tax rate.  Your student loan rates are very low in general, and are I assume tax-deductible as well given your current income, so I wouldn't necessarily rush to pay them off (certainly the ones under 4%).

3.  Once the Roth is funded, I'd probably throw the extra at the student loans, especially the ones that are 4% and more.  Personally, I'd probably just knock them all off to get it done with and be free, although it's probably better long-term to put that money into your 401(k).  I think this step is a personal decision between SL payoff and more in the 401(k). 

4.  Don't prepay the car.  2% is almost free money. 

5.  Assess the adequacy of the EF once the high-priority debts are paid.  You don't want to be in a position where you need to take out another 13% loan because you didn't have enough in an EF to cover the bill.

I do agree the car seems very expensive, especially at your income level -- it's not just the loan, it's also the insurance (holy crap that's high), and you don't have numbers for maintenance, gas, registration, etc.  If the car is your "thing," then ok, as long as you are keeping your expenses well below your income and are happy with your progress paying off the debt. 
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kpd905

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #6 on: July 26, 2017, 06:02:14 PM »
As others have said, stop paying extra toward your low interest debts, and throw it all at the installment loan.

Also, when is the last time you shopped around for your car insurance?  We have two cars with full coverage and we pay $50/month with Geico.  I know yours will be higher because you're younger, but that still seems too high.
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Lepetitange3

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #7 on: July 26, 2017, 07:38:56 PM »
Sell car, get bike

The car payment is nearly as much as your rent!

LP-Roadster

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #8 on: July 26, 2017, 08:15:26 PM »
Thank you all for the feedback.

So with my work and personal lifestyle, the car is more of a tool that's needed, although a cheaper alternative would do. As another poster said, the car is my "thing." 2014 Scion FRS. I love it.

Car insurance is higher due to falling asleep at the wheel in 2015 and totaling my vehicle after hitting a telephone pole. Insurance with Progressive is by far the cheapest I've found. As far as car numbers, I spend maybe $75/month on gas, and maybe $50-60ish every couple months for oil changes. 5k miles with full synthetic.

I also don't account for income through various side hustles, which total around $400 extra monthly. I was only using numbers with job salary.

Paul der Krake

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #9 on: July 26, 2017, 08:53:48 PM »
Wtf is this 13% loan? Is it through a 3rd party? Most providers let you set up payment plans with very low or no interest.

LP-Roadster

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #10 on: July 27, 2017, 05:41:02 AM »
No, actually through a bank. Never borrowed through this bank so I wanted to deepen the relationship although their rates are a bit high right now, even with my good credit.

When I was 18, I had a surgery, and a $125 bill was not covered under my insurance at that time and went to collections. Paid it off, wrote a letter to the bureaus with a receipt...still took 2 years to fall off my credit. My credit is in excellent shape now and I did not want to risk that happening again. Just paranoid. Working in banking and seeing credit bureaus everyday, I don't want that risk. Might cost a bit extra now, but at least I'm not worrying about something popping up on my credit report next time I check.

SwordGuy

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #11 on: July 27, 2017, 06:06:25 PM »
No, actually through a bank. Never borrowed through this bank so I wanted to deepen the relationship although their rates are a bit high right now, even with my good credit.

"Deepen the relationship"  ???

WTF?

You make $38,000 a year, have almost no assets, and the bank is charging you 13%.

Your relationship to them is called "being a mark".   

LP-Roadster

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #12 on: July 27, 2017, 07:07:37 PM »
More like establishing credit...deepen the relationship, establishing credit....same difference for my purposes.

But anyways, thanks for an input that provides no value.

Paul der Krake

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #13 on: July 27, 2017, 07:21:01 PM »
What SwordGuy is saying, albeit with little tact, is that taking out a personal loan to improve your credit is completely unnecessary. Everyone who plays the credit card game knows this.

Just pay your credit card bills on time.

ketchup

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #14 on: July 27, 2017, 07:21:56 PM »
More like establishing credit...deepen the relationship, establishing credit....same difference for my purposes.

But anyways, thanks for an input that provides no value.
I'm 26, never had an installment (or car) loan, have a credit score around 740, and bought a house with a mortgage two years ago. You don't need that. Pay it off ASAP.

LP-Roadster

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #15 on: July 27, 2017, 07:39:09 PM »
I was looking to establish credit with THAT bank, as in having a record with them. Didn't want to use a credit card to pay for the bill. As far as score goes, I have a 750+ score. Why my rate is high with that score, not sure. Should have shopped around but the better offers came from p2p lenders; sofi, prosper, etc. Don't feel comfortable using one of them.
I should have clarified that I apologize.
« Last Edit: July 27, 2017, 07:58:31 PM by LP-Roadster »

ketchup

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #16 on: July 27, 2017, 08:16:03 PM »
I was looking to establish credit with THAT bank, as in having a record with them. Didn't want to use a credit card to pay for the bill. As far as score goes, I have a 750+ score. Why my rate is high with that score, not sure. Should have shopped around but the better offers came from p2p lenders; sofi, prosper, etc. Don't feel comfortable using one of them.
I should have clarified that I apologize.
Why do you care about "having a record with them"?  Do they offer something in the future that you'll want that no other bank does, and that normal qualifications (credit score, income) aren't enough to qualify you for?

LP-Roadster

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #17 on: July 27, 2017, 08:25:54 PM »
Generally good rates and mainly online. Just personal preference

theotherelise

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #18 on: July 28, 2017, 11:38:45 AM »
You seem like you've got a lot of energy for this, so I would set up a challenge to have that installment loan paid off in 6 months or less. It wouldn't even be that hard if you temporarily suspend the extra savings and extra student loan payments, use the $500 excess and add in whatever your sidehustles make.

Once you get that amount cleared, you can follow all the other good advice here. Keep in mind that if you put money towards a Roth, that can double as an extra super emergency fund. So maybe you want to just keep 3 months emergency fund in checking and then divert the rest of your monthly savings towards the Roth.

Rosy

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #19 on: July 28, 2017, 12:52:07 PM »
1.
One more vote for what sword guy said - just pay off this loan asap. A 13% interest rate is a hair on fire debt - remember reading that MMM blog post?
Can you start throwing your side gig money at this loan?
We are Mustachians - it makes no sense at all to give money away and that is exactly what this amounts to.

2.
 Your car - fine, we all need things in our lives that give us pleasure. But, like Laura said - stop making extra payments on your car loan - 2% is indeed almost free money.
... and take that age old advice, that once it is paid off, keep paying the same amount into a car fund, so you are flush next time around:)

3.
How about you take a second look at your debt with the input you received - realign your priorities and set a definite deadline for paying off each debt.

4.
Roth IRA makes sense down the line.
An increased EF to shore up your finances nicely, so you can move on to your next goals.

5.
Car insurance - eventually that accident will be off your record and your rates will drop - so do keep checking rates with different insurers once a year - worth the time!
(don't remember how long that stays on your MVR used to be five, I believe now it is ten years)

Bottomline, you were right in reviewing your approach, good luck with implementing some changes. 

mrspendy

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #20 on: July 28, 2017, 02:51:01 PM »
Using your monthly payment and loan amount, it looks like you have a 60 month loan with the bank with which you wish to "deepen your relationship". Assuming you pay on time every month for the next five years, you will spend $2,900 on interest. If you could get 5 yr, 8% money elsewhere, the incremental costs is about $1,200.

Can you provide a quantitative basis for the relationship with the bank potentially being worth more than $2,900/$1,200/incremental cost at whatever your alternative interest rate would've been?

At your level of income and assets, I can not think of anything that would provide that kind of benefit. You cite "generally good rates and mainly online". If you mean "deposit rates" you would need lots of cash for that to matter (which you don't have). If you mean borrowing rates...they are charging you 13% so that doesn't compute. If you mean mortgage rates, the mortgage market is highly competitive and no one has a monopoly on having low rates (which you know since you work in banking)....Isn't every bank online?

I imagine said bank doesn't have a pre-payment penalty on this loan. Get rid of that thing, or provide some quantitative backing.

Why aren't you comfortable using sofi or prosper?

vawt

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #21 on: July 28, 2017, 04:00:10 PM »
Given your cc credit lines, I would actually use the emergency savings to pay off the entire $8k loan.  That is my personal preference as while you build back up the emergency fund the credit card lines are a backstop.

the car is too expensive, but if that's your thing you can work around it.

good luck!

FinallyAwake

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #22 on: July 28, 2017, 04:29:50 PM »
maybe $50-60ish every couple months for oil changes. 5k miles with full synthetic.


Why are you changing oil every 5k miles if you use synthetic? 

ketchup

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #23 on: July 28, 2017, 06:59:30 PM »
maybe $50-60ish every couple months for oil changes. 5k miles with full synthetic.


Why are you changing oil every 5k miles if you use synthetic?
I missed this. I use synthetic and change mine every 7,500 (as the owners manual calls for), but my car is a 2001 and a turbo. I'm almost certain the correct interval for your car is longer. And before you say "I'm just being extra careful" consider that the most engine wear occurs in the first half of the oil's lifespan, so you're really just wasting oil, time, and money in order to have a worse outcome. 

LP-Roadster

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #24 on: July 28, 2017, 09:16:56 PM »
Thanks for the replies.

1) I don't plan on holding the loan beyond a year. I think that is a reasonable expectation, so yes although the interest rate is high, I don't plan on actually spending too much in interest through the life of the loan.
2) Personal preference for my car. I keep it very well maintained and although not necessary, I prefer to keep it that way. I've done trans fluid changes twice, rear diff twice, and everything else at least once even if it's not due yet. Just part of being a "car enthusiast", I take very good care of my vehicles. Not to mention, 7500 is what my particular car calls for but review the car and engine for yourself and you'll find 5k is around the average maximum most people will go for doing oil changes. Nothing wrong with making sure your only source of transportation is well maintained.
3) The comments here really do help. I hope you guys know that I am taking the advice in a positive light. I know I'm young and although somewhat experienced in personal finance, I've had to learn everything I know on my own. I came from VERY humble beginnings and am way ahead (although laughable in comparison to some here) in relation to the rest of my family.
I'm still learning. Just know that with every comment, I'm learning from more experienced people.

I think I've got a grasp on what needs to be done but by all means any advice is well appreciated. Thank you all.

SwordGuy

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #25 on: July 31, 2017, 05:41:13 PM »
What SwordGuy is saying, albeit with little tact, is that taking out a personal loan to improve your credit is completely unnecessary. Everyone who plays the credit card game knows this.

Just pay your credit card bills on time.

Sorry, my Dad occasionally escapes out of me.    He used to brag that the word 'tact' wasn't in his dictionary.  Mom bought him a dictionary that had that word in it but it didn't help.

Seriously, get rid of the 13% loan as soon as you can.  You'll "get credit" for paying it off on time, or even early.

Once you're no longer in serious debt repayment mode, just paying your credit card off in full each month, on time, will work the magic on your credit.   Ditto if you get a mortgage later and pay it off on time.

pesos

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #26 on: August 03, 2017, 06:09:41 PM »
Can I ask why you pay your credit card bill weekly? Just wait until the statement comes due, much easier and you can hang onto your money longer.

LP-Roadster

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #27 on: August 03, 2017, 08:25:39 PM »
Sure pesos.

So a lot of lenders generally report to the credit bureaus near the end of the month.

Let's say they report on the 28th.

If your statement ends and the bill is due on the 30th, and that's when you pay, great. You've paid off your balance in full like you should. HOWEVER, your balance for that month will be reported on the 28th whatever you owed, therefore although you're doing the right thing by paying it off, it's reporting whatever balance you carried up until that point.

Since your credit utilization rate is one of the bigger factors in determining your score, I personally like to always pay mine bi-weekly. I'm not strapped for cash so I can afford to be without the extra 75 bucks or whatever I may spend for that period. And, if I do wait to pay closer to the due date, if it ever is reporting a balance, it's not a month's worth of transactions, just a couple weeks.

Feivel2000

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Re: Looking to cut down LOTS of debt by end of 2018
« Reply #28 on: August 05, 2017, 02:54:17 AM »
Kill the $8000@13% dept asap! Throw your EF and other savings at it and rebuild the EF with the now free cash flow.
Use credit cards (prefered @0%) for a real emergency.

This loan costs you $2920 in interest over 5 years!