Author Topic: 15K in debt, but do I Save first?  (Read 3860 times)

Omoge25

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15K in debt, but do I Save first?
« on: April 22, 2015, 01:06:46 PM »
Hello all,

I have been lurking about this forum for a little while and I know this question has been discussed before and I know my "hair is on fire" I need to get out of debt ASAP, however I am not sure the best way forward. I have really been working hard to cut down on expenses and I have been successful so far and was even able to save 5K in the last year, however that money is gone now (My parents had an emergency and I needed to help them out). I have cut back on expenses some more this year and my budget now allows me $700 a month for savings and or debt repayment after taxes. I have RRSP savings and a TFSA not included in the $700. RRSP is 3% company match with employer which is currently ~12K and $1K in the TFSA but that's all the savings I currently have.

I am just over 15K in debt

-Visa Card - Balance is $290 @ 11.99% - This used to be 18%
-Car Loan - Balance is $5469.26 @ 5.44%
-Line of Credit - Balance is $9950 @ prime + 3% (~6% at the moment I think) - This was recently opened to pay off my higher interest Visa card. I was stupid with money, eating out a lot, shopping for useless things and pampering myself at spa's because I though I 'deserved' it.

My Question is, I would really like to get out of debt as quickly as possible but I need to allow for some Emergency money and savings ( I would like to buy a house/condo someday). How much do I ear mark for savings and how do I begin to pay down this debt?

My stats are:
-in a relationship (just moved in with partner to share expenses)
-I have full medical and dental benefits with my job so that helps.
-No dependents but My parents are getting older and need financial help every now and again. I have younger siblings in school in the US and every now and then I try to help them out with a plane ticket to come home for the holidays (~$500) They have massive student loans and I don't want them getting deeper into debt.
-My car is in pretty good shape 2008 Jetta and haven't run into any major problems yet (fingers crossed). The bf is pretty good with fixing cars.

MDM

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Re: 15K in debt, but do I Save first?
« Reply #1 on: April 22, 2015, 01:22:40 PM »
1) Just pay the Visa card and be done with it.
2) Get the company match - that's a 100% return on your money.
3) You don't need a substantial (e.g., much beyond covering month-to-month variability so you don't bounce checks) emergency fund now.  You have an emergency with your debts.  Just pay them ASAP instead of letting the money accumulate.
4) Then worry about accumulating a larger e-fund and possibly a down payment fund.  You'll want to compare the down payment option to an "invest more instead" option, but that can wait until steps 1-3 are done.

Good luck!

GizmoTX

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Re: 15K in debt, but do I Save first?
« Reply #2 on: April 22, 2015, 01:24:46 PM »
Your debt is costing you big time, especially when it costs you more than any savings will earn. Continue with your retirement fund that gets the company match, but put your excess towards killing your debt, highest interest first. Cut your expenses even more to free up more to throw at the debt. Will your parents be repaying you?

ohana

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Re: 15K in debt, but do I Save first?
« Reply #3 on: April 22, 2015, 01:43:17 PM »
Get rid of that high interest debt first.  If you want to have an emergency fund, perhaps after you get rid of the Visa, split your money between paying down debt and saving.

Don't help out your family until you are out of debt though.  You can't afford it.

PharmaStache

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Re: 15K in debt, but do I Save first?
« Reply #4 on: April 22, 2015, 02:01:17 PM »
I see you have 1k in your TFSA- is this just in a savings account (ie something you can easily access)?  If so, consider this your emergency fund for the moment.  Do the company match for your RRSP and put everything else towards your debt.  Don't do extra RRSP contributions, TFSA contributions or house savings until your debt is paid off!

Chrissy

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Re: 15K in debt, but do I Save first?
« Reply #5 on: April 22, 2015, 02:49:09 PM »
$100/mo to replenish your emergency fund, $600/mo to debt repayment.  Your emergency fund is supposed to cover YOUR emergencies.  It's your oxygen mask, so do like they tell you on the plane, "Put on your own oxygen mask first, then assist others with their masks." 

In two years, you'll have a $2,400 emergency fund and be debt free.  At that point, maybe do something like this...

$70 Poor Relations Fund
$200 emergency fund ($2,400 is probably low.  Aim for 6 months worth of expenses.)
$430 house down payment

It sounds like your whole family has hair on fire.  When you help them out, you're just trying to keep all of you burning at the same rate.  That doesn't make sense.  Take care of the only fire you can control:  your own.

Merrie

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Re: 15K in debt, but do I Save first?
« Reply #6 on: April 22, 2015, 04:02:18 PM »
If you have an emergency, you can use the Visa. Likely you will not need to do this. I say no e-fund until Visa and LOC gone, then you will be able to build one using the payments you were making.

Prairie Stash

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Re: 15K in debt, but do I Save first?
« Reply #7 on: April 22, 2015, 07:36:47 PM »
The line of credit is an efund. Transfer the TFSA into the line of credit. Pay off the LoC immediately. Then kill the car loan. Then rebuild the TFSA.

You're poor, stop pretending you have money to loan. I bet you spent over $1000 in interest alone last year, you could have bought 2 tickets instead of sending your money to VISA. Care to share how much interest you paid last year?

Omoge25

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Re: 15K in debt, but do I Save first?
« Reply #8 on: April 23, 2015, 07:04:09 AM »
Thank you all for all your responses. I know I need to kill my debt first but its difficult watching your loved ones go through a hard time. Yes we are all in a mess financially and I am trying to teach my siblings as I am teaching myself to be better with money. They are actually worse off financially than I am, so you can imagine.
I definitely paid over 1K in interest last year and I almost wish I had put the 5K saved towards debt repayment but then I would not have been able to help my parents when they needed me or I would have just put the expense back on the credit card anyway.

Chrissy,
I like your breakdown and I was thinking something along those lines, I will implement that and hopefully nothing big comes up in the next year of two.

MDM

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Re: 15K in debt, but do I Save first?
« Reply #9 on: April 23, 2015, 07:28:26 AM »
I definitely paid over 1K in interest last year
You can download a nice free tool from here: http://www.vertex42.com/Calculators/debt-reduction-calculator.html

It can show you how much interest you will pay, depending on how fast and in which order you pay the debts.

zurich78

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Re: 15K in debt, but do I Save first?
« Reply #10 on: April 23, 2015, 08:25:05 AM »
Mathematically speaking, pay off debt first.

But for someone in your shoes, I'd pay the minimums on my CCs, and save a small emergency fund around $1K or so.

Then, stop funding the EF and if you have the discipline, pay your highest interest rates first.  If you don't have great discipline, pay your smallest debts off first using the snowball method.