Author Topic: 25 y/o with debt, looking for advice.  (Read 2630 times)

dienastyy

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25 y/o with debt, looking for advice.
« on: February 05, 2017, 01:03:00 PM »
Would like some advice on saving/paying off car and student loan debts. A little bit of a background, my salary is around 70k and I will make around 100k with overtime included. After my pension and 457(b) retirement being taken out of my checks, my take home is around 1500 every 2 weeks. I'd like to start saving for a down payment on a house (as I still live at home) while getting rid of my debt. I have about 18k saved up, and around 8k in a compensatory bank that I am owed from work.

Student loan debt: $31,800 w/ 4.95% fixed... $655/month. (remaining term 4years 2months)
Car debt: $21,500 w/ 3.49% apr...$545/month. (remaining term 3years 3months)

My parents are lucky enough to help with a lot of my other bills and allow me to stay at home for the time being. Should I just be paying the minimum on those loans and trying to dump the rest into savings? Or should I take any windfall (like overtime and tax returns) and use them towards my loans?

Thanks !

cakie

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Re: 25 y/o with debt, looking for advice.
« Reply #1 on: February 05, 2017, 02:15:26 PM »
It seems silly to me to have cash sitting around while you have these debts. Keep an emergency fund and stick the rest on the loans.

What car is it? If you are really keen on saving for a house, you may want to sell the fancy car and buy something cheaper to replace it...would speed things up.

How much are houses in your area? Are you pretty much there for 20% down or a long way off?

Some perspective from a 26yo renter who likes cars <$5k and has similar income and SL amounts.... :)

cakie

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Re: 25 y/o with debt, looking for advice.
« Reply #2 on: February 05, 2017, 02:17:31 PM »
it cut of the rest of my post! I don't like cars! I like cheap cars less than $5k! Also, we have similar income and SL amounts :)

dienastyy

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Re: 25 y/o with debt, looking for advice.
« Reply #3 on: February 05, 2017, 02:23:10 PM »
It seems silly to me to have cash sitting around while you have these debts. Keep an emergency fund and stick the rest on the loans.

What car is it? If you are really keen on saving for a house, you may want to sell the fancy car and buy something cheaper to replace it...would speed things up.

How much are houses in your area? Are you pretty much there for 20% down or a long way off?

Some perspective from a 26yo renter who likes cars <$5k and has similar income and SL amounts.... :)

Its a 2014 Jeep Wrangler Unlimited Polar edition. Has about 30k miles on it, KBB has it valued around 27k-30k stock, but i have about 6k in upgrades I put into the truck (lift kit, tires, light bars, bumpers, etc.) Ive considered selling once it is paid off, but i don't really feel like dealing with the hassle of selling it while i still owe money on it (20k).

Houses in my area range from 200k-500k. The only other money that i have but did not list is a 25k inheritance, which i won't get for about another year or so. I'd like to consider buying a two family home and living in one side while renting the other.

cakie

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Re: 25 y/o with debt, looking for advice.
« Reply #4 on: February 05, 2017, 02:38:58 PM »
That $8k you mentioned, can you access that or not for a while?

You will have about $50k (18+8+25) in a year or so. That is already enough to buy a $200k house. I really think you should smash out the debt first.

I totally understand the hassle of selling the car while there is a loan on it. You could pay the loan off first? Most cars start to slow depreciation after 3yrs, but you will still be losing money, so the sooner the better. Unless you plan on keeping the car for the next 20yrs, in which case don't worry about it and focus on the student loan. Forget about the extra stuff you put on the car, think SUNK COSTS.

dienastyy

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Re: 25 y/o with debt, looking for advice.
« Reply #5 on: February 05, 2017, 02:47:42 PM »
Yeah the 8k I'm owed from work, i can withdraw that money at any time and have it available in my next paycheck.

Ive thought about taking around 15-16k, putting it towards my car and then pay it off in full once I get my tax return and next overtime check. That would leave me with about 2-3k + 8K as an emergency fund plus the 25k as a start for a down payment. That would clear up $545/month from my car loan which i can dump into my student loan and try to tackle that. 

cakie

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Re: 25 y/o with debt, looking for advice.
« Reply #6 on: February 05, 2017, 02:53:51 PM »
Sounds sensible to me. You'll have $10k as emergency money and $1200+overtime going to your student loan every month. Should disappear very quickly that way!

marielle

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Re: 25 y/o with debt, looking for advice.
« Reply #7 on: February 06, 2017, 06:38:06 AM »
If you really want to speed up paying the loans off and retirement, you have to sell the car. That's a ridiculous car. You're committing Jeep suicide.
http://www.mrmoneymustache.com/2016/09/12/reader-case-study-young-man-saved-from-jeep-suicide/

Selling to a private party isn't that difficult with a loan. The difficult part would be to actually find a buyer since it's fairly new/expensive. If they have cash, they can meet you at the bank you have the loan with and handle the transaction there by paying the loan off with that cash, then transferring the title over once you have it from the bank. Takes maybe an hour.

I would also go around to dealerships and see how much you can get for it. Maybe Carmax too or some online car resellers. It can't hurt. You might take a loss on it but a 3k loss now is better than driving around in that clown car gas guzzler for 10 years. You would save that just in gas. I don't know how the modifications would affect selling to a dealership though.

NoStacheOhio

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Re: 25 y/o with debt, looking for advice.
« Reply #8 on: February 06, 2017, 06:43:39 AM »
Something here doesn't add up. Bi-weekly $1500 = $39,000 annually. The 457 limit is 18k, how much is the pension? Healthcare and taxes? Is it just $1500 until you hit the yearly max for the 457?

Also, take the $8k you're owed, even if you don't do anything with it, you're giving your employer an interest-free loan.

Heroes821

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Re: 25 y/o with debt, looking for advice.
« Reply #9 on: February 06, 2017, 07:28:10 AM »
Something here doesn't add up. Bi-weekly $1500 = $39,000 annually. The 457 limit is 18k, how much is the pension? Healthcare and taxes? Is it just $1500 until you hit the yearly max for the 457?

Also, take the $8k you're owed, even if you don't do anything with it, you're giving your employer an interest-free loan.

I thought that looked low as well, but with a salary of 70k, 39k take home, plus 18k 457 = 57k.  Retirement could easily be 10k a year or more and then health insurance etc.  He added 30k of overtime which probably fluctuates seasonally depending on the work.

@OP try this:  http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153
                  
WHAT            
0. Establish an emergency fund to your satisfaction            
1. Contribute to your 401k up to any company match            
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.            
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level            
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)            
6. Fund mega backdoor Roth if applicable            
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.            
8. Invest in a taxable account with any extra.            
            
WHY            
0. Give yourself at least enough buffer to avoid worries about bouncing checks            
1. Company match rates are likely the highest percent return you can get on your money            
2. When the guaranteed return is this high, take it.            
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.            
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between. See also Traditional versus Roth.
   See Credits can make Traditional better than Roth for lower incomes and other posts in that thread about some exceptions to the rule.
   The 'Calculations' tab in the Case Study Spreadsheet can show marginal rates for savings or withdrawals.
5. See #4 for choice of traditional or Roth for 401k            
6. Applicability depends on the rules for the specific 401k            
7. Again, take the risk-free return if high enough            
8. Because earnings, even if taxed, are beneficial            

Please read the linked post as MDM makes much more detailed points on top of this, but this is considered "THE List" for organizing debt payments and savings priorities.  I swear it's supposed to be stickied somewhere, but I couldn't find the sticky.


erutio

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Re: 25 y/o with debt, looking for advice.
« Reply #10 on: February 06, 2017, 11:57:44 AM »
Hey there.  Congrats on starting saving so early and being smart about living at home at first to further save money.  With that salary and your 18+8k stash, you're off to a good start.

However, what's going on here? 

Car debt: $21,500 w/ 3.49% apr...$545/month. (remaining term 3years 3months)
Its a 2014 Jeep Wrangler Unlimited Polar edition. Has about 30k miles on it, KBB has it valued around 27k-30k stock, but i have about 6k in upgrades I put into the truck (lift kit, tires, light bars, bumpers, etc.) Ive considered selling once it is paid off, but i don't really feel like dealing with the hassle of selling it while i still owe money on it (20k).

I thought this was MMM forums.  This isn't a saving money, bogleheads, or even FIRE forums, but MMM forums
This is face-punch worthy of the highest degree.

Quit paying those high car loan interest rates, quit killing the environment with the gas guzzler, quit killing yourself with the driving, get over your upgrades, and get over the "not really feeling like dealing with selling while still owing money on it" mental block.

 Sell the car off.  If you get 29k for it, you will net ~8k, from which you can buy a ~5k car, and apply the rest to your stache.  The $545/month for the Jeep now goes towards your savings, either for the down payment for your house, or if not a house, can consider putting it in a Roth.

If you are really looking to buy a house, for say $250K, you'll need a 50k downpayment.  If you sell the car and bank roll that and the car payments, you'll get to 50k in ~3 years.

dienastyy

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Re: 25 y/o with debt, looking for advice.
« Reply #11 on: February 06, 2017, 03:48:39 PM »
If you really want to speed up paying the loans off and retirement, you have to sell the car. That's a ridiculous car. You're committing Jeep suicide.
http://www.mrmoneymustache.com/2016/09/12/reader-case-study-young-man-saved-from-jeep-suicide/

Selling to a private party isn't that difficult with a loan. The difficult part would be to actually find a buyer since it's fairly new/expensive. If they have cash, they can meet you at the bank you have the loan with and handle the transaction there by paying the loan off with that cash, then transferring the title over once you have it from the bank. Takes maybe an hour.

I would also go around to dealerships and see how much you can get for it. Maybe Carmax too or some online car resellers. It can't hurt. You might take a loss on it but a 3k loss now is better than driving around in that clown car gas guzzler for 10 years. You would save that just in gas. I don't know how the modifications would affect selling to a dealership though.

I'll look into selling it to a private party. Does that negatively affect my credit at all?

Something here doesn't add up. Bi-weekly $1500 = $39,000 annually. The 457 limit is 18k, how much is the pension? Healthcare and taxes? Is it just $1500 until you hit the yearly max for the 457?

Also, take the $8k you're owed, even if you don't do anything with it, you're giving your employer an interest-free loan.

My paycheck breaks down as follows:
Gross: $2819

Fed income tax: -$316
Medicare tax: -$38
State income tax: -$123
Pension+back pension: -$305 -$80
Med cafe: -$224
457(b): -$200
Life ins: $20
Union dues: $43

Take home $1469

the 8k is based on hours, so next year when I get a raise, those hours will be worth around 9k. That's the only reason I haven't cashed it out yet

If you really want to speed up paying the loans off and retirement, you have to sell the car. That's a ridiculous car. You're committing Jeep suicide.
http://www.mrmoneymustache.com/2016/09/12/reader-case-study-young-man-saved-from-jeep-suicide/

The article URL made me laugh, but it was a good read
« Last Edit: February 06, 2017, 03:53:54 PM by dienastyy »

marielle

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Re: 25 y/o with debt, looking for advice.
« Reply #12 on: February 06, 2017, 04:17:35 PM »
Quote
I'll look into selling it to a private party. Does that negatively affect my credit at all?

No, as long as you don't miss any payments.

You should still get a quote from a few dealerships, that way if someone lowballs you, you can say the dealership offered more (or just keep the information to yourself).

You can still sell to someone without them having the cash, but it's a little trickier since they will have to apply for a loan. Not impossible but could be annoying. If you sold to a dealership, they would get everything done and the titled cleared within an hour or so.

dienastyy

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Re: 25 y/o with debt, looking for advice.
« Reply #13 on: February 06, 2017, 04:26:04 PM »
Quote
I'll look into selling it to a private party. Does that negatively affect my credit at all?

No, as long as you don't miss any payments.

You should still get a quote from a few dealerships, that way if someone lowballs you, you can say the dealership offered more (or just keep the information to yourself).

You can still sell to someone without them having the cash, but it's a little trickier since they will have to apply for a loan. Not impossible but could be annoying. If you sold to a dealership, they would get everything done and the titled cleared within an hour or so.

Gotcha.

Is it recommended to then take what I have saved and used it to pay down my student loan?

marielle

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Re: 25 y/o with debt, looking for advice.
« Reply #14 on: February 06, 2017, 05:07:37 PM »
Quote
I'll look into selling it to a private party. Does that negatively affect my credit at all?

No, as long as you don't miss any payments.

You should still get a quote from a few dealerships, that way if someone lowballs you, you can say the dealership offered more (or just keep the information to yourself).

You can still sell to someone without them having the cash, but it's a little trickier since they will have to apply for a loan. Not impossible but could be annoying. If you sold to a dealership, they would get everything done and the titled cleared within an hour or so.

Gotcha.

Is it recommended to then take what I have saved and used it to pay down my student loan?

I personally would since the rate is higher on your loans than your car. As long as you aren't underwater on your car and keep an emergency fund. Get a quote from a dealership then make sure you have at least that much paid off on the car just in case you can't sell private party. If you're underwater you'll have a pretty difficult time selling, you'd need to take a loan out for the difference. And a private party sale would be pretty much impossible. I know you said you can get $29k for it but a dealership could offer much less, and there aren't many people floating around on Craigslist trying to buy $29k cars.

nobody123

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Re: 25 y/o with debt, looking for advice.
« Reply #15 on: February 07, 2017, 07:21:00 AM »
How much of that $1469 per paycheck is going towards savings? 
Do you have dependents, why are you paying $20/check for life insurance? 
How long until you are 26?  Can you save money by switching to your parent's health insurance for a year?

I am going to guess you like your car since you bought it and upgraded it.  I'd just keep it for the long haul.

Since you're living at home, I am guessing the only "emergencies" you can actually encounter is job loss or catastrophic medical.  If either of those are unlikely, I would keep a bare bones emergency fund of $3K and use the remaining $23K available to you to knock down the student loans.  I'd then pay the balance off over the next 13 months (or quicker with your OT checks, tax return, etc.).  Use the $655 that gets freed up to speed up the car repayment.  Rebuild your "house fund" using whatever you've been saving to get to the 18K, and supercharge that savings with the $1200/month once both loans are paid off.

Personally, I would caution against going straight from living at home to being a landlord on half of a duplex.  If you've never lived alone or maintained your own property, it's going to be a period of adjustment.  You don't want to get in over your head.