Author Topic: Advice!  (Read 5971 times)

newb999

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Advice!
« on: February 25, 2015, 09:10:53 AM »
Hi all, I'm brand new to both saving and the site. I'd appreciate advice as I'm getting myself together financially after a series of (years-long) unfortunate decisions.

Info:

Salary: $60,000CAD
Salary 2: ~$8,000CAD cash (bartending)
Debt: $6,600 @ 15% interest (LONG story, basically it's consolidated consumer debt after being denied a loan and supporting myself doing unpaid internships in the States on credit cards)
Savings: $1,300
Rent: $500/month
Insurance: $150/month
Monthly gas: ~$350 (I commute quite far, but will be moving in May, which unfortunately means an increase in rent)

I pay $200/week to my debt. My question is - what do I do now? What is my best option? I recently checked and my credit rating is "very good", but I'm scared to apply for another loan at a lower rate in case it impacts my credit negatively. Please be brutally honest I know I'm a beginner here with much to learn.

My job also matches RRSP's at max 4% of salary after a year of employment - I've been there 6 months. Do I open one now or concentrate on debt? I'm not living paycheck to paycheck, and I'm trying to save I just don't know what the smartest decision for me is right now. I bow down to your Mustachian wisdom.

James

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Re: Advice!
« Reply #1 on: February 25, 2015, 09:15:58 AM »
Start here...

Most concerns about credit rating are overblown, the key is what you want to accomplish, so if financially a loan is best to replace your other loan and get rid of the 15% interest, that is what you need to do. But given your income you can likely get rid of it really fast without a new loan by just not spending on anything else other than absolute necessities until then.

Start contributing to get the match at work.

Congrats at posting here and being willing to change things for your future self!

Retire-Canada

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Re: Advice!
« Reply #2 on: February 25, 2015, 09:17:52 AM »
Kill that 15% loan ASAP.

Then max your RRSPs and TFSA each year.

Once you've done that keep saving and put the rest into non-registered accounts.

How much you can save per year is the next question you need to figure out.

-- Vik
« Last Edit: February 25, 2015, 09:21:13 AM by Vikb »

newb999

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Re: Advice!
« Reply #3 on: February 25, 2015, 09:41:03 AM »
Thanks to both. I've read the debt emergency post so many times!

I just don't want to miss out on compounded interest but for now, I think the loan should be my focus.

Time to up my weekly payment!

Thanks again!

thd7t

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Re: Advice!
« Reply #4 on: February 25, 2015, 09:48:12 AM »
You DO want to miss out on compound interest!  It's killing you, right now!  Most people on this site (and it varies a lot) seem to say that you can start to choose whether to invest or pay off debt at around 5% interest on the debt.  You're way beyond that.  I don't think anyone would tell you to invest more than the minimum for any employer match that might be available in this case.

James

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Re: Advice!
« Reply #5 on: February 25, 2015, 10:26:38 AM »
Thanks to both. I've read the debt emergency post so many times!

I just don't want to miss out on compounded interest but for now, I think the loan should be my focus.

Time to up my weekly payment!

Thanks again!


Glad to hear you are reading that a lot, that will help keep your focus. You are right that you will miss out on some earnings, but not 15% worth, so you have the right plan. Paying every week is great, but if you get paid biweekly you may want to send your payment biweekly, making the payment the day after you get paid. That way you send the money as soon as you have it, and only keep what you need to live for the next two weeks.


Let us know when it is paid off, and how long it took. :)

newb999

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Re: Advice!
« Reply #6 on: February 25, 2015, 11:28:41 AM »
Thanks to both. I've read the debt emergency post so many times!

I just don't want to miss out on compounded interest but for now, I think the loan should be my focus.

Time to up my weekly payment!

Thanks again!


Glad to hear you are reading that a lot, that will help keep your focus. You are right that you will miss out on some earnings, but not 15% worth, so you have the right plan. Paying every week is great, but if you get paid biweekly you may want to send your payment biweekly, making the payment the day after you get paid. That way you send the money as soon as you have it, and only keep what you need to live for the next two weeks.


Let us know when it is paid off, and how long it took. :)

I get paid weekly on Thursdays so it comes out Fridays. Then each Weds night whatever I"ve got left I put in as a lump sum. Admittedly it's not always a lot as I'm slowly learning to cut spending.

SaintM

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Re: Advice!
« Reply #7 on: February 25, 2015, 11:34:06 AM »
Would you qualify for a credit card with a 0% balance transfer?  This may cost 2-3% at the beginning, but 0% for the next 12 months will save you a lot over 15%.

2Birds1Stone

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Re: Advice!
« Reply #8 on: February 25, 2015, 11:40:05 AM »
I would live off ramen noodles and beans till that 15% debt was gone.

newb999

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Re: Advice!
« Reply #9 on: February 25, 2015, 11:40:26 AM »
Would you qualify for a credit card with a 0% balance transfer?  This may cost 2-3% at the beginning, but 0% for the next 12 months will save you a lot over 15%.
I'm honestly not sure. I don't have a single credit card right now. I applied for one in Jan thinking I could use it to build credit and get rewards and I wasn't approved. That's why I checked my credit, assuming it was still terrible but it's actually pretty good. I applied for a TD Aeroplan Visa with a max of 5k and they said no - but didn't say why.

newb999

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Re: Advice!
« Reply #10 on: February 25, 2015, 11:59:06 AM »
I would live off ramen noodles and beans till that 15% debt was gone.
It's canned soup mostly but I'm getting there.

Prairie Stash

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Re: Advice!
« Reply #11 on: February 25, 2015, 12:05:20 PM »
I would research some credit cards with low interest rates, move the loan over to a card. Or just ride it out for the next 4-5 months.

After the debt is settled aim for $1000/month into RRSP. Then $500/month into your TFSA. The TFSA functions as an E-Fund, a savings fund for a house (if you desire) and a retirement fund. Obviously more is better (these are minimum amounts), until you start reaching maximum contribution limits. At $1000 into the RRSP you will be over contributing for the year and using past contribution room. At $500 you'll be contributing $6000/year, which requires using past contribution room (max for 2014 was $5500).

That's what I would do if I was starting out in your shoes. I made a few assumptions, you might have to adjust if I assumed poorly. If you want to know how to invest your money search Canadian Couch Potato (it's the most common answer for Canadians).

James

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Re: Advice!
« Reply #12 on: February 25, 2015, 12:15:28 PM »
I get paid weekly on Thursdays so it comes out Fridays. Then each Weds night whatever I"ve got left I put in as a lump sum. Admittedly it's not always a lot as I'm slowly learning to cut spending.


Sounds like you have a good plan.

Don't beat yourself up too much, that 15% debt might be the best thing that ever happened to you. So many people steam through life with moderate debt, limited savings, and never realize they are just floating by when they could be soaring. Sometimes people look back and realize that thing that seemed so horrible at the time was exactly what they needed to open their eyes and help them find a better plan. Sure, that 15% on $6,600 sounds like a lot, but I lost $300,000 on a stupid house purchase before I woke up. Be glad you are on the right track and make sure you follow whatever track will take you where you want to go in the future. :)


The 0% credit card isn't a horrible idea, but it does carry some major risk of taking the edge off your desire to pay off the debt. Only you can know your level of discipline and what it takes to keep you motivated. Over the next few months the interest rate isn't your biggest enemy, it's that balance. Maybe you can save $100 in total, or even $200 using a no interest credit card, but if it affects you even slightly to spend more, you could burn through that savings really quick. I would get the cc sometime later, when you know you will pay it off every month and only use it the right way.


Regarding meals, don't forget to pick up some fresh veggies on sale. Your health is important enough that a few bucks on quality food is worth it long term. Also things like homemade rice and beans is a lot healthier than canned soup, and cheaper as well. :)

Travis

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Re: Advice!
« Reply #13 on: February 25, 2015, 12:31:20 PM »
You DO want to miss out on compound interest!  It's killing you, right now!  Most people on this site (and it varies a lot) seem to say that you can start to choose whether to invest or pay off debt at around 5% interest on the debt.  You're way beyond that.  I don't think anyone would tell you to invest more than the minimum for any employer match that might be available in this case.

Only Bernie Madoff is going to guarantee you a 15% gain while that debt IS going to cost 15% until it's gone.

After getting rid of that debt (balance transfer card/aggressive payoff) you might find yourself comfortable with living off the same amount of money and apply that debt-repayment to investments instead.

newb999

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Re: Advice!
« Reply #14 on: February 25, 2015, 12:57:56 PM »
I get paid weekly on Thursdays so it comes out Fridays. Then each Weds night whatever I"ve got left I put in as a lump sum. Admittedly it's not always a lot as I'm slowly learning to cut spending.


Sounds like you have a good plan.

Don't beat yourself up too much, that 15% debt might be the best thing that ever happened to you. So many people steam through life with moderate debt, limited savings, and never realize they are just floating by when they could be soaring. Sometimes people look back and realize that thing that seemed so horrible at the time was exactly what they needed to open their eyes and help them find a better plan. Sure, that 15% on $6,600 sounds like a lot, but I lost $300,000 on a stupid house purchase before I woke up. Be glad you are on the right track and make sure you follow whatever track will take you where you want to go in the future. :)


The 0% credit card isn't a horrible idea, but it does carry some major risk of taking the edge off your desire to pay off the debt. Only you can know your level of discipline and what it takes to keep you motivated. Over the next few months the interest rate isn't your biggest enemy, it's that balance. Maybe you can save $100 in total, or even $200 using a no interest credit card, but if it affects you even slightly to spend more, you could burn through that savings really quick. I would get the cc sometime later, when you know you will pay it off every month and only use it the right way.


Regarding meals, don't forget to pick up some fresh veggies on sale. Your health is important enough that a few bucks on quality food is worth it long term. Also things like homemade rice and beans is a lot healthier than canned soup, and cheaper as well. :)
Thanks James. Just browsing through different forums here led me to using Mint to see where I spend my money, which was an eyebrow-raising experience. I think I could comfortably up the amount to $300 weekly down.

Also, I do eat veggies, promise.

newb999

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Re: Advice!
« Reply #15 on: February 25, 2015, 01:00:17 PM »
You DO want to miss out on compound interest!  It's killing you, right now!  Most people on this site (and it varies a lot) seem to say that you can start to choose whether to invest or pay off debt at around 5% interest on the debt.  You're way beyond that.  I don't think anyone would tell you to invest more than the minimum for any employer match that might be available in this case.

Only Bernie Madoff is going to guarantee you a 15% gain while that debt IS going to cost 15% until it's gone.

After getting rid of that debt (balance transfer card/aggressive payoff) you might find yourself comfortable with living off the same amount of money and apply that debt-repayment to investments instead.
The plan is to carry on transferring the money as normal, just into my TFSA rather than the loan.

PS I had to Google Bernie Madoff. Shameful, I know

Cwadda

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Re: Advice!
« Reply #16 on: February 25, 2015, 01:50:43 PM »
Quote
I just don't want to miss out on compounded interest but for now, I think the loan should be my focus.

Nothing you invest right now will give you a 15% return. Consider your hair on fire until that 15% debt is killed. Once that's dealt with you'll have a ton of relief and lots of options :)