Author Topic: Advice for becoming debt free? Help!  (Read 3417 times)

PcUv3fAY

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Advice for becoming debt free? Help!
« on: July 10, 2016, 02:52:54 PM »
Topic Title: destroying debt quickly

Life Situation: married filing jointly. 3 dependents, 6, 4, and 2. Live in New York.

Gross Salary/Wages: 175K

Pre-tax deductions: 100 for health insurance

Other Ordinary Income: 0

Qualified Dividends & Long Term Capital Gains: 0

Rental Income, Actual Expenses, and Depreciation: 0

Adjusted Gross Income: 173,800

Taxes:
NY taxes - $9,960/yr.
Federal - $26,136/yr.
Social security + medicare - $12,000

Current expenses:
Rent - 2200 (I live in NY)
Utilities - 300
Phones - 200
Tuition 900
Food - 800
Life Ins - 120
Auto Ins - 300
Car payment - 600
Student loans - 1500
Gas and oil - 100
Monthly train ticket - 250
Misc - 300

Assets: Car worth $15K as best I can tell

Liabilities:
Student loans - $169,190 - Rate 6.24%, 240 months term. Monthly $1,295
Credit cards - $22,000 - 0% APR until July 2017
Car loan - $15K - 72 month term with 25 remaining. $630/month

Specific Question(s): Where should I be putting my money every month? Keep payments at minimum on student loans until CC debt is paid off? Anything else I can be doing to improve my situation?
« Last Edit: July 10, 2016, 03:45:02 PM by PcUv3fAY »

Bracken_Joy

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Re: Advice for becoming debt free? Help!
« Reply #1 on: July 10, 2016, 02:59:37 PM »
First of all, although you have a great start here, formatting in a full case study will help people provide feedback. http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/

Personally, I would want that CC debt GONE. So I would do that first, because I wouldn't want to count on being able to find another 0% deal.

The car debt is easy, unless you're underwater on it. Sell the car and buy a reasonable used automobile.

What are you paying $900 tuition for each month? Are your kids in private school? Are you sure it's worth it?

Phones are spendy, I would look at IP Daley's communication guide. http://forum.mrmoneymustache.com/share-your-badassity/communications-tech-son-of-the-superguide!/

There are lots of threads on how to lower your grocery expenses, definitely read those.
http://forum.mrmoneymustache.com/welcome-to-the-forum/i-need-help-from-fellow-frugal-healthy-eaters-groceries-are-killing-us!/150/
http://forum.mrmoneymustache.com/post-fire/how-can-i-spend-less-on-groceries/
http://forum.mrmoneymustache.com/ask-a-mustachian/need-help-to-reduce-my-grocery-bill/

PcUv3fAY

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Re: Advice for becoming debt free? Help!
« Reply #2 on: July 10, 2016, 03:32:34 PM »
thank you! I've updated the formatting. Hope that helps. Thank you for your advice. Looking at blue book value of my car, it doesn't look like I'd get ahead that much by selling it :(

lbmustache

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Re: Advice for becoming debt free? Help!
« Reply #3 on: July 10, 2016, 04:46:42 PM »
Auto insurance seems kind of high for one car, although I understand that New York has high rates in general. Can this be worked down a bit?

I would pay off the credit cards first since you don't want to start accruing interest. Then I would move to the car, then the student loans.

Bracken_Joy

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Re: Advice for becoming debt free? Help!
« Reply #4 on: July 10, 2016, 05:06:14 PM »
Wow. What's the rate on the car loan? That student loan rate is pretty high! If you have good credit, I would consider refinancing... potentially. However, if you refinance federal loans, you lose the benefits like deferral with income loss or IBR with income reduction. So it's not one to do without research! But if they are private loans, or you could get a substantially better rate, it may be worth considering. I know a lot of people have used SoFi, but you do need good credit to qualify. I haven't ReFi'd personally, so don't know a ton about it. But personally, I very aggressively paid off all my student loans above 5%.

PcUv3fAY

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Re: Advice for becoming debt free? Help!
« Reply #5 on: July 10, 2016, 05:19:17 PM »
I recently refinanced with CommonBond. I also think the rate is really high. I'm going to try SoFi and see what I might be able to get there.

PcUv3fAY

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Re: Advice for becoming debt free? Help!
« Reply #6 on: July 10, 2016, 05:27:15 PM »
I believe the car loan is at 3% but I need to wait till tomorrow to confirm the exact number.

Zamboni

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Re: Advice for becoming debt free? Help!
« Reply #7 on: July 10, 2016, 05:35:25 PM »
Thanks for posting all of the information!

I don't think anyone expects you to "get ahead" all at once by selling the car. They expect you to free up some money (because you will no longer have a car payment) to use for paying down your other debt. Are you in the city? Who is using the car, and for what purpose? Gett car service in Manhattan is pretty affordable and you could take 90 rides per month just for what you are paying for your car now. (http://gett.com/nyc/) Of course, I don't know exactly where you are, and at $2200 a month rent with a family of 5 you are probably not in Manhattan. I'm just using that example to illustrate a point.

If you really need a car, then please ditch the giant car payment and get something older and more reliable with a much smaller used car loan. You can get a perfectly reasonable Honda or Toyota for $5K-6K (my used Prius was $3600 and it's been running like a top for 45K+ miles for me with nothing for expenses but gas, oil changes, and tires.) Also don't give any crap about "needing" a big car, because I'm a) probably taller than you and your wife and b) a former officer of my local parents of twins and triplets club; yet I drive a Prius. I found a twin stroller that would fit in my Corolla trunk back in the day.

You can then put what used to be the giant monthly car payment towards the credit card debt to kill it. I really think this will get you ahead the fastest.

I think your food expense is reasonable for 5 people in NY, although not everyone here will understand the prices where you live. It could always be lower, but even if you trim off $300 a month ($500 for 5 people would put it very low for NY), you still aren't making nearly as much headway as you will with a car switcho chango.

Also, excellent job on having life insurance, which is very important! Please don't let that lapse for any reason. Utilities are reasonable.

Phone is way too high, though, and I second looking at IP Daley's thread. I'll also second looking into lowering the student loan interest rate if you can do it in a way that makes sense.

PcUv3fAY

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Re: Advice for becoming debt free? Help!
« Reply #8 on: July 10, 2016, 06:05:16 PM »
Thank you so much for your reply. The car is used primarily by my wife for running errands and driving the kids to and from school, etc. Completely agree a much cheaper car will be fine and I feel like a complete idiot for ever buying such an expensive car.

It does seem like the consensus here (and really the obvious move) is to sell the car and just kill that large payment and, potentially, lower the insurance payment as well. I'm going to make this my number one priority. Thank you very much.

Sibley

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Re: Advice for becoming debt free? Help!
« Reply #9 on: July 10, 2016, 06:21:34 PM »
Yep, fix the car, look at insurance.

Tuition - what is that? You don't say, but are you paying for daycare, or is your wife SAH?
Misc -  figure out what that is, and if it doesn't make sense kill it. Yeah, it may not be much, but freeing up $50 a month for debt will help.

Other items to review and see if you can lower:
Phones
Groceries
Make sure you've at least done the basic stuff for energy efficiency. Don't set the heat to 72 in winter, tell the kids to wear socks and put on a sweater. Make sure you've got fans going in summer, as it'll help you raise the temp on the a/c (or do without) while keeping everyone comfortable. Energy efficient bulbs, etc.

Kill the CC debt, and stop using them if they cause you trouble. Then work on the SLs.

dess1313

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Re: Advice for becoming debt free? Help!
« Reply #10 on: July 10, 2016, 11:42:27 PM »
Car issues have been covered
look at what you can do to decrease your cellphone costs.  new york must have some good options
are you still in school or is your wife taking courses?
what's the Misc category cover?
you don't have cable or internet?  if that's under your utilities drop your packages, get netflix, or an android box and cut the cable down if you have it as well.  a lot of stuff is viewable online now with just an internet connection
can you work on trimming food costs?  i know you have a family of 5 but can you tweak some of what you make/buy to get some sales and bulk deals?
what about clothes for fast growing children or diapers?

1st goal: kill the credit card.  a lot of those 0% bonuses rebound interest to day 1 if you don't pay it off on time
2. small emergency fund
3. kill student loan with your new badassity from cutting all those costs down
4. give yourself a small reward!

galliver

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Re: Advice for becoming debt free? Help!
« Reply #11 on: July 12, 2016, 01:27:02 AM »
According to the numbers you gave (income-deductions-taxes-expenses), you have $2900 a month that is flexible (unless...the numbers weren't correct?). Just under a third of your monthly take-home and more than all of mine (grad student) to put it in perspective; you have a pretty big shovel.

Assuming you sell your car but your wife insists on something "decent" and you spend all your car equity ($15k) on a replacement vehicle, you can put that payment toward the CC, plus the $2900; that takes care of the $22k in about 6 months, well before 0% APR expires. Then you can take the 2900+600+1500=5000 or basically half your take home and throw it at student loans. That should see you free of them in about 37 months. If you put an extra $100 on it every month, you'll be done a month early. $200, 2 months early. If you get up to $6k total, though, you're only 7 mos early. Or a whole 7 months, depending on how you look at it. If you front-load an extra 5k (e.g. from the car sale) you'll get almost 2 months off at the end.

I'm guessing, based on your paycheck, loans, and location, that your job involves pretty long hours, so a second one is out of the question. And with 3 small kids at home I doubt your wife has the time or energy for a second shift. But accelerating the timeline any more is going to come down to "get more money" or "spend less money". Or, there's always "this timeline is fine by me." At some point, you reach the optimum quality of life vs savings/debt payoff. You want to push your comfort zone, not move your family into a van on the street to save on rent.

monkeytree

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Re: Advice for becoming debt free? Help!
« Reply #12 on: July 14, 2016, 02:26:22 PM »
Are your student loans private? If they're federal loans, you might be able to get yourself on an income-based plan - with your family size and high loan amount, I'm pretty sure you could get it less than what you're paying now. You can at least try to throw the extra cash at the other debt and once you have those paid off, tackle the student loans by paying extra.