The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: pstu24 on March 24, 2016, 11:42:23 AM
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Topic: Which fruit is low hanging, and which do I focus on first?
I am a long time lurker (almost a full year of it!) and have been trying to get things in order. No excuses! (And I am ready for face punching!) BUT, please understand our life has been a LITTLE chaotic which leads to REASONS - not EXCUSES of why we are in the current situation. At this time I am just looking for advice on what to focus on first. Thank you all in advance!
Life Situation: My Wife (29) and also Myself (29) - Married filing Jointly. No dependents but planning on it. Living in a Mid Atlantic state in the United States (Moderate sized city of less than 500k people)
Gross Salary/Wages: CURRENT - Me: Day Job in Financial Services - 41k Annual (honestly - underpaid for my abilities and the role ... but ok benefits and extremely low stress for the field) / Night Job - 6k to 12k annual. Will be 6k this year. Side hustle - Writing Marketing Services ... about 3-4k last year, could get up to 5-6k this year NET. Probably could grow a little more, but that is close to the max. My Wife WAS in a position making 46k annually. Medical reasons forced her to retire and she may go back, but not planning on it within the next 12 months... Will depend upon release from Dr's before we risk it.
Pre-tax deductions: 401k - only throwing $100 per biweekly period (currently) - no incentive as low match (25% per dollar on first $3k none after that) / put just over $1k in Traditional IRA annually.
Other Ordinary Income: Just the side hustle writing business ... it should continue to grow modestly. Low stress, but not much upside. Great for on the side and when I want to.
Current expenses: MOST of this is due to two things. Student Loan Debt and Autos. We live in an area where there is lake effect snow (not complaining just pointing out). So while we will consider getting rid of one car and biking, we have roughly 5 months of winter. Without giving out full details, this city has been in the top three in US Snowfall in three of the last five years (or so).
Monthly Expenses:
Cars - Combined ($275 and $355)
Credit Card Balance (16k) All on 0% APR's and tearing through them. Have them down from about 24k from January 2015. (almost all of that except maybe 500-1,000 was due to the medical bills...) Current min payment approx $180/$190 month.
Combined student loans = (859) (Comes from all of the combined from my wife and I, will focus on taking this out after CC's)
Monthly Gas: Roughly $75 - I work 7 miles to the west of where I live, then the night job is about 13 miles east of where I live ...
Monthly Utilities (Gas, Water, Electric, Internet) - all add up to about $150-$160 ... no cable :)
Phone - Taken care of by current job
Car insurance - $70.
Food $150-$200 (most months $150, sometimes we stock up on true deals) - this includes basic toiletries
No mortgage, currently renting.
Assets: No significant assets other than .. Wife has 11k in retirement, I only have about $5k in combined 401k and IRA.
I know I went off of the guide to post these a bit, but while I am absolutely open to ANY points of view and tips ... I am looking for some help on what to tackle first. Here's what makes the case study FUN. These are the important factors.
1) I have accepted a position at the part time job, the contract starts with the new school year (Pay is 62k annually, for only 38 weeks of service). The benefits will also be tremendous in both retirement and medical. Medically this will save us specifically on copays and prescriptions... and with retirement they will match *just under* 2 to 1 for up to
2) Because we are taking that job, we will move close as possible to there. I can possibly decrease rent costs ($650), but definitely commuting costs and maybe sell one of the cars at that time.
3) Our student loans are killing us. I realize that we took them out and we will pay them off, but at rates of 6-7%, it's still too high. I want to refinance them down a few percent because I will have a higher income and my credit score has gone up tremendously since I took them out years ago.
4) Seeing as the new job only requires 38 work weeks per year then summers off, I will be open to doing manual labor for the next few years to get cash and put a major dent in debt! (Maybe landscaping? I'm decently athletic - not afraid of sweating or a hard days work).
5) Wife's father is a master carpenter and master builder. As soon as we are cleared by bank to move, we will put a lot of work into a depressed house and will (hopefully) get a lot of equity. Possibly refinancing equity that we will build with home equity loan of only a couple percent, and then using that to pay off higher balance private debt. (This step may take another year or two)
6) With the side writing / marketing business AND the raise of the new job... I project we could have ALL credit card debt eliminated within one calendar year. Both cars will be fully paid for (including this new income) within one calendar year ... but if not then definitely by Summer 2017.
7) As you can see, we both were able to find employment, but with high student loans the first few years out and not a great job landscape, we haven't made it very far into growing our mustaches.... I won't blame it on the economy, but it was humbling to have a masters degree and be working a 3rd shift hotel job at $8 / hour for the first two years I graduated while searching for jobs that had (gasp) benefits during the day...
With all of these ideas in play, I have a few questions:
A) Any order I should be following with above plans? (I don't want to refinance loans then go try to get a house because of a credit score hit or vice versa)
B) Am I over (under) thinking any of these things?
C) Am I missing anything that is right in front of my face?
D) Are there any reasons you want to punch me in the face?
Long story short, I am MORE than willing to make changes. As you can see now, paying off debt is the focus. The medical bills really hit us hard, but they will only be a hiccup and will be gone within the year... Any Ideas / thoughts / comments / etc will truly help. AND I would love to hear (and would be significantly grateful) for any help / suggestions / ideas / etc.
Thank you much in advance for your consideration.
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What are the balances and rates on the loans? That will give us an idea of how/when you should pay each one off. You need to break down all of your spending, not just 2-3 categories along with debt payments. Separate out debt from actual expenses like rent and groceries. Be realistic with your numbers, don't just guess and estimate. Use something like Mint.com or a spreadsheet to track everything for a few months and see what's actually happening.
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With your income, cc debt, and your wife not working I don't know if most places will allow you to refinance (especially hers). Be extremely cautious when applying to refinance, given that (from a lender's perspective) you seem like a possibly risky candidate and you don't want places doing a hard pull on your credit report only to turn you down.
I tried to refinance my 30k student loan with no other debt, great credit, a part time income of about 25k/yr, and a spouse making 100k (he also had no loans)- SOFI required that my husband cosign before they allowed me to refinance at a 5% interest rate. We took it because it was better than the 6.8% I was paying, but I tell my story to let you know that refinancing is not a sure thing. You can easily be rejected outright, or at best offered an interest rate that is barely better than what you have. If your student loans are federal, you will also most likely lose a lot of the federal perks/options like income based repayment, deferment, etc. Generally you only want to refinance federal loans if you know you can get a much better interest rate, and you are pretty darn sure you won't need any assistance with them in the future.
This isn't to say that you shouldn't look into refinancing - you should if you think you can get a better rate with your circumstances. But definitely be cautious and realistic when pursuing it.
As far as the cars go, if your wife is not working, does she need her own vehicle during the day? I am a sahm and honestly having a car is really a perk, and not a day to day MUST have. We have 2 cars now because we are in a good place financially and both cars are paid off. But if we were in that much debt, and we had to have a monthly payment, I'd seriously consider only having one car given that I don't work outside the home. Actually, during the winter, my husband often takes my car since it is better in the snow and I just stay in (his car is bad in the snow, so when my car is gone I just don't drive). Sure, not being able to run out to the store when I feel like it is a minor hassle...but going a few days without driving really isn't a huge deal.
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I wouldn't expect much lower rates on your student loans with a refinance as a given. Unless you are shortening the term length. Earnest (meetearnest?) will give you an approximate rate without a hard pull on your credit report. Don't be too enamored with the low variable rates as those will go up over the next few years when the feds begin to raise interest rates again. I'm expecting them to stay relatively low at least for a year or two longer. So I guess its dependent on your balance and how much you intend to pay towards the loans in the upcoming years whether you will come out ahead on a refi or not.
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Not gonna lie. I was a little worried for yo--until I got to the last part! You've got two really awesome things going for you:
1) Mindset. This is the most important one and it seems as though you are on your way. You've taken the time to write up the post which is a good start, but it doesn't stop there. Which leads me to....
2) Job prospects. Congrats on your ew position. Regarding what to do in your time off, why don't you try scaling your existing marketing hustle? Scaling can yield better (and faster) results than starting something new like landscaping.
Cars. Your cars are killing you at $600 a month. Find a way to kill this. Does your wife need a car? Can you sell and pay cash for a used? This is low hanging fruit.
401k. Shitty match? I don't care. Free money is free money. You are a fool if you don't take free money! $750 a year in matches is better than nothing!
Credit cards. When does 0% end? Your mission is to kill it before that date after you get your 401k match, attack this debt. When 0% ends, you'll be paying big time.
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It sounds like your wife hasn't been able to work in a while and will likely not be able to work for another year or more. Have you looked into disability or, even if she doesn't qualify for other disability benefits, release from her student loans due to her disability? I know none of the details except that disability is one of the only circumstances in which you can get out of student loans. If you've already been making payments on them that avenue might not be available to you anymore.
Again, the amount matters. If she only owes a few thousand in student loans, it might be easier to just pay them off. I suspect getting them dismissed involves doctors and lawyers and prolonged court cases.
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Just an update: I can add the amounts because I want to be as specific as possible. That being said, I am not so much just looking at which loans to pay off first as much as I am where to focus the majority of my energy. Having the equivalency of 3 jobs (or at least 2 Full Timers) means I don't want to just come up with an order of which current debts to pay, it means I want to be creative in eliminating those debts as well (IE, if we can hypothetically build 30k net worth of equity in a few months with repairs to a depressed home - then refinance at local home equity loans of 3.5% (or so) compared to the 6-9% of private student loans...
Don't get me wrong, I'm not looking down at the idea of help with respect to ordering out which payments to focus on first. I am just past that as I already have used budgeting through Excel, and have budgeted all payments and expenses on Personal Capital (Similar to Mint but I like it more - just preference).
At this time I am simply trying to say that there is a lot going on in total (including the ongoing disability case, 3 separate jobs, preparing to move, possibly selling one car after moving, buying a house, transferring cards to 0% APR this December when they come up again etc), so I am looking for 'what am I missing' and 'what else could I do.'
The Disability is an ongoing 'game' for the government... I won't discuss those details here but medically she is not cleared for work... We can definitely attempt to have those loans forgiven, but they may follow suit with what the government decrees on disability.. That would be big as she's carrying roughly 65k right now (and had been paying back almost 1k per month until she was pulled from work).
My student loans are currently at 83k between private and fed, but again we were making significant progress until the medical situation..
**Terrible Match** All I meant was I couldn't justify putting more into savings while I still had the high CC balance, and then if I was planning on leaving and not vested I wouldn't get the match anyways for leaving early ... 0% ends in December, but thanks to good credit I am already receiving additional 0% APR balance transfers for another 12 months. And *hopefully* CC's are gone by January 2017 anyways
**Cars - I realize the payments are high. I'm not doubting that at all. BUT I'm looking at it from the other point of view as well. With 4 year old cars that will be paid off worst case scenario in 14 months... I'm going back and forth between having the car and added costs of insurance, upkeep, etc. .. and the fact that if I only owe 6k on a car that only has 22k miles on it ... the past price is a sunk cost. So in one year I will have one car with 40k miles, and another with only 25k miles that are both gently used and paid for. I may sell one due to need, but I would also hate to be the sucker that paid the thing off and right when it gets to the "sweet spot" of it's life I unload it. Seems like a "buy high sell low" sort of deal... so I figure as long as one is paid off, my car will last me another 7-10 years hopefully, and my wife's (who isn't working so shouldn't be driving much at all) could easily last a half of a decade on top of that. This one I'm going back and forth on, but I DO see both sides for the unique situation.
Good advice on refinancing loans, I have seen a ton of options out there recently offering Variable rates as low as 3-4% for loans. 4% annually on 80k can be a lot... so I'm considering shopping.
I appreciate all help so far even if I didn't directly respond!
As I said we are gaining momentum and despite the loss of one income and the major medical bills, (which is when we turned hard onto looking at debt), we were still able to pay off a combined 8k in CC debt in the past 13-14 months... and with the new job will have the rest of the 16k gone within the next 10 months by current projections!
Thank you all so far, and any additional help / constructive criticism / counterpoint is always appreciated.
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Just an update: I can add the amounts because I want to be as specific as possible. That being said, I am not so much just looking at which loans to pay off first as much as I am where to focus the majority of my energy. Having the equivalency of 3 jobs (or at least 2 Full Timers) means I don't want to just come up with an order of which current debts to pay, it means I want to be creative in eliminating those debts as well (IE, if we can hypothetically build 30k net worth of equity in a few months with repairs to a depressed home - then refinance at local home equity loans of 3.5% (or so) compared to the 6-9% of private student loans...
Don't get me wrong, I'm not looking down at the idea of help with respect to ordering out which payments to focus on first. I am just past that as I already have used budgeting through Excel, and have budgeted all payments and expenses on Personal Capital (Similar to Mint but I like it more - just preference).
At this time I am simply trying to say that there is a lot going on in total (including the ongoing disability case, 3 separate jobs, preparing to move, possibly selling one car after moving, buying a house, transferring cards to 0% APR this December when they come up again etc), so I am looking for 'what am I missing' and 'what else could I do.'
The Disability is an ongoing 'game' for the government... I won't discuss those details here but medically she is not cleared for work... We can definitely attempt to have those loans forgiven, but they may follow suit with what the government decrees on disability.. That would be big as she's carrying roughly 65k right now (and had been paying back almost 1k per month until she was pulled from work).
My student loans are currently at 83k between private and fed, but again we were making significant progress until the medical situation..
**Terrible Match** All I meant was I couldn't justify putting more into savings while I still had the high CC balance, and then if I was planning on leaving and not vested I wouldn't get the match anyways for leaving early ... 0% ends in December, but thanks to good credit I am already receiving additional 0% APR balance transfers for another 12 months. And *hopefully* CC's are gone by January 2017 anyways
**Cars - I realize the payments are high. I'm not doubting that at all. BUT I'm looking at it from the other point of view as well. With 4 year old cars that will be paid off worst case scenario in 14 months... I'm going back and forth between having the car and added costs of insurance, upkeep, etc. .. and the fact that if I only owe 6k on a car that only has 22k miles on it ... the past price is a sunk cost. So in one year I will have one car with 40k miles, and another with only 25k miles that are both gently used and paid for. I may sell one due to need, but I would also hate to be the sucker that paid the thing off and right when it gets to the "sweet spot" of it's life I unload it. Seems like a "buy high sell low" sort of deal... so I figure as long as one is paid off, my car will last me another 7-10 years hopefully, and my wife's (who isn't working so shouldn't be driving much at all) could easily last a half of a decade on top of that. This one I'm going back and forth on, but I DO see both sides for the unique situation.
Good advice on refinancing loans, I have seen a ton of options out there recently offering Variable rates as low as 3-4% for loans. 4% annually on 80k can be a lot... so I'm considering shopping.
I appreciate all help so far even if I didn't directly respond!
As I said we are gaining momentum and despite the loss of one income and the major medical bills, (which is when we turned hard onto looking at debt), we were still able to pay off a combined 8k in CC debt in the past 13-14 months... and with the new job will have the rest of the 16k gone within the next 10 months by current projections!
Thank you all so far, and any additional help / constructive criticism / counterpoint is always appreciated.
I get your thinking on the cars…but it isn’t about the total cost of the extra car, it is about how much value it adds compared to the current cost of keeping it. The cost of keeping the second car is not just the payment and the maintenance, it is also the opportunity cost of throwing the extra cash at the car instead of at your debt. So if the car is sitting in the driveway most of the time, and your wife is only going someplace a couple times a week for non-mandatory things (like errands she could easily do when you are home), then it is probably not worth continuing to pay for a car for the next 14 months. If you were 2-3 months from paying it off, or if you weren't in a lot of debt, I'd say keep the extra car. But unfortunately, you aren't exactly in a position to throw 14 extra months of payments at a car you don't really need. There is also a question of whether or not your wife is physically able to drive safely. If she is too disabled to work at any job, it is possible that her disability and/or necessary medications may not make it prudent for her to be driving without another adult in the vehicle. If she can't drive safely, or can only drive in very limited circumstances (not on the highway, not when she's taking certain medicines) then the car is a complete loss in terms of value.
If you get rid of the car and use the money to you save to get out from these unstable debt situations, then you can buy a cheap used car afterwards. If you think only about the total cost of the car, it is easy to think you should keep it. But when you add in the fact that you might not really need it, and that for every month you are throwing 200-300 extra at an unnecessary vehicle you are adding months onto your debt repayment, the car becomes a wash at best, or a liability at worst.