Case Study Update - Life is better, but we have a long way to go.

[Dsteadma]

My husband is a 27 year old cisco network administrator who is getting his second year of experience at a hospital.  After his second year, we'd like to move to a bigger town where he'd get paid more.  I am a MedAide with a degree in wildlife ecology.  He works days and I work evenings so even though we've been married for a year I hardly ever see him.  Ever since we got married I've been trying desperately to get rid of the student loans.  I would like to have kids in the next two years and don't want the loans hanging over me.

Mistakes:
I chose a degree without considering the job prospects.  My husband signed up for lots of unsubsidized loans without worrying about them and then took forever to graduate. 


Total wages 56,000 before tax
Pre-tax deductions: 83.34/month HSA 1,000.8/yr
                  193.92 Health insurance 2,327.04
State Tax 1,233.32
Federal Tax 3,253.74
Total Net Pay 48,345.08

Monthly Income approximately 4,028.76
Current Expenses
Tithe 430.6
Internet and phone 123.61
Rent 375
Utilities 160
Car insurance 27.05
Food 400
Gas 250
Loan 1 62.5
Loan 2 35.56
Loan 3 40.89
Loan 4 51.54
Loan 5 331.5
Loan 6 CC 98 (paying 125)
Roth 100
IRA 100
Car Repair Savings 100
Car Replacement Savings 503.3
Moving Savings 62.5
Christmas Savings 50
Vet Savings 100 (I have a lab who is bound to do something stupid in the future.)
Miscellaneous 101
Total Monthly Expenses: 3,530.05
Left: 498.71

Assets:
2002 Toyota Corolla with 180,000 miles that eats oil like crazy. The mechanic said replace the engine or just keep putting oil in it. Completely paid off.
The bike that gets me to work.
Roth 3,159.13
IRA 1,400
403b 1,615.59
HSA 791.69
Emergency Fund 1,504.31
Moving Funds 1,192.52
Car Replacement 3,133.
Car Repair 400
Total Assets: 13,196.24

Liabilities
All student loans.
Loan 1 Balance 886.41 at 6.8% Monthly Payment 62.5
Loan 2 Balance 2,949.09 at 6.8% Monthly Payment 35.56
Loan 3 Balance 3,440.68 at 6% Monthly Payment 40.89
Loan 4 Balance 4,416.64 at 5.6% Monthly Payment 51.54
Loan 5 Balance 14,115.57 at 4% Monthly Payment 331.5
Loan 6 CC Balance 9,700.61 at 2% Monthly Payment 98 (paying 125)
Total Liabilities: 35,509

Whatever is left is often spent on miscellaneous or put towards loans.  Loans are also supplemented by whatever overtime I can get, which varies but goes directly towards loans.  Food category also pays for household items and pet food. Cell and internet can't be changed.  The provider is the only one with service out here and we still have an unlimited data plan which my husband needs for his job. We are looking to get out of our bad housing situation, but we need to stay in the area for another year for my husband's job.  There isn't much housing to chose from here. Credit card debt is a student loan we moved over for a lower interest rate.  My husband has a 20 minute commute and I can walk/bike to work.
I know that some of you will find the Tithe outrageous since we are in debt.  It is something we believe is important.

The Goal: Get rid of debt ASAP!

My plan: Pay minimum on the credit card debt and move it over to another card for 2-3% when my offer ends.  Pay as much as possible on the 6.8% loans.  Save for a car replacement for when this toyota blows or a car for me when we move somewhere else.

Question: What can you see that I don't?  What do I need to save for or have forgotten in my budget? Where is fat that needs to go and face punches that need to occur?

[ransom132]

If I were you, tithing would be the first thing to go until I would be debt free....but that seems out of the question with you  and it's ok if you want to, it just makes it harder to cut elsewhere. Also the vet savings seems too high unless your lab always gets into freaky accidents on a regular basis. Maybe the other mustachians can help you, but the only major thing I see that is stopping your from paying off your loans is the tithing, but like you said, that is not an option. How old are your cars and are they in good shape, if so maybe, reduce your car replacement savings. The other option would be getting extra income (a second job or selling stuff on ebay, etc...). Another thing that may help you is that in a year we have two 3 paychecks month if you are paid bi-weekly, whenever you get that third paycheck, apply it all to your loans.

[Suit]

Here's what I would do if I were you. I would use the car replacement fund to kill off loan 1 entirely and most of loan 2. Then I would take the $500 a month you were putting into a car replacement fund and the 62.50 from the loan 1 payment and pay off loan 2 within about another 2 months. Then roll the $500 and about $100 that you were sending to loan 1+2 into loan 3, loan 3 would be gone in about another 6 months. By the end of the year you could be out from under 3 loans and the remaining ones would all be under 6%. Then power through the remaining 3 loans. Also, if the CC interest inflates, move that one up in the priorities. In regards to the car replacement, keep repairing the vehicle(s) you currently have until you're out of debt.

[wordnerd]

Here's what I would do if I were you. I would use the car replacement fund to kill off loan 1 entirely and most of loan 2. Then I would take the $500 a month you were putting into a car replacement fund and the 62.50 from the loan 1 payment and pay off loan 2 within about another 2 months. Then roll the $500 and about $100 that you were sending to loan 1+2 into loan 3, loan 3 would be gone in about another 6 months. By the end of the year you could be out from under 3 loans and the remaining ones would all be under 6%. Then power through the remaining 3 loans. Also, if the CC interest inflates, move that one up in the priorities. In regards to the car replacement, keep repairing the vehicle(s) you currently have until you're out of debt.

Agree. You could probably also cut $50-100 off your grocery bill with some effort, if it's just the two of you.

Check out this thread and see if you could be saving on phone/internet: http://forum.mrmoneymustache.com/share-your-badassity/communications-tech-son-of-the-superguide!/

[tobitonic]

I think you're doing a great thing with the tithing and wouldn't stop it either. Most folks here subscribe to either not giving to charity at all, giving only a nominal amount, or planning on giving X years in the future when dead. We're of the mindset of helping significantly and continuously, so we aim for around 10%, the way you guys do. There are a great many things more important than getting out of debt as quickly as possible, or FIREing.

Regarding your situation, I'd first build your e-fund up to at least match one month of expenses (so to 3.5k instead of 1.5k). You could do that with some of the car money. From there, I'd use the rest of the car money and consolidate your loan payments to knock out the loans in order of interest rate. After that, I'd replenish the car fund. Even if you're burning a quart every 300 miles (yes, I had a Toyota that did that at around 200k miles), as long as it runs reliably, you can keep using it. Switching to thicker oil will help slow down the burn rate. If your car completely blows up, you can replace it with a 90s Camry, Accord, Corolla, or Civic; any of these will run until 200k with few issues.

To save money, reevaluate your food budget and your phone / net budget. Beans are about the healthiest foods on the planet, ounce for ounce, and also some of the cheapest. Buy them dry and learn to cook them in ways you'll enjoy. You can probably knock off $100-$300 / mo if you switch to a primarily bean-based diet. Consider pay-as-you-go / etc for your phone and do more Internet shopping. Even if you just knock off $20 a month, it'll be something.

[former player]

How would you feel about postponing the tithing?  By which I mean, put the amount of your current tithe towards paying off your debts, but keep a record of what you would have tithed and add it as a "debt to tithing" to be paid off when your other debts have been paid.  At which point you would resume your tithe and make payments on your debt to tithe until you have eliminated it.  You would be honouring your need to tithe but reducing massively the amount of interest you are paying to the usurers.

[dess1313]

http://www.whatsthecost.com/snowball.aspx

Use something like this calculator to figure out how to maximize your best way of early pay down on your loans. pick the highest interest rates first. 
Like others have said, keep one month of emergency fund, then dump anything extra and your car fund, and the monthly savings you do for it, on what ever loan is the highest interest rate.  that would be loan 1 or 2 as per your post since they're the highest interest.  once you have those paid off, roll the extra money into the next highest interest cost loan.  Forget about saving for a car for now, buy lots of oil, and take that $500 a month, and remove those high interest rate debts.  they're killing you in interest.  each one paid off means you can make more progress on the next one. 

[Villanelle]

If tithing is a non-negotioable, would your conscience allow you to tithe on your income *after* debt payments are subtracted?  Instead of 10% of income, 10% of *available* income?  You could even commit to making it up of you wanted to, but keep tracking of what you aren't paying now and adding that back in over time once your debt is paid off.  heck you could even charge yourself 3-4% interest on it.  Your church would then come out ahead (even after inflation), and you would as well, until debts 104 are paid off at least.  Everyone seems to win in that situation, except your debt holders. You pay off debt faster and more cheaply and your church gets more money (though on a delay). 

I would explore my conscience and see if delay tithing, basing it on income after debt, repaying the tithe once I was no longer paying interest on debt, paying interest on delayed tither, or some combination of tinkering with the tithing would work.

[Kwill]

Financially, it doesn't sound bad. Even if you consider the high Internet and phone cost to be part of your housing cost insofar as they're attributable to where you're living, your housing cost is much lower than it would be in a city with higher pay. A lot of the things you've listed as expenses are actually savings. And you have enough in your various different savings funds to knock out loans 1 and 2 plus part of 3 without touching any retirement funds. So if you want, you could just pay those off, knowing that if there were a need for emergency funds in the short term, you could pull from the Roth or use the credit card and still come out ahead of where you are currently with paying the 6.8%, depending on how long your card's 2% deal lasts, etc.

Have you or your husband tried asking to harmonize your work schedules? Your marriage is also an asset worth investing in.

[MDM]

My plan: Pay minimum on the credit card debt and move it over to another card for 2-3% when my offer ends.  Pay as much as possible on the 6.8% loans.  Save for a car replacement for when this toyota blows or a car for me when we move somewhere else.

Question: What can you see that I don't?  What do I need to save for or have forgotten in my budget? Where is fat that needs to go and face punches that need to occur?

Just checking: do you not pay SS or medicare?

Take a look at the saver's credit (IRS form 8880).  Due to that credit, although you are in the 15% bracket for paying tax on more income, your marginal savings rate for ~$1500 more 401k or IRA contributions is 25%.

If you can arrange it from a cash flow perspective, contributing more to traditional accounts (either 401k or IRA) would allow you to reach the next tiers in the saver's credit as shown below.  The x-axis is the amount of traditional contributions above the $100/mo indicated in the OP.

[hyla]

I would consider stopping contributions to retirement accounts until the highest interest rate loans are paid off.  It's hard to beat a 6.8% guaranteed return.  Maybe start contributing again when you've only got the 4% or 5% loans left.  If it's important for you to continue contributions to your IRA in order to stay in the habit of saving and see an account growing, maybe reduce contributions and put the rest towards the debt. 

Seems like you could also reduce christmas savings (maybe agree to do a secret santa instead of getting gifts for all relatives?  for eachother agree to lower cost or homemade gifts?), vet savings, miscellaneous (track what that spending is so you can assess whether it's essentials or items which could be cut)

[asiljoy]

Consolidating the loans with Sofi or another lender might help you too. We did it and ended up lowering my rate from 6.8 to 3.5. It was a pretty painless process, took about an hour of effort over 2 weeks.

[Dee18]

As young as you are, with no children, I would get a part time second job for six months.  Work on the weekends....could be Starbucks for $10 an hour plus tips, or whatever. Or private MedAid or anything.   Just set a short period of time to do everything you can to kill the debt.

[Dsteadma]

Thank you so much for your input. I think we are going to try consolidating loan 2 with 5 to bring it down to 4 percent. And pause our savings for retirement and the car for the summer. That 700 will go towards loan 1 & 3 until they are finished. When I resume saving for a car and retirement, the payment for loan 1 will go towards the consolidated loan 5 and the payment for loan 2 and 3 will snowball into loan 4.

[notactiveanymore]

Below is my edit of your budget with payoff plan. My husband had 53,800 in student loan debt when we got married and at the end of this month - 18 months after we got married- we'll be at about $9200. We have tithed through the whole thing. We make a little more than you guys and have 100% employer covered health insurance, but our debt amount was higher and all at 6.8%, so I think our story tracks pretty closely. We tithe on our take-home income - if we had not tithed this whole time, we'd probably be finishing the debt-payoff now instead of in July. But it's a value and I wouldn't change that decision.

If you drop HSA contributions:
Total Net Pay 49,345.08
Monthly Income approximately 4,112.08

Expenses:
Tithe 411 (I did 10% of net)
Internet and phone 123.61
Rent 375
Utilities 160
Car insurance 27.05
Food 400
Gas 250 (with only 1 of you driving, 250 seems very high?)
Loan 1 62.5
Loan 2 35.56
Loan 3 40.89
Loan 4 51.54
Loan 5 331.5
Loan 6 CC 98
Car Repair/Replacement Savings: 200 (Combined the fund and dropped contributions)
Moving Savings 62.5
Christmas Savings 25 (Cut it in half. Maybe drop some of your overtime $ in here if you need)
Vet Savings 50 (Cut it in half. With this budget sketch, you have a much higher ability to cashflow such emergencies)
Miscellaneous 101

Total Monthly Expenses: 2797.15
Remaining: 1306.93 (extra amount to send toward debt)

Car Replacement/Repair Fund: 3,533 - How much do you plan to spend on the replacement car and how much could you get for selling the Toyota? You've got an extra $1300 that you don't HAVE to send to bills/debt within a month, so if the car went caput, you'd have as much as $4800 right now to get a replacement plus the resale value of the Toyota. I'd either slow down the car savings or figure out the total you want to pay for the next car and save to that point then stop.

Debt payoff snowball strategy: (monthly total should = total you're paying on minimums (620) + extra in budget (1306) = 1926

Month 1 - 886.5 on loan 1 (done); 518 on loan 2 (balance ~ 2500); minimums on loans 3-6 (522) =1926
Month 2 - 1404 on loan 2 (balance ~ 1096); minimums on 3-6 (522) = 1926
Month 3 - ~1130 on loan 2 (done); 315 on loan 3; minimums on 4-6 (481) = 1926

And so on... But within the next 3 months, you could knock out the first two loans entirely, the third would probably get knocked out 2 months later. If the CC debt is variable, you can move that up per your comfort levels.