Author Topic: Reader Case Study - How Long Before I Can Get Out Of My Debt Emergency  (Read 5739 times)

ClimbGneiss

  • 5 O'Clock Shadow
  • *
  • Posts: 5
WARNING: Not only is my hair on fire, I think my whole person might be, as well. Unfortunately, I am not a person who has used preventative medicine, so to speak, in the past and am paying for it now.

Income:
I make 22.50/hr for $45,000 per year (before taxes and overtime come into play) as a entry level civil engineer in the Greater Boston area. I'm two years into the field and, from what I gather, at this point, I'm making under market value based on my education (Masters Degree) and experience.

Current expenses:
Currently, I commute approximately 55 miles in ONE-DIRECTION for approximately 1 hour and 25 minutes in one direction. Some days it's as "little" as 55 minutes, somedays as much as 2 hours. I live at home for free though - I don't pay for my expensive cell phone, nor my rent because I live in the second apartment of my parents house.
I purchased a brand new Honda Civic in 2012 and I have been paying that off monthly. I owe approx $16k at about 2 % interest rate on that car still.
I have student loans. I paid for everything starting freshman year all the way through my Masters using those student loans. I own approximately $68k to those loans still. These loans are broken into many parts, but all the interest rates are 6.9, 7.9 or 8.9%

Assets:
- ~$2800/month from work or $45000/yr
- ~$5600 in my savings and then nothing really else to speak of. I've been trying to sell all of my things that I've acquired that would be worth anything in the secondary market. It's hard to gauge true value and how long and how much I would be able to sell.
- Rent free because I live in the second apartment of my parents home.

Liabilities:
Student Loans:
~$68k which translates into approximately $1000/ month in student loans paid (minimum payments).
Car Loans:
~$16k which translates into approximately $400/month in car loans (min payments).
Food:
Unfortunately, I haven't been managing my food budget. Some months I'll spend $20 by eating leftovers and eating my parents food. Other months, I'll spend wildly and probably hit around $400 for one person. So, let's say that averaged out over the course of the year, I'm paying $200/month or $2400/year
Gas:
I get paid for mileage from the address of my office to the job-site and back which probably averages around 15 to 20 miles per day.
Doing some quick calculations by finding approximately how much I'm paid to drive and approximately I pay to commute, I came up with $2916.66/yr to commute, and $2450/yr paid back to me for driving. I fully realize that I may not be looking at these calculations the right way. The whole reason I'm doing this is to understand what I'm doing wrong.
Net gas expense is $466.66/year
Cable: $0/month
Gas/Heat/Elec./Rent: $0/month

Yearly spending is approximately $19666/year
And total standing debt is approximately $84000


Specific Question(s):
There are plenty of questions and directions I'd like to take with my Case Study. I have done some research about this website, and have a good friend who is a committed and successful Mustachian. I began to mentally resolve myself to do this months ago but I found that I was met with confusion from most of my loved ones. That is not to say that they didn't support me, but their support went more along the lines of: "WOW! Good for you! That's going to be so hard, though... You really should treat yourself SOMETIMES after you work and commute so much!" I reply with this being a lifestyle change and a commitment, etc. etc. They reply: "Oh Ok, I think I understand. So, do you want to go catch that movie and then grab a beer afterwards?" So, I've had very little positive reinforcement, I suppose. Or, I suppose, I'm just making excuses. I'm having trouble figuring out WHERE TO START. Is it most important that I find a job that pays better? Doesn't require me to commute, but rather is an office gig? That I live as close as possible to my workplace? That I reduce my food costs?! I know for sure that all of these things are possible and I've made efforts in all of these departments, please believe me on that.
My girlfriend is renting an apartment in the city with a roommate while she is at school. As often as is decent, I crash at their place and only pay for the parking garage (there's no free parking for non-tenants in Boston). So sometimes that's an option.
Sometimes, I spend a month or two being very frugal on smaller scale expenses like food, entertainment. But, that doesn't feel like where I should be starting my journey.
I've put a lot of energy into finding a better paying job, but that's proven to be more difficult that I would have thought. Perhaps, I need to broaden my search to different states/industries of work.
I've also considering buying property as a rental income but I read on this very website that while I have debt that's classified as an emergency, I shouldn't be allocating my resources to investments.
I've looked into selling my car, but I've put so many miles on it in a short period of time that I'm worried that it may be better to just keep it at this point.

As you can see, my Case Study has many of the typical bad situations that you see, but I feel so directionless as to where to start that I stagnate and month by month goes by.

I'm ready to make a change though. I appreciate any times and consideration you all put into my Case Study, thank you.


EDIT 3/13/14 at 11:40 AM
1) My 2012 Honda Civic has approximately 45000 miles on it from the ridiculous commuting. It could be the low-hanging fruit that creates the easient first step, but I wonder how much money I will lose in selling it compared to the approximate $16000 that I still owe on it. Is there a "point of no return" where it's no longer worth selling it?

2) My job has pros and cons like any other job. Even if were the best job in the world, I wouldn't be satisfied with the commute time long term. I have looked in Worcester for job (the commute from where I live is approximately 30 minutes one way and 22ish miles one way. A couple of the jobs I've seen would offer a pay increase between 20% to 75% depending on the position. One position offered a company vehicle for any days that I'd be working outside of the office. However, these jobs are fairly competitive, so I'm still waiting to see how that is going.

3) Loan consolidation: How does one do it? Is it easy? Is it worth doing? My loans are broken down between private and federal, I'm pretty sure, fairly evenly. All the interest rates, like I've mentioned are 6.9, 7.9, or 8.9.

Finally, I'd like to mention how thankful I am for everyone taking their time out to give me advice.


UPDATE:
3/13/14 at 8:30pm

I listed my 2012 Honda Civic with approx 45k miles online and got a message from a guy at a new/used car dealership (which is reputable enough to have radio ads and tv commercials). This gentleman seems to be willing to pay my requested $14000 (per kelley blue book recommendations) for my car. I owe approximately $15980. This loss I would take is approximately $1980 unless there's some other fees I don't know about???

Next, I'd need to nearly immediately have another car lined up so I could commute to work. I could perhaps borrow my mother's or my girlfriends car (neither use theirs, but neither would be willing to let me do more than borrow it) while I look for one of the cars mentioned in this thread in terms of efficiency.

I would figure that because the car loans are a low interest rate (2%?), that I could pay the remaining 2 grand back over 5 months of $400 payments. I could also just do it as one lump sum because I have enough to cover it in my saving. Next, I'd need to have enough to purchase a cheap vehicle out of pocket. I'll have about $3600 left to do it. I would hope to spend $1500, but I don't know if that's TOO cheap and I'd be falling into a money pit? My girlfriends mother has been considering buying a new car (and I might be able to snag her old one for free... but I by no means want to get too pushy on that front).

In conclusion, I'm already taking some of my first steps!!
« Last Edit: March 13, 2014, 06:35:34 PM by ClimbGneiss »

homehandymum

  • Pencil Stache
  • ****
  • Posts: 551
  • Location: New Zealand
The low hanging fruit, to my mind, is the car.

It would def be worth doing the math on how much you car is worth to sell ($20k  $25k?)  That would clear the debt and free up some cash to buy an old clunker.  $400 per month saved right there. which could go into your student loans.  If anyone makes snide remarks, you could tell them that you've really decided that the Civic wasn't you, and you're saving for a Lexus. (can't remember who suggested that on the forum, but it was genius).

The other thing to look into straight away is whether you can jig your student loans into lower interest ones.  I have no idea how to do that, as I'm not in the U.S., but I'm sure others will chime in with suggestions.

The distance from your work isn't awesome, but if you're able to live rent free, and if your parents don't mind you sponging off their grocery bill (or the opportunity cost in you tying up a potential rental income for them) then don't waste that opportunity.  Well done for deciding to address the your debt issues now.
« Last Edit: March 12, 2014, 08:18:27 PM by homehandymum »

Jack

  • Magnum Stache
  • ******
  • Posts: 4734
  • Location: Atlanta, GA
Income:
I make 22.50/hr for $45,000 per year (before taxes and overtime come into play) as a entry level civil engineer in the Greater Boston area. I'm two years into the field and, from what I gather, at this point, I'm making under market value based on my education (Masters Degree) and experience.

I am (or rather, was) also an entry-level civil engineer, although I only have a bachelors (and a second bachelors, in comp sci). Because I was looking for a PE-track job I was unemployed for an embarrassingly long time, then finally found a job where I was equally underpaid as you. "Luckily," I got laid off after about a year which pushed me to give up on progressing towards a PE and switch fields to software development. I'm still entry level and still underpaid, but "underpaid" for software engineers is 50% higher than it is for civil engineers.

I also have similar interest rates on my student loans (albeit not as many of them).

In other words, I feel your pain.

Here are my recommendations:
  • For now, free housing is worth the insane commute. However, you need extreme vehicle optimization.
  • Find out if you're upside-down on the 2012 Civic. If not, sell it. (If significantly so, I don't know what to tell you.)
  • Buy one of the following (note the trim level in bold; it's important!), with a manual transmission wherever possible, with cash. (The list is ordered from best choice to worst, considering MPG, purchase price and cost of maintenance/reliability):
    • 1999-2006 Honda Insight
    • 1999.5-2003 VW Jetta TDI (or Golf or Beetle)
    • 2004-2006 VW Jetta TDI (or Golf or Beetle)
    • 2003-2009 Toyota Prius
    • 1992-1995 Honda Civic VX hatchback
    • 1991-1994 Geo Metro XFi
    • 1989-1991 Honda CRX HF
    • 1996-2000 Honda Civic HX coupe
  • Do all maintenance/repair on your car yourself (you're an engineer; you have no excuse not to!). This is essential in order to make the older cars on the list above not eat you alive in repair costs.
  • Read ecomodder.com or similar and learn to drive efficiently.
  • Eat at home all the time instead of only half the time.
  • Do not buy an investment property. Your market may vary, but IMO you already missed most of the housing crash deals. Also, you need to have assets to cover both down payment and repairs.
  • See if you can get your 2013 Adjusted Gross Income down to $17,999 (including 401k and IRA contribution). If you can, put at least $2000 in an IRA so you can claim the Saver's Credit. (Note: do the math first -- if you don't come out ahead compared to paying down the student loan, pay the loan instead)
  • Put any 401K or IRA investments in the lowest cost stock index fund you can find. (If you think you should own bonds, remember that having student loans is equivalent to massively shorting bonds and that you can accomplish the same thing by paying them off.)
  • Put all other income towards the student loans, highest interest rate first. I mean literally: (net paycheck) - (IRA contribution) - (vehicle expenses) - ($20/month for food) = (student loan payment)
  • If your net vehicle expenses (after reimbursement) are negative, as they ought to be with the right car, then your entire $2800 paycheck should go straight to the student loan company. Yes, that's depressing, but it's also mathematically optimal.
  • Find a side gig -- maybe delivering pizza, since by now you've got the right car for it ; ), although something more lucrative would be better. Put that entire paycheck towards the student loans too.
« Last Edit: March 12, 2014, 08:24:50 PM by Jack »

Prairie Stash

  • Handlebar Stache
  • *****
  • Posts: 1764
Every month send out at least one resume. You should send out 2-5. If you're willing to move you'll earn a lot more. If not just keep applying. If you get job offers from out of city employers you'll at least know what you're missing.

Ask your current boss for a raise and more responsibility. Can you also work 4-10's (4 days, 10 hours/day, still 40 hours/week) Save yourself one day of driving, easily cuts 20% off the gas bill from commutes and gives you back 2 hours of life each week.

What would rent be close to work?

MattC

  • 5 O'Clock Shadow
  • *
  • Posts: 43
  • Age: 39
  • Location: Troy, NY
I would second the suggestions about getting a more economical car.  I'm a structural PE, btw. 

I think choices about the job and housing depend on how good your job is.  Is it getting you towards your PE?  Are your co-workers really good at what they do and are they teaching you a lot?  If the answer is yes, then maybe you want to tough it out where you're at at least until you've got your PE and are a bit more marketable.  It's better to get good training and develop good skills than to make a shortsighted jump for more money at a job where you're not learning anything.  And if you've sucked it up and decided you're sticking around for a while, you might want to find a larger apartment split with a few peers within walking distance of work (i.e. live as cheaply as possible outside of the nest); maybe not quite as much for building net worth reasons as for experiential reasons of getting 3 hours of your day back from your commute.  You'll just live much better.   Not to mention that if overtime is available, a few hours more of overtime could pay for the apartment. 

If your job is bad, you'll want to stay at home and look more actively for something else.  I would suggest devouring the "Ask the Headhunter" columns on the PBS website.  They're about exactly the kind of networking required to switch jobs like you're thinking of doing.  Doing a job switch well really is networking-intensive.  Definitely look out of your area (MA taxes and cost of living are killer), leverage the people in the building industry you know, and when you see a job, call them the day after you send out a resume to try to chat with the hiring person.   

And yeah, kill the debt off asap.

FYI, CLA Site is hiring in my neck of the woods (north of Albany NY; ad on Albany Craigslist).

MDM

  • Walrus Stache
  • *******
  • Posts: 9411
Much good advice already here for reducing costs and increasing income.  Here's a little more on the "increasing income" part (building on PrairieP's thoughts):
- In addition to any short-term raises you can negotiate (easier to do in a smaller company), talk with your boss - and arrange a talk with your boss's boss - about long term career paths/prospects in your company.
- If your alma mater is nearby, revisit the career center and look for companies interviewing in your field.

cynthia1848

  • Stubble
  • **
  • Posts: 156
You could also look for a place to live nearer work, if your commute is too long for you.  BUT in this area housing costs are more than gas, so if you can take the commute it might be more cost effective to stay where you are.

BTW, depending on how much the parking garage costs overnight - if more than $35 you'd be better off parking on the street and getting a ticket.  :)

ClimbGneiss

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Also, I read that it is best to reply to everyone via my original post, yet it doesn't bring my original post up to the top of all the posts. Is it bad to bump my own post? It seems like there's productive conversing to be had.

homehandymum

  • Pencil Stache
  • ****
  • Posts: 551
  • Location: New Zealand
Also, I read that it is best to reply to everyone via my original post, yet it doesn't bring my original post up to the top of all the posts. Is it bad to bump my own post? It seems like there's productive conversing to be had.

If you think of more information to add to your original post, that new readers would need, then edit to put it there. 

But it's also a good idea to comment on the thread too, because those of us who have already read/commented on the thread will likely just skip to the new posts, missing anything that you've edited in the OP.


Numbers Man

  • Guest
Check this place out to consolidate your student loans:   https://www.sofi.com/

Thegoblinchief

  • Guest
Re: Reader Case Study - How Long Before I Can Get Out Of My Debt Emergency
« Reply #10 on: March 13, 2014, 02:39:20 PM »
Keep to a strict food budget. $100/month for 1 adult is plenty. Don't spend on anything else unless absolutely necessary.

Sounds like you need a car for your job. If not, can you take transit it and save money that way? Regardless, free rent is one hell of an incentive to keeping the crappy commute. That's (unfortunately) not that bad of a commute for Boston area, based on what I hear from friends there.

Find ways to increase your income and/or reduce your commute.

Look up each loan you have and prioritize prepayment based on interest rate. If you have some at very low rates, consider asking for forbearance to maximize cash flow towards the higher rates.

ClimbGneiss

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Reader Case Study - How Long Before I Can Get Out Of My Debt Emergency
« Reply #11 on: March 13, 2014, 03:23:18 PM »
I'm glad to hear you all think keeping the free living space is worthwhile, because the truth is that I love living at home in my family's second apartment. I get to see my family, they're happy to have me around and it's about 4 times as big as something that would cost somewhere between 750 and 1200 dollars per month in Cambridge/Boston.
Ultimately, I'm trying to find a job closer to home so that I can cut costs on my job my commute and add extra time to my day (and hopefully turn that extra time into money!).
I've noticed a few comments suggesting that I get a second job or a second source of income. I have thought about this a lot; I'm an avid rock climber/outdoorsperson and I could be a local guide. I also have a full woodworking shop at my disposal and I could build furniture to sell. Not only do the both of these things produce income, they're a fun way of spending my time. However, to do either of these things appropriately, you need an adequate amount of time and I think that I'd only gain that time by working closer to home.
Still, It's difficult to find a job that's closer to home AND further away from Boston when you're in Massachusetts. I have my fingers crossed on a couple of places I did interviews, so we'll see.

In regards to moving outside of the state to find a better paying job where I might reduce living costs and be able to live closer to work, I would be interested in that if all the factors lined up. I've seen two replies vouching for Albany, NY. I'd be interested in details and I'm open-minded to anything.

« Last Edit: March 13, 2014, 03:40:21 PM by ClimbGneiss »

ClimbGneiss

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Reader Case Study - How Long Before I Can Get Out Of My Debt Emergency
« Reply #12 on: March 13, 2014, 03:43:38 PM »
Thanks, I appreciate that. I think my major issue now that I've realized which direction I want to head is patience. Patience required to formulate a plan, put it into action and wait for the results. I've been brewing over some of these things for a while (new job closer to home, selling my newer car for an old beater) but I get discouraged when it isn't easy as snapping my fingers.
I'm not sure if this is the correct comparison to make, but I'm finding that these forums are like an AA for people who mismanaged their money. Once you start talking it out, it's less scary and you can put one foot in front of the other. I hope that I can take the necessary steps to put myself where I need to be.

ClimbGneiss

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: Reader Case Study - How Long Before I Can Get Out Of My Debt Emergency
« Reply #13 on: March 13, 2014, 06:36:26 PM »
Update posted at tail end of my original post ...update labelled as occurring at 8:30am. I may be already making some moves!

pachnik

  • Handlebar Stache
  • *****
  • Posts: 1789
  • Age: 55
  • Location: Vancouver, BC
Re: Reader Case Study - How Long Before I Can Get Out Of My Debt Emergency
« Reply #14 on: March 13, 2014, 07:46:21 PM »
Thanks, I appreciate that. I think my major issue now that I've realized which direction I want to head is patience. Patience required to formulate a plan, put it into action and wait for the results. I've been brewing over some of these things for a while (new job closer to home, selling my newer car for an old beater) but I get discouraged when it isn't easy as snapping my fingers.
I'm not sure if this is the correct comparison to make, but I'm finding that these forums are like an AA for people who mismanaged their money. Once you start talking it out, it's less scary and you can put one foot in front of the other. I hope that I can take the necessary steps to put myself where I need to be.

There actually is a 12-step program for people who mismanage their money.  it is called Debtors Anonymous. 

Anyway,  one thing that helps me work through big issues is to write them down like you did here.  I keep a recipe card with my goals written on it next to my computer.  good luck and keep posting!  :)

Jack

  • Magnum Stache
  • ******
  • Posts: 4734
  • Location: Atlanta, GA
Re: Reader Case Study - How Long Before I Can Get Out Of My Debt Emergency
« Reply #15 on: March 13, 2014, 08:34:02 PM »
3) Loan consolidation: How does one do it? Is it easy? Is it worth doing? My loans are broken down between private and federal, I'm pretty sure, fairly evenly. All the interest rates, like I've mentioned are 6.9, 7.9, or 8.9.

At least the last time I checked, loan consolidation doesn't actually do any good -- it just averages the interest rates together, it doesn't lower them. In my opinion, it's better to keep them separate so that you can preferentially pay the highest-rate off first.

(Anybody let me know if I'm wrong; I'd love to consolidate mine too if it would actually save me money!)

I would figure that because the car loans are a low interest rate (2%?), that I could pay the remaining 2 grand back over 5 months of $400 payments.

Car loans are 2% only on newish cars (like your 2012) that you're in too big a debt emergency to afford. For a <$4000 car, the interest rate is probably higher than your student loan rate, and you are therefore better off paying cash.

Next, I'd need to have enough to purchase a cheap vehicle out of pocket. I'll have about $3600 left to do it. I would hope to spend $1500, but I don't know if that's TOO cheap and I'd be falling into a money pit?

$1500 is too cheap if you're planning to keep your crazy commute; 50+ MPG cars hold their value better than that.

I'll make it simple: buy this car (try to get it for <$3600) unless there's something wrong with it, or unless your girlfriend's mom gives you a free one. (Ask around somewhere like insightcentral.net to find a good person to do the inspection.)

MDM

  • Walrus Stache
  • *******
  • Posts: 9411
Re: Reader Case Study - How Long Before I Can Get Out Of My Debt Emergency
« Reply #16 on: March 13, 2014, 08:54:51 PM »
3) Loan consolidation: How does one do it? Is it easy? Is it worth doing? My loans are broken down between private and federal, I'm pretty sure, fairly evenly. All the interest rates, like I've mentioned are 6.9, 7.9, or 8.9.

At least the last time I checked, loan consolidation doesn't actually do any good -- it just averages the interest rates together, it doesn't lower them. In my opinion, it's better to keep them separate so that you can preferentially pay the highest-rate off first.

(Anybody let me know if I'm wrong; I'd love to consolidate mine too if it would actually save me money!)

Don't know how the consolidated interest was calculated, but in this case it seemed consolidation was better.