Author Topic: Trying to come out of debt, I have a few questions  (Read 4099 times)

jakebyrd

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Trying to come out of debt, I have a few questions
« on: May 18, 2014, 12:34:58 PM »
So for a brief background, I'm 26 years old, and went through a divorce last year, and both my ex wife and myself ruined our credit and landed us in an insane amount of debt for a couple in their mid 20s. I'm in the national guard, and seeing a personal crisis, tens of thousands of dollars in debt, living paycheck to paycheck, and worried about what would happen if my car broke down, I volunteered for a deployment to Afghanistan. I've been here now for 9 months, and I have 3 left before I come home. I've made a lot of progress, to include paying off $22,000 in debt since last September, and catching up several overdue bills and accounts.

I still have $25,900 worth of debt, and two semesters of school left before I graduate. I'm trying to come up with the best plan to pay them off as quickly as possible and start saving.

I currently have $7,200 in the bank, and I have an income of $4,300 per month after deductions. This will end in September once I return home. I also have income tax returns on their way totaling $1,700. I've calculated this to mean I will have $23,837 in my bank account when I return home. I need a car, some new clothes, a bed, and a bicycle when I first get home. I plan to spend $4,500 on all of this (mostly the car), leaving me with $19, 337 in the bank. Using the suggestions from the Dave Ramsey class I attended last year, I think it would be wise to keep $6000 (4 months living money) in the bank, and use the rest to pay off debt immediately. I have two smaller debts that I would want to pay off instantly totaling just over $5000, leaving only my student loan of $20,000 to pay off.

My Budget forecast upon returning home:
Rent: $0 (I lucked up and get a free place at the beach thanks to my well off brother!)
Power: $80 (share bill with his business next door)
car insurance: $50 (just a guess)
Child support: $300
health insurance: $200 (guessing for now, I have to look into what's most affordable for me and my daughter)
gas: $400 (I have to drive to NC 2 weekends a month, I'll be bicycling most of the time at home in FL, i figure the free rent is worth the trade off)
car repairs: $100 (give or take)
food: $250
eating out: $50
gym: $20 (I'm training to compete in a bodybuilding competition, so this one's too important for me to give up)
phone: $25 (just bought a moto g and cancelled my old verizon plan for $90 a month with my iPhone!)


Total: $1,475 monthly budget

Income:
National guard drill
~$300 (monthly training weekend)

GI Bill (until school is finished)
$1100

I still need to find a job when I return home. I'm doing school online so a full time job during the week is entirely possible. Until I know what I can make I can't add it into my income, although I'm sure I can find a job making at least $1,500 a month after deductions. I would hope I can do even better.

Total income: $1,400 + unknown factor.


questions:

1. I know I can make ends meet once I'm back home without having to rely on a large emergency fund. I'm still scared to not have at least some money in savings at this point since I have no assets and I'm in debt. How much should I put back with a projected monthly expense of less than $1500?

2. How much of a priority should paying off my student loan be? I know I can probably pay a large chunk off while I finish school, should I just pay a certain amount each month, or pay a large chunk as soon as I get home and try to finish it off early. Is there anything else I can do that would be wiser in the long term?

3. I would like to buy a house within the next few years. obviously finishing my last year in school and landing a more permanent job will help. My credit is piss poor (580) because of the divorce and stupid decisions we both made. I have paid everything off other than what I've already mentioned, and started a $500 secured credit card through my bank (wellsfargo). What else can I do to improve my credit given my situation with home ownership in mind?

4. After reading as many articles on MMM as I felt was relevant to my situation (not reading much about investments yet since I'm still in debt) I've decided to take further action. I'm going to sell some gaming consoles, books, my laptop (macbook pro almost new costed $2500, I know it was a bad decision lol, planning to downgrade), and several other items through ebay and craigslist to try to make a couple thousand dollars more once I'm home. Any suggestions to make even more money? If it's relevant I'll be living in Jacksonville Beach, FL.

SDREMNGR

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Re: Trying to come out of debt, I have a few questions
« Reply #1 on: May 18, 2014, 01:11:21 PM »
Focus 1000% on the job search.  What job you land and how much money you make will make all the difference.  Go after it with a 8 hours a day vengence.  Your expenses are steady a d you have a well off brother that is helping you so just don't mess that up.  Focus on the income side and you will have more options on paying down your debt in due time.

MDM

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Re: Trying to come out of debt, I have a few questions
« Reply #2 on: May 18, 2014, 01:47:43 PM »
First, thanks for your service.  Second, congratulations on turning things around and best wishes for continued success.

Your questions:
1. emergency fund.  An e-fund is there to absorb "unexpected but likely enough" drops in income and/or increases in expenses.  You'll know the correct amount only in hindsight.  In your case, it seems the likelihood of a large, unexpected, drop in income is very low.  Unexpected expenses with "likely enough" (you get to decide just how likely) probability for you are things like major medical (e.g. appendicitis) or car (e.g. accident, transmission failure, etc.).  All things considered, in your situation I'd aim for a low amount, maybe ~$1,000 - enough to absorb normal cash flow ups and downs.  It's a risk/reward thing: the less in the e-fund, the more you can pay off debt now.

2. student loan.  Depends on the interest rate.  If >5% I'd pay it ASAP more, if <2% I'd pay as little as possible.

3. house, school, job, credit.  SDREMNGR looks to have it right here: forget about a house for now, get the degree (assuming it is a ticket to a good job), then the job, then the credit score...and only then might a house be worth considering. 
There may be things you can do before getting the job that will help with credit.  Ask your bank if they will give you specific improvement suggestions on improving your score, and/or try www.creditkarma.com for some automated suggestions.

4. further action.  Appears you have good plans here.  Any chance public transit (e.g. bus) could get you to NC so you don't need a car at all?  Otherwise, just limit expenses wherever possible (maybe a $1K car if you need one at all? - granted, reliability for the Fl-NC round trips are a factor), then keep spending low once you get a good paying job, and eventually you'll have good success stories to tell your child(ren and grandchildren).

Good luck!

rmendpara

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Re: Trying to come out of debt, I have a few questions
« Reply #3 on: May 18, 2014, 02:22:52 PM »
So for a brief background, I'm 26 years old, and went through a divorce last year, and both my ex wife and myself ruined our credit and landed us in an insane amount of debt for a couple in their mid 20s. I'm in the national guard, and seeing a personal crisis, tens of thousands of dollars in debt, living paycheck to paycheck, and worried about what would happen if my car broke down, I volunteered for a deployment to Afghanistan. I've been here now for 9 months, and I have 3 left before I come home. I've made a lot of progress, to include paying off $22,000 in debt since last September, and catching up several overdue bills and accounts.

I still have $25,900 worth of debt, and two semesters of school left before I graduate. I'm trying to come up with the best plan to pay them off as quickly as possible and start saving.

I currently have $7,200 in the bank, and I have an income of $4,300 per month after deductions. This will end in September once I return home. I also have income tax returns on their way totaling $1,700. I've calculated this to mean I will have $23,837 in my bank account when I return home. I need a car, some new clothes, a bed, and a bicycle when I first get home. I plan to spend $4,500 on all of this (mostly the car), leaving me with $19, 337 in the bank. Using the suggestions from the Dave Ramsey class I attended last year, I think it would be wise to keep $6000 (4 months living money) in the bank, and use the rest to pay off debt immediately. I have two smaller debts that I would want to pay off instantly totaling just over $5000, leaving only my student loan of $20,000 to pay off.

My Budget forecast upon returning home:
Rent: $0 (I lucked up and get a free place at the beach thanks to my well off brother!)
Power: $80 (share bill with his business next door)
car insurance: $50 (just a guess)
Child support: $300
health insurance: $200 (guessing for now, I have to look into what's most affordable for me and my daughter)
gas: $400 (I have to drive to NC 2 weekends a month, I'll be bicycling most of the time at home in FL, i figure the free rent is worth the trade off)
car repairs: $100 (give or take)
food: $250
eating out: $50
gym: $20 (I'm training to compete in a bodybuilding competition, so this one's too important for me to give up)
phone: $25 (just bought a moto g and cancelled my old verizon plan for $90 a month with my iPhone!)


Total: $1,475 monthly budget

Income:
National guard drill
~$300 (monthly training weekend)

GI Bill (until school is finished)
$1100

I still need to find a job when I return home. I'm doing school online so a full time job during the week is entirely possible. Until I know what I can make I can't add it into my income, although I'm sure I can find a job making at least $1,500 a month after deductions. I would hope I can do even better.

Total income: $1,400 + unknown factor.


questions:

1. I know I can make ends meet once I'm back home without having to rely on a large emergency fund. I'm still scared to not have at least some money in savings at this point since I have no assets and I'm in debt. How much should I put back with a projected monthly expense of less than $1500?

2. How much of a priority should paying off my student loan be? I know I can probably pay a large chunk off while I finish school, should I just pay a certain amount each month, or pay a large chunk as soon as I get home and try to finish it off early. Is there anything else I can do that would be wiser in the long term?

3. I would like to buy a house within the next few years. obviously finishing my last year in school and landing a more permanent job will help. My credit is piss poor (580) because of the divorce and stupid decisions we both made. I have paid everything off other than what I've already mentioned, and started a $500 secured credit card through my bank (wellsfargo). What else can I do to improve my credit given my situation with home ownership in mind?

4. After reading as many articles on MMM as I felt was relevant to my situation (not reading much about investments yet since I'm still in debt) I've decided to take further action. I'm going to sell some gaming consoles, books, my laptop (macbook pro almost new costed $2500, I know it was a bad decision lol, planning to downgrade), and several other items through ebay and craigslist to try to make a couple thousand dollars more once I'm home. Any suggestions to make even more money? If it's relevant I'll be living in Jacksonville Beach, FL.

In the short term, I would forget about investing (unless you're talking about a Total Market Index Fund for $100/mo or something small but steady).

Personally, I would keep the liquid savings intact, and continue paying the required payments on all debt. Until you find out your job situation later this year, you may not have a bunch of extra money a year from now.

I would prioritize as such:
1) Pay your minimums on all required expenses (and DO NOT carry a balance on a credit card).
2) Figure out the job situation in a few months, and build up your savings as much as possible.
3) Once you have a better idea of what your income/expense budget will be once you return, then you can revisit a plan to pay off your debts.

feelingroovy

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Re: Trying to come out of debt, I have a few questions
« Reply #4 on: May 18, 2014, 02:42:24 PM »
Can you break down the debts for us, with minimum payments and interest rates?  That makes a big difference.


jakebyrd

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Re: Trying to come out of debt, I have a few questions
« Reply #5 on: May 18, 2014, 03:31:38 PM »
Thanks for the responses!

I'm still debating what kind of work I want to do when I get home... I have a few opportunities already that's why it's uncertain, I get to be rather picky by today's standards in the job market. I'm debating on working 20-30 hours a week to focus more time on school or working full time until I graduate and struggling. Not sure if risking dropping the grades would be worth it. The part time work would mostly be contracted work, I used to work as a direct TV tech and do home theater installations on the side; that kind of work is easy and I make my own schedule.

As far as the debts go, I'm paying two off for sure, the third is my only debt left, and is 20k worth of student loans, I don't even know what the interest rate is or where to find it. I'll have to look through old mail/ emails. I didn't realize how important it would be in planning repayment. Thanks for all of the input. I feel like maybe a smaller emergency fund would be okay. maybe half what I was planning. I would like to be debt free sooner rather than later.

deborah

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Re: Trying to come out of debt, I have a few questions
« Reply #6 on: May 18, 2014, 03:32:37 PM »
Agree with the others. However, I would keep your emergency fund intact for a couple of months after you come back in case you actually have different expenses than you think you will have. Then reduce it to $1000

Jack

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Re: Trying to come out of debt, I have a few questions
« Reply #7 on: May 18, 2014, 03:42:39 PM »
What are you studying? With only two semesters to go, you could probably get a job doing that.

Catbert

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Re: Trying to come out of debt, I have a few questions
« Reply #8 on: May 18, 2014, 03:46:49 PM »
I don't mean to be rude, but are you sure the on-line degree will be worth anything when you're done?  Do you feel comfortable sharing the school and major?  Most (all?) on-line degrees are pretty much worth nothing in the job market.  Many schools are set up to extract the maximum GI bill dollars from their students.  When I was an HR manager I gave zero credit to applicants with on-line degrees.

On to your questions...
1.  I was going to suggest a small ($1000) e-fund until I noticed that you have a child.  The odds of something happening just jumped!  So I'd more it larger - maybe $3000.

T-Rex

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Re: Trying to come out of debt, I have a few questions
« Reply #9 on: May 18, 2014, 04:17:27 PM »
I'm in a similar situation as you, on deployment and trying to save for the inevitable civilian life. I'm not sure what kind of debts you have or how much the interest is on your debts at all...

Here is what I think after looking at your numbers:

#1 Emergency fund big enough for a few month's living expenses... don't want to be out on your ear after deployment, and sounds like you wouldn't want to rely on a credit card for e-fund.
#2 Save for the essentials you need to live/work when you get home (looks like you got that covered)
#3 knock out the highest interest debt first Exceptions to this: A) If the interest doesn't exceed the potential earned interest of the Savings Deposit Program, go to disbursing to set up a Savings Deposit Program account, even this late in the game! Maybe talk to your admin guy about what you need to do if you are out at a small base. B) If debt was accumulated before you joined, in which case you might be protected from interest over 6% by the SCRA. If you got into debt while in, get a decent balance transfer credit card with a long period of 0% APR and start knocking it out as quickly as possible.

And save as much as possible on deployment. I don't buy any items I find for free on base. One of my super cheap friends came back from deployment with a Gorilla box full of soap and toothbrushes. If you can are near a bazaar there are certain local items that are quite rare and can be sold at a huge profit in the United States (not the imports, but local goods).

SDREMNGR

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Re: Trying to come out of debt, I have a few questions
« Reply #10 on: May 18, 2014, 04:28:57 PM »
Agree with the others. However, I would keep your emergency fund intact for a couple of months after you come back in case you actually have different expenses than you think you will have. Then reduce it to $1000

+1 for the keep it at around $3000 until things settle down and then go to $1000.  You know no idea how many tenants pay me $100+ each month because they can't pay their rent on time.  The lease says pay by 4th, but they pay on the 5th or 6th and then pay me the 5% late fee.  Pretty much every month.  I try to help them and tell them how to avoid it and even give them the 1st one free of charge, but people don't listen to me.  They just keep their finances so tight that they cannot pay rent on time.  Do not be one of those people.  Keep enough money so that paying rent is not an apocalyptic financial event.

+1 for the being careful of your degree program as well.  For profit schools should be banned and outlawed.  What is Congress thinking?!?   Even non-profit schools should be penalized for extracting usurious fees from unsuspecting students and parents!  I'm all for college and education but do so smartly and with a plan in hand.  The flexible job with direct TV or something like that sounds like a pretty good option for a student.  I would support the work super hard for a few years and it'll pay off plan.