First Job Out of School, Paying Off Debt

[MontanaMoneyMustache]

Just discovered this site a few days ago and am already loving it!

I will be graduating tomorrow (12-18-13) and have a great job lined up starting January 13th. I am married with a 3 year old boy. Currently paying only the minimum on all bills because we virtually have no income as of right now. I have made some poor decisions over the years, and have not realized it until the last few months, so please bear with me on all of my debt and expensive vehicles  (soon to be much lower!).

I need some advice on my strategy.

Our debt is as follows:

No student loans
Amex Credit Card: 13%, $7,000 balance
Mastercard: 9%, $5,000 balance
Amazon Store Card: 0% (if I pay off in time), $2,000
Loan from parents: 0%, $3,000
Truck loan: 4%, $31,000 left, $525/month (will be using my truck for work and be getting paid mileage, plenty to cover gas and maintenance, so this will stay for now)
Wife's Car: 4.1%, $9,000 left, $300/month

I'm not including my monthly expenses at this time, as I feel like I have done pretty good at getting those down as much as possible for now.

After taxes, I have estimated that I will have $2,800 dollars per month left over to pay off my debt (this number is after subtracting both vehicle payments, rent, food, etc). I will also have a $7,500 dollar signing bonus with my first paycheck, and another $7,500 6 months in. I have done a rough tax estimate for the signing bonus, and looks like each one will be approximately $4,600 after taxes.

I will pay off the amazon card with a portion of my first signing bonus, as the 0% promotional expires in May. So that one will be gone. I will then apply the remainder of the signing bonus to the Amex.

The remaining portion is calculated in the attached image from the Snowball Debt Calculator.

Once the credit cards and parents are paid in full, I will then dump all of the $2,800/month extra into the two vehicles.
I am a total newbie at this. Am I going about this correct? Thank you.

*Note: my only saving for the first few months will be $400/month to an emergency fund, and 6% into my 401k.

[olivia]

First of all, congratulations on the job!  Here are a few thoughts:

1. SELL THE TRUCK THIS INSTANT.  You do not need a $31k truck even if you will be getting paid mileage for it.  Sell it ASAP, pay off the loan, and buy a reasonably priced used truck.  (If you actually need a truck for work, that is.  Otherwise get a car that gets better gas mileage since presumably you will only be reimbursed for work miles, not personal miles.)  Can you and your wife share one car?  If so, perhaps you can just use her car.

2. Pay off the 0% credit card last, not first.  From your calculations it looks like you can pay off the Amex at 13% very quickly.  With your $4600ish after taxes signing bonus and 2 big payments, it will only take you 2 months.  Then you'll still have plenty of time to pay off the Amazon 0% credit card before May when the 0% rate goes up.   

3. If I were you, once the Amex card is paid off in February, I would then throw money at the  9% Mastercard in March and April, and make the minimum payment on the 0% Amazon until May, when I would pay the entire balance off. 

This will save you on interest payments.

[MontanaMoneyMustache]

First of all, congratulations on the job!  Here are a few thoughts:

1. SELL THE TRUCK THIS INSTANT.  You do not need a $31k truck even if you will be getting paid mileage for it.  Sell it ASAP, pay off the loan, and buy a reasonably priced used truck.  (If you actually need a truck for work, that is.  Otherwise get a car that gets better gas mileage since presumably you will only be reimbursed for work miles, not personal miles.)  Can you and your wife share one car?  If so, perhaps you can just use her car.

2. Pay off the 0% credit card last, not first.  From your calculations it looks like you can pay off the Amex at 13% very quickly.  With your $4600ish after taxes signing bonus and 2 big payments, it will only take you 2 months.  Then you'll still have plenty of time to pay off the Amazon 0% credit card before May when the 0% rate goes up.   

3. If I were you, once the Amex card is paid off in February, I would then throw money at the  9% Mastercard in March and April, and make the minimum payment on the 0% Amazon until May, when I would pay the entire balance off. 

This will save you on interest payments.

Thank you for the reply.

1. I know the truck is a huge burden. Along with using it for work, I will also be towing various trailers for personal use. We also go hunting in the fall for a good portion of our meat for the year (this is tough to do without a truck). I will do some looking to see if I can find a decent, reliable, and cheaper replacement that can perform the tasks I need it to. Sharing a car with the wife is NOT an option. My son will be going to a Montessori school (very important to us) which is on the other side of town from where I work. So a no-go there. Once the weather warms up a bit I may try biking to work, so the situation could possibly change.

2. I guess I spaced the timing on the 0% card. Your suggestion makes perfect sense.

3. This will go along nicely with your suggestion from number 2.

Thank you!


*Edit: I just triple-checked the Amazon promotional rates, and looks like I have a small balance upcoming in March that the 0% will actually expire (for that charge only). I will see If I can only pay that amount, and if it will actually apply and pay off that one purchase. Then the rest of the charges would still be 0% until May.

[ArcticaMT6]

Get a cheap older beater truck for $5k or under. That should be plenty reliable for you, while not having a $500+ monthly payment, and accompanyingly large insurance payment as well.

For that matter, you can get a $5k car for your wife as well. No need for that expensive of a car while you are in debt.

[olivia]

First of all, congratulations on the job!  Here are a few thoughts:

1. SELL THE TRUCK THIS INSTANT.  You do not need a $31k truck even if you will be getting paid mileage for it.  Sell it ASAP, pay off the loan, and buy a reasonably priced used truck.  (If you actually need a truck for work, that is.  Otherwise get a car that gets better gas mileage since presumably you will only be reimbursed for work miles, not personal miles.)  Can you and your wife share one car?  If so, perhaps you can just use her car.

2. Pay off the 0% credit card last, not first.  From your calculations it looks like you can pay off the Amex at 13% very quickly.  With your $4600ish after taxes signing bonus and 2 big payments, it will only take you 2 months.  Then you'll still have plenty of time to pay off the Amazon 0% credit card before May when the 0% rate goes up.   

3. If I were you, once the Amex card is paid off in February, I would then throw money at the  9% Mastercard in March and April, and make the minimum payment on the 0% Amazon until May, when I would pay the entire balance off. 

This will save you on interest payments.

Thank you for the reply.

1. I know the truck is a huge burden. Along with using it for work, I will also be towing various trailers for personal use. We also go hunting in the fall for a good portion of our meat for the year (this is tough to do without a truck). I will do some looking to see if I can find a decent, reliable, and cheaper replacement that can perform the tasks I need it to. Sharing a car with the wife is NOT an option. My son will be going to a Montessori school (very important to us) which is on the other side of town from where I work. So a no-go there. Once the weather warms up a bit I may try biking to work, so the situation could possibly change.

2. I guess I spaced the timing on the 0% card. Your suggestion makes perfect sense.

3. This will go along nicely with your suggestion from number 2.

Thank you!


*Edit: I just triple-checked the Amazon promotional rates, and looks like I have a small balance upcoming in March that the 0% will actually expire (for that charge only). I will see If I can only pay that amount, and if it will actually apply and pay off that one purchase. Then the rest of the charges would still be 0% until May.

I totally get the trailer/hunting thing.  My OG Mustachian dad has always had a truck of some sort for hunting and towing purposes.  However, he has never owned a car that cost $31k in his entire life, and he and my mom are living in their mortgage-free dream house and could definitely afford it.  You just don't need that expensive of a truck, especially not when you have this much debt.  I'm positive you could find a reasonably priced truck or SUV with towing capabilities. 

Check the paper for listings and I bet you'll find a truck from someone just like my dad.  Low miles, only used on the weekends, kept in great shape with all routine maintenance, etc.  My husband bought another one of my dad's trucks (1996 Toyota pick up) for $4k about 10 years ago and drove it for 8 years before he finally sold it.

[FIreDrill]

Ditto on selling the truck and getting a decent used one.  Doing that will significantly change your financial situation and give you a great jump on getting rid of your debt.  Plus getting rid of the truck loan would free up 525 a month that can go towards paying those debts off quicker.

[_JT]

I went to college in Butte, and nearly everyone I graduated with bought a brand new pickup truck once they had a job. I bought a used Accord. It's not a coincidence that, 8 years later, I'm in a much better financial situation than almost all of them, despite working only when I've felt like it over the past five years.

You can ABSOLUTELY find a truck that will do everything you want (want, not need) it to do. And for ~10k. How many trips to the grocery store to buy your own meat will 31 thousand dollars fund?

[MontanaMoneyMustache]

Thank you all for the advice. I agree that it is time to sell the truck. We are moving next week, so most likely it will be after starting my job.

I went to college in Butte, and nearly everyone I graduated with bought a brand new pickup truck once they had a job. I bought a used Accord. It's not a coincidence that, 8 years later, I'm in a much better financial situation than almost all of them, despite working only when I've felt like it over the past five years.

You can ABSOLUTELY find a truck that will do everything you want (want, not need) it to do. And for ~10k. How many trips to the grocery store to buy your own meat will 31 thousand dollars fund?

I am graduating from Montana Tech in Butte as well. Same story still, but most people are buying $50k+ new trucks, fancy houses/apartments, and big vacations before they start work. I actually know a guy who took out a large personal loan to go skiing in Europe before he starts his job. My truck is actually used, was probably about $45k new.

[Cinder]

Morning!  Any updates on how your month went?  How has mustachianism been sinking in?  Get a budget worked out yet?  We'd love to hear how you are doing!