Need help with debt strategy

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valleyman123
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Need help with debt strategy

Post by valleyman123 » Wed May 23, 2018 7:47 am

I don't know where to start with my debt and have struggled with finances my entire life. I am looking for advice on how to tackle my debt in the best way possible. Any information is helpful, thank you in advance. My background information is as follows:

*29 Year old male in CA graduating this May with no kids or wife. *Currently take home $700/week. *Starting salaried June 1 and will jump up to $69k per year or $1327/week before taxes. *Current Cash is $1700 *ROTH IRA worth $8600 in fund HCTAX through a brokerage.I deposit $100/month into this. I believe I can withdraw up to around $4500 without penalty, would this be wise to pay off debt?

DEBT includes the following:

*Credit Card: Citi $2493 @ 13.74% *Credit Card: Capital One $1892 @ 19.40% *Credit Card: Chase $1876 @ 23.74% *Credit Card: Discover $1340 @ 0% TOTAL:$7601

STUDENT LOANS all due 1/18/2019:

*Loan A $5500 @4.29% No interest accrued *Loan B $6099 @4.29% Plus $564 Interest accrued *Loan C $5500 @3.76 No Interest accrued *Loan D $6597 @3.76% Plus $353 interest accrued *Loan E $5500 @4.50 No Interest accrued *Loan F $750 @ 4.45% Plus $17.45 interest accrued TOTAL: $30,879

I'm really lost as to a strategy on paying off all my debt. Please help.

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Pajamas
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Re: Need help with debt strategy

Post by Pajamas » Wed May 23, 2018 8:05 am

Congratulations on graduating and getting a great job and starting to get a grip on your finances! It will feel GREAT to finish school. :beer

Leave the money in your Roth. That's a bright spot in your financial situation, along with your new salary. You might even consider continuing with the $100 contributions since it is a token amount. Suspending those new contributions until the credit card debt is gone is also a reasonable decision but the amount of credit card debt is manageable. Once your debt is cleared, maxing out your retirement contributions to the extent possible will benefit you in the long run.

With your new salary, it seems like you will be able to pay off all your credit card debt by the end of the summer by putting all your excess money onto the one with the highest interest rate until they are all zero balance. Keep the one with the best terms (no annual fee, then highest rewards) and pay off your credit card monthly.

Not going to comment on your past usage because of the circumstances you were in, but you really need to avoid this type of expensive debt going forward and pay your credit card in full monthly to avoid throwing away money on interest. Continue to live like a broke student.

Might also be possible to find a card that will allow you to transfer balances with no interest but you might not qualify for a new card and it's not a huge amount of money and you should be able to pay it off quickly, anyway, so it might not be worth the trouble.

I can't really comment on what to do with the student loans because I don't understand why they are all due a year after you graduate or so and don't know anything about consolidation or other strategies available for those.

Here's a concise and valuable book (in pdf) on how to approach your finances generally, particularly for someone at your stage in life:

https://www.etf.com/docs/IfYouCan.pdf
Last edited by Pajamas on Wed May 23, 2018 8:11 am, edited 1 time in total.

OnTrack2020
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Re: Need help with debt strategy

Post by OnTrack2020 » Wed May 23, 2018 8:10 am

How come all of your student loans are due at once? I'm assuming there is an option to set up a payment plan?

NextMil
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Re: Need help with debt strategy

Post by NextMil » Wed May 23, 2018 8:18 am

OnTrack2020 wrote:
Wed May 23, 2018 8:10 am
How come all of your student loans are due at once? I'm assuming there is an option to set up a payment plan?
More than likely that is when he or she has to start paying on them.

NextMil
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Re: Need help with debt strategy

Post by NextMil » Wed May 23, 2018 8:20 am

I would check out Dave Ramsey's Total Money Makeover book, and follow his advice to get out of debt - its a simple read and cheap if you cannot find it at your library. As Pajamas said, you should be able to knock out the credit card debt really quickly, and then get after those student loans. You can do this.

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Pajamas
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Re: Need help with debt strategy

Post by Pajamas » Wed May 23, 2018 8:24 am

NextMil wrote:
Wed May 23, 2018 8:20 am
I would check out Dave Ramsey's Total Money Makeover book, and follow his advice to get out of debt - its a simple read and cheap if you cannot find it at your library. As Pajamas said, you should be able to knock out the credit card debt really quickly, and then get after those student loans. You can do this.
I wouldn't advise that at all because of the irrationality of paying off the lowest balance card first rather than the one with the highest interest rate. For someone who is reasonably rational with an adequate salary, focusing on cash flow is not the best perspective. It's simply not necessary in this situation. The religious overtone that colors Ramsey is also unnecessary.
Last edited by Pajamas on Wed May 23, 2018 8:27 am, edited 1 time in total.

NextMil
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Re: Need help with debt strategy

Post by NextMil » Wed May 23, 2018 8:26 am

Pajamas wrote:
Wed May 23, 2018 8:24 am
NextMil wrote:
Wed May 23, 2018 8:20 am
I would check out Dave Ramsey's Total Money Makeover book, and follow his advice to get out of debt - its a simple read and cheap if you cannot find it at your library. As Pajamas said, you should be able to knock out the credit card debt really quickly, and then get after those student loans. You can do this.
I wouldn't advise that at all because of the irrationality of paying off the lowest balance card first rather than the one with the highest interest rate. For someone who is reasonably rational with an adequate salary, focusing on cash flow is not the best perspective. It's simply not necessary in this situation.
In a three month time frame you really think its makes a difference? Sorry, but that just seems silly to me.

cherijoh
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Re: Need help with debt strategy

Post by cherijoh » Wed May 23, 2018 8:27 am

valleyman123 wrote:
Wed May 23, 2018 7:47 am
I don't know where to start with my debt and have struggled with finances my entire life. I am looking for advice on how to tackle my debt in the best way possible. Any information is helpful, thank you in advance. My background information is as follows:

*29 Year old male in CA graduating this May with no kids or wife. *Currently take home $700/week. *Starting salaried June 1 and will jump up to $69k per year or $1327/week before taxes. *Current Cash is $1700 *ROTH IRA worth $8600 in fund HCTAX through a brokerage.I deposit $100/month into this. I believe I can withdraw up to around $4500 without penalty, would this be wise to pay off debt?

DEBT includes the following:

*Credit Card: Citi $2493 @ 13.74% *Credit Card: Capital One $1892 @ 19.40% *Credit Card: Chase $1876 @ 23.74% *Credit Card: Discover $1340 @ 0% TOTAL:$7601

STUDENT LOANS all due 1/18/2019:

*Loan A $5500 @4.29% No interest accrued *Loan B $6099 @4.29% Plus $564 Interest accrued *Loan C $5500 @3.76 No Interest accrued *Loan D $6597 @3.76% Plus $353 interest accrued *Loan E $5500 @4.50 No Interest accrued *Loan F $750 @ 4.45% Plus $17.45 interest accrued TOTAL: $30,879

I'm really lost as to a strategy on paying off all my debt. Please help.
I am a bit confused. Student loans are generally not due in full less than 6 months after you graduate. People pay off student loans over a very long period of time. Please double check and clarify this. Do you need to start paying on your student loans starting in January? That would make a lot more sense. In the meantime, work on knocking out your credit card debt.

I agree with pajamas regarding your credit card debt. Pay off the minimum on all the cards except the one with the highest interest rate. Throw as much money as possible on that card until it has a zero balance. Then move onto the next highest interest rate credit card. Repeat until you are free of all credit card debt.

Do NOT make any new charges on any credit cards that currently have a balance. If you have a prior balance, interest starts accruing on new purchases as soon as you make the purchase!!

I just looked up the fund in which you have your Roth invested. It has an expense ratio (ER) of 1.31%!! :oops: You need to break free from the brokerage that holds your Roth. They do NOT have your best interests at heart. It is a Class A fund so in addition to the ridiculously high ER, you also paid a front end load!! I suggest moving your account to Vanguard, Fidelity, or Schwab and invest in a low cost index fund.

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Pajamas
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Re: Need help with debt strategy

Post by Pajamas » Wed May 23, 2018 8:35 am

cherijoh wrote:
Wed May 23, 2018 8:27 am
I just looked up the fund in which you have your Roth invested. It has an expense ratio (ER) of 1.31%!! :oops: You need to break free from the brokerage that holds your Roth. They do NOT have your best interests at heart. It is a Class A fund so in addition to the ridiculously high ER, you also paid a front end load!! I suggest moving your account to Vanguard, Fidelity, or Schwab and invest in a low cost index fund.
I didn't look at the fund in the Roth and would agree with this advice. Information about this is in the Bernstein pdf I linked to. This can wait until after you graduate if you don't have time right now because of exams and finishing school.

cherijoh
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Re: Need help with debt strategy

Post by cherijoh » Wed May 23, 2018 8:42 am

NextMil wrote:
Wed May 23, 2018 8:26 am
Pajamas wrote:
Wed May 23, 2018 8:24 am
NextMil wrote:
Wed May 23, 2018 8:20 am
I would check out Dave Ramsey's Total Money Makeover book, and follow his advice to get out of debt - its a simple read and cheap if you cannot find it at your library. As Pajamas said, you should be able to knock out the credit card debt really quickly, and then get after those student loans. You can do this.
I wouldn't advise that at all because of the irrationality of paying off the lowest balance card first rather than the one with the highest interest rate. For someone who is reasonably rational with an adequate salary, focusing on cash flow is not the best perspective. It's simply not necessary in this situation.
In a three month time frame you really think its makes a difference? Sorry, but that just seems silly to me.
Dave Ramsey's approach makes sense if you are feeling overwhelmed, have debts of a wide range of sizes, and have one that you can knock out quickly to build psychological momentum. Tackling the highest interest rate debt may seem insurmountable if it will take months and months to retire that debt. But in this case, none of the individual debts are all that big so any psychological advantage to DR's "baby steps" approach is minimal and it will just end up costing the OP more interest.

New graduates have a range of one-time expenses like security deposits on an apartment, furnishings and appliances, etc. that could mean that OP can't jump right in an retire the debt in the 3 months you propose.

NextMil
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Re: Need help with debt strategy

Post by NextMil » Wed May 23, 2018 8:49 am

cherijoh wrote:
Wed May 23, 2018 8:42 am
Dave Ramsey's approach makes sense if you are feeling overwhelmed, have debts of a wide range of sizes, and have one that you can knock out quickly to build psychological momentum. Tackling the highest interest rate debt may seem insurmountable if it will take months and months to retire that debt. But in this case, none of the individual debts are all that big so any psychological advantage to DR's "baby steps" approach is minimal and it will just end up costing the OP more interest.

New graduates have a range of one-time expenses like security deposits on an apartment, furnishings and appliances, etc. that could mean that OP can't jump right in an retire the debt in the 3 months you propose.
Pretty sure OP seems like the perfect candidate. Overwhelmed per original post. Fresh out of school. But I agree with you it should all go quickly, so you could avalanche vs. DR/snowball method. It only matters if OP doesn't follow through. The thing I like about lowest balance first is it discharges a required payment quickly, which could be helpful with other fresh out of school expenses.

frugalmama
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Re: Need help with debt strategy

Post by frugalmama » Wed May 23, 2018 8:55 am

Congratulations on graduating and your new job! You've received some great advice here. You have a lot going for you and one of them is that you found this forum...I wish I had found it sooner myself!

I would try to live on as little as possible until you get the credit cards paid off (and possibly beyond that if you really want to move your financial future forward).

I prefer the snowballing approach to debt with the highest interest rate (paying mins. on the others) myself. You will get out of debt faster that way. If you are scared you won't stay motivated to pay the debts off, then go with the Dave Ramsey approach.

As others said, recheck the student loans and how they are due. You also may be able to refinance/consolidate them at a lower rate depending on who they are through, etc. I did that a while back and it helped quite a bit as I had fewer payments and one lower rate. If you can't find someone to do it for you now, check back in another year or so.

I agree with moving your Roth. I started out in a loaded fund like that when I started investing and was so glad my now-husband explained to me why I needed to move. That expense ratio plus the load makes it a very expensive investment. When you move it, check out a low cost index fund - and eventually you will want to go with something like the 3 fund approach here: https://www.bogleheads.org/wiki/Three-fund_portfolio

The best of luck to you!!

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Pajamas
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Re: Need help with debt strategy

Post by Pajamas » Wed May 23, 2018 9:04 am

frugalmama wrote:
Wed May 23, 2018 8:55 am

I prefer the snowballing approach to debt with the highest interest rate (paying mins. on the others) myself. You will get out of debt faster that way. If you are scared you won't stay motivated to pay the debts off, then go with the Dave Ramsey approach.
I agree that it is best to pay off the debt with the highest interest rate first, i.e., the rational method, but want to point out that it is the irrational Ramsey approach of focusing on the outstanding balance for the psychological benefits that is referred to as the "snowball" method. I think the catchy name is part of what appeals to some.

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ResearchMed
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Re: Need help with debt strategy

Post by ResearchMed » Wed May 23, 2018 9:15 am

cherijoh wrote:
Wed May 23, 2018 8:27 am
valleyman123 wrote:
Wed May 23, 2018 7:47 am
I don't know where to start with my debt and have struggled with finances my entire life. I am looking for advice on how to tackle my debt in the best way possible. Any information is helpful, thank you in advance. My background information is as follows:

*29 Year old male in CA graduating this May with no kids or wife. *Currently take home $700/week. *Starting salaried June 1 and will jump up to $69k per year or $1327/week before taxes. *Current Cash is $1700 *ROTH IRA worth $8600 in fund HCTAX through a brokerage.I deposit $100/month into this. I believe I can withdraw up to around $4500 without penalty, would this be wise to pay off debt?

DEBT includes the following:

*Credit Card: Citi $2493 @ 13.74% *Credit Card: Capital One $1892 @ 19.40% *Credit Card: Chase $1876 @ 23.74% *Credit Card: Discover $1340 @ 0% TOTAL:$7601

STUDENT LOANS all due 1/18/2019:

*Loan A $5500 @4.29% No interest accrued *Loan B $6099 @4.29% Plus $564 Interest accrued *Loan C $5500 @3.76 No Interest accrued *Loan D $6597 @3.76% Plus $353 interest accrued *Loan E $5500 @4.50 No Interest accrued *Loan F $750 @ 4.45% Plus $17.45 interest accrued TOTAL: $30,879

I'm really lost as to a strategy on paying off all my debt. Please help.
I am a bit confused. Student loans are generally not due in full less than 6 months after you graduate. People pay off student loans over a very long period of time. Please double check and clarify this. Do you need to start paying on your student loans starting in January? That would make a lot more sense. In the meantime, work on knocking out your credit card debt.

I agree with pajamas regarding your credit card debt. Pay off the minimum on all the cards except the one with the highest interest rate. Throw as much money as possible on that card until it has a zero balance. Then move onto the next highest interest rate credit card. Repeat until you are free of all credit card debt.

Do NOT make any new charges on any credit cards that currently have a balance. If you have a prior balance, interest starts accruing on new purchases as soon as you make the purchase!!

I just looked up the fund in which you have your Roth invested. It has an expense ratio (ER) of 1.31%!! :oops: You need to break free from the brokerage that holds your Roth. They do NOT have your best interests at heart. It is a Class A fund so in addition to the ridiculously high ER, you also paid a front end load!! I suggest moving your account to Vanguard, Fidelity, or Schwab and invest in a low cost index fund.
I agree with the "pay the highest interest rate first" strategy, IF one can focus on the "total debt going down each month" (and that should be very reinforcing very quickly) rather than just the number of accounts.

More importantly, cherijoh mentions something that is too often forgotten.
For most charge accounts, IF you have a zero balance, and pay it off in full on that first bill, there is NO interest charged.
BUT... if you already have a balance, then any new charges just get added, and they'll also accrue some interest.
So do NOT charge anything to any card that already has a balance.

So this next part will contradict my above comments: Pay off the one smallest account (possibly not the 0% account for now) so that you'll have one account you can charge for ONGOING expenses ==> that will be PAID OFF when the bill arrives.
No more "charging so you can delay paying", or you'll be back where you started (or worse).
Then, you won't be adding any unnecessary extra interest while you pay off the rest of the cards.

When does the "0%" interest end on that final charge account?
Is this something where if you don't pay it *all* off by the time the 0% rate ends, you'll pay interest on the entire initial balance (plus any subsequent charges)?
If so, pay this off *before* that time hits, or it will cost you a lot.

And yes... let us know if those dates for the student loans are to *start* a payment plan.

Good luck!
You've come to the right place.
And once you've got this under control (the high interest charge cards, especially), you can turn your attention to saving and then investing, and start to feel very good about the future!

RM
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NextMil
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Re: Need help with debt strategy

Post by NextMil » Wed May 23, 2018 9:18 am

Yeah, for clarity sake, DR uses snowball method. Avalanche method is highest interest rate first. Vertex42 has a spreadsheet entitled debt reduction calculator that you can download and gives you the option of both methods built in. Its super easy to use, and I would recommend using it for whichever strategy you employ. At the end of the day, the most important thing is that you discharge the credit card debt as quickly as possible so you can start investing and building your financial position.

LiterallyIronic
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Re: Need help with debt strategy

Post by LiterallyIronic » Wed May 23, 2018 9:25 am

ResearchMed wrote:
Wed May 23, 2018 9:15 am
So this next part will contradict my above comments: Pay off the one smallest account (possibly not the 0% account for now) so that you'll have one account you can charge for ONGOING expenses ==> that will be PAID OFF when the bill arrives.
No more "charging so you can delay paying", or you'll be back where you started (or worse).
Then, you won't be adding any unnecessary extra interest while you pay off the rest of the cards.
I'd say don't do this, but instead use a debit card for ongoing expenses. That'll make sure you don't keep yourself in this hole.

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valleyman123
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Re: Need help with debt strategy

Post by valleyman123 » Wed May 23, 2018 10:07 am

UPDATE:
The loans are not due but I must start payments on that date. Second, I started the ROTH through a friend of a friend. I will not touch the money for debt payment and move as soon as I find a fund that looks good. Thank you to everyone who has contributed, it is exciting getting so much great advice so quickly. I really want to do the right thing financially. I will read up on what was was posted.

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ResearchMed
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Re: Need help with debt strategy

Post by ResearchMed » Wed May 23, 2018 10:11 am

valleyman123 wrote:
Wed May 23, 2018 10:07 am
UPDATE:
The loans are not due but I must start payments on that date. Second, I started the ROTH through a friend of a friend. I will not touch the money for debt payment and move as soon as I find a fund that looks good. Thank you to everyone who has contributed, it is exciting getting so much great advice so quickly. I really want to do the right thing financially. I will read up on what was was posted.
Thanks for the update.

And as long as we are all here having a nice chat :wink: just *where* is that Roth money?
Are you paying fees in addition to the expense ratio of the specific fund?
The "friend of a friend" often (not always) ends up "costing..."

You might want to consider where *all* of your current and future investments should be, so you don't lose a lot over many decades to fees you didn't need to pay.

Good luck!

RM
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CurlyDave
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Re: Need help with debt strategy

Post by CurlyDave » Wed May 23, 2018 10:21 am

IMHO the interest rates on the student loans are not particularly high and don't look that onerous to me.

Deal with the credit cards first, since those rates are onerous.

There is a tendency to say: "student loans = bad" around here, but think of the fact that without the degree the student loans paid for, you would not have that $69k salary.

I would certainly set up a plan to pay off the student loans with reasonable promptness, but there is no reason to panic over them.

researcher
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Re: Need help with debt strategy

Post by researcher » Wed May 23, 2018 10:33 am

Pajamas wrote:
Wed May 23, 2018 8:24 am
I wouldn't advise that at all because of the irrationality of paying off the lowest balance card first rather than the one with the highest interest rate. For someone who is reasonably rational with an adequate salary, focusing on cash flow is not the best perspective. It's simply not necessary in this situation. The religious overtone that colors Ramsey is also unnecessary.
I agree that it is best to pay off the debt with the highest interest rate first, i.e., the rational method, but want to point out that it is the irrational Ramsey approach of focusing on the outstanding balance for the psychological benefits that is referred to as the "snowball" method. I think the catchy name is part of what appeals to some.
It sounds like you have an irrational disdain for Dave Ramsey.

The OP has stated the following...
"I don't know where to start with my debt"
"have struggled with finances my entire life"
"I'm really lost as to a strategy on paying off all my debt"


In addition, the OP lists a total of 10 separate debts.
As others have said, the OP actually sounds like the perfect candidate for Dave Ramsey's approach.

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valleyman123
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Re: Need help with debt strategy

Post by valleyman123 » Wed May 23, 2018 10:36 am

The money is in a mutual fund (HCTAX) through an advisor at Securities America. When you say "where my money should be" are you implying I should get an investment advisor?

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ResearchMed
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Re: Need help with debt strategy

Post by ResearchMed » Wed May 23, 2018 10:40 am

valleyman123 wrote:
Wed May 23, 2018 10:36 am
The money is in a mutual fund (HCTAX) through an advisor at Securities America. When you say "where my money should be" are you implying I should get an investment advisor?
Nooooo! :shock:
I was concerned you already were paying an advisor, and perhaps some other fees, too.

I'm not familiar with Securities America.
Others here may be.
But I fear it might be one where there are costs you would not have at Vanguard, Fidelity, or Schwab, etc. (choosing reasonable investments, of course).

RM
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Watty
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Re: Need help with debt strategy

Post by Watty » Wed May 23, 2018 10:55 am

One thing that has not been mentioned is that if your employer has a 401k match then you should get signed up and contribute enough to the 401k to get the match starting with your first paycheck if possible. This is true even though you have the debt. Some 401k plans do the match with each paycheck so if you wait a few months to sign up for the 401k you may miss out on some free money.

Looking down the line one thing that worked very well for me when I was younger was to commit to myself that I would put half of any future raised into my 401k. This allowed me build up my saving percentage painlessly since whenever I got a raise I would still get more take home pay and I never saw the other money. I was pretty well able to stick with this for over ten years so I was saving a significant percentage of my income. This helped me to be able to retire in my 50's.

valleyman123 wrote:
Wed May 23, 2018 10:07 am
UPDATE:
The loans are not due but I must start payments on that date. Second, I started the ROTH through a friend of a friend. I will not touch the money for debt payment and move as soon as I find a fund that looks good. Thank you to everyone who has contributed, it is exciting getting so much great advice so quickly. I really want to do the right thing financially. I will read up on what was was posted.
Keeping the Roth is a good idea since you can use it if you have a dire emergency and you can quickly pay off the credit cards once you start your new job.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

A generic recommendation on what to do with the Roth would be to move it to Vanguard and put it into a target date fund that matches your expected retirement date, like 2055(?).

https://personal.vanguard.com/us/funds/ ... irect=true

In the right situation target date funds are an excellent choice and when I retired I moved most of my funds into a target date fund. The main reasons not to use them are if you have retirement money in a taxable account and need to worry about taxes, or if you have a 401k that does not have a good target date fund.

You can call Vanguard and they will walk you through the process of having the Roth moved.

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djpeteski
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Re: Need help with debt strategy

Post by djpeteski » Wed May 23, 2018 11:23 am

valleyman123 wrote:
Wed May 23, 2018 7:47 am
*29 Year old male in CA graduating this May with no kids or wife. *Currently take home $700/week. *Starting salaried June 1 and will jump up to $69k per year or $1327/week before taxes. *Current Cash is $1700 *ROTH IRA worth $8600 in fund HCTAX through a brokerage.I deposit $100/month into this. I believe I can withdraw up to around $4500 without penalty, would this be wise to pay off debt?
I'm really lost as to a strategy on paying off all my debt. Please help.
For a guy like you Dave Ramsey's work is the best bet. The Total Money Makeover is a cheap read, or you can invest $100 in Financial Peace University.

Here is the blueprint:
Step 0:

a) Start a budget now. Each and every month do a fresh budget. This is a plan on how to spend your money in the upcoming month. Your goal here is to minimize everything. Basic clothing only, basic food. Cut cable, and other subscriptions.

b) Stop using all credit cards. Cut them up. Only debit or cash from now on.

c) Stop contributions to retirement accounts, your house is on fire with Credit card debt.


d) (Optional) If you are really serious about this use cash for groceries and basic clothing. Take that amount out on pay day, and if its gone, then you are done spending in that category. If you do this right you will be so afraid to run out of money, that you will be surprised how little you spend. For the record we still do this despite being well out of debt.

1) Save 1000, this is your starter emergency fund. Do this within days. Sell stuff, work extra jobs whatever.

2) Pay off your loans smallest to largest. Make minimum payments on all except the smallest one. Use all extra cash to pay that down. Right now that is the Discover card. You have to get traction in this, seek to get that discover paid off before July 1. Then the Chase card no later than Aug 15, then Capital one NLT 1 Oct. You should easliy be out of credit card debt prior to your student loans "being due" .

Then rinse wash and repeat on your student loans. Heck by the 1 January 2019 you should be done with Loan F too, so take another year to pay off your student loans and you will be golden.

I would not recommend taking money from retirement. But I would not contribute either. Doing it this radical means you will not have a social life, but that is okay for a short period of time. I bet you can knock this out in 18 months or less.

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Pajamas
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Re: Need help with debt strategy

Post by Pajamas » Wed May 23, 2018 11:34 am

djpeteski wrote:
Wed May 23, 2018 11:23 am

For a guy like you Dave Ramsey's work is the best bet. The Total Money Makeover is a cheap read, or you can invest $100 in Financial Peace University.
No need to pay $100 to join a cult for bad advice when he can get good advice for free.
researcher wrote:
Wed May 23, 2018 10:33 am
It sounds like you have an irrational disdain for Dave Ramsey.

The OP has stated the following...
"I don't know where to start with my debt"
"have struggled with finances my entire life"
"I'm really lost as to a strategy on paying off all my debt"


In addition, the OP lists a total of 10 separate debts.
As others have said, the OP actually sounds like the perfect candidate for Dave Ramsey's approach.
No, OP is a young, single student who is graduating from college with a very reasonable amount of debt and a good salary, not someone with long-term problems due to a complete absence of money management skills and massive amounts of credit card debt who needs to follow bad advice. He came to Bogleheads to get good advice.

Something I dislike about Ramsey besides his religious-tinged bad financial advice is that his followers take every opportunity to recommend his bad advice on Bogleheads and then derail the thread into an argument about Ramsey when it is pointed out how terrible his advice is. It's like a cult.

This is my last comment about Ramsey in this thread.

TravelforFun
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Re: Need help with debt strategy

Post by TravelforFun » Wed May 23, 2018 11:41 am

Pajamas wrote:
Wed May 23, 2018 9:04 am
frugalmama wrote:
Wed May 23, 2018 8:55 am

I prefer the snowballing approach to debt with the highest interest rate (paying mins. on the others) myself. You will get out of debt faster that way. If you are scared you won't stay motivated to pay the debts off, then go with the Dave Ramsey approach.
I agree that it is best to pay off the debt with the highest interest rate first, i.e., the rational method, but want to point out that it is the irrational Ramsey approach of focusing on the outstanding balance for the psychological benefits that is referred to as the "snowball" method. I think the catchy name is part of what appeals to some.
Ramsey's method doesn't focus on the outstanding balance. It focuses on reducing the number of debts.

TravelforFun

TX_Drew
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Re: Need help with debt strategy

Post by TX_Drew » Wed May 23, 2018 11:54 am

Congratulations on graduation and the starting salary; well done!

Agree to read Dave Ramsey's total money makeover book. It works, just do it. Even if you want to adopt your own plan, that's fine, as long as you have a plan.

Really simple advice: spend less than you make. CRAZY right?!

Some points of emphasis:

1) stop using credit cards immediately. Beware of 0% APR offers on furniture, beds, cars, and all the other products available in the world. You will spend more money at the time of purchase if the APR even enters your mind....just pay cash, you will pay more attention to what you spend. Garage sale treasures for all your starter furniture.
2) Have you considered a roommate? I did this first 2-3 years out of school and it made a huge difference on finances. It was fun too.
3) Develop a budget. Start with the basics (rent, electric, basic food, gas), then add debt payments, then add investment deductions, then add fun if there is anything else.
3) Once the CC debt is gone, I would focus on the student loans and try to knock them out. Just get rid of them and they've gone forever....don't keep them around 10 years cause its a "low APR". Just get them out of your life and move on. Life is better this way.
4) Finally max all retirement options (401k, Roth, and HSA). Do this via payroll deductions. This will keep your budget lean, but Savings RATE is by far the most important contributor to wealth. If you do this, you'll be a multi-millionaire in sub 20 years...then you can sit on this board pondering your early retirement plan and how best to buy your 2nd house. :sharebeer

JoeRetire
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Re: Need help with debt strategy

Post by JoeRetire » Wed May 23, 2018 12:00 pm

valleyman123 wrote:
Wed May 23, 2018 7:47 am
I don't know where to start with my debt and have struggled with finances my entire life. I am looking for advice on how to tackle my debt in the best way possible.

I'm really lost as to a strategy on paying off all my debt. Please help.
You haven't indicated what your expenses will be.
Try to determine your monthly expenses. First save up at least 3-6 months of expenses before you pay anything off.

Meanwhile, minimize your expenses any way you can (live with parents, no vacations, don't eat out, don't purchase anything that isn't absolutely necessary, etc). You may consider trying to increase your income with a side-gig.

Then pay off your credit card debts in this order
- Chase $1876 @ 23.74%
- Capital One $1892 @ 19.40%
- Citi $2493 @ 13.74%
- do not pay off Discover $1340 @ 0% until it's due to convert to more than 0%

Meanwhile, make sure to pay the minimum on any credit cards that haven't yet been paid off.

Stop depositing $100/month into your ROTH IRA until the credit cards are paid off.

Meanwhile put all your credit cards in a box and don't touch them until you can afford to pay off the charges every month without exception. Don't carry a balance. You goal should be to never pay credit card interest again.

Attempt to consolidate your student loans into a percent of income plan if possible.
Otherwise pay them off in this order:
- Loan E $5500 @4.50
- Loan F $750 @ 4.45%
- Loan A $5500 @4.29%
- Loan B $6099 @4.29%
- Loan C $5500 @3.76
- Loan D $6597 @3.76%

Pay the minimum for each remaining loan as you go.

Good luck!
UPDATE:
Employer matches up to 3% of salary into a T Rowe price investment fund (trrnx).
Always take free money.
Last edited by JoeRetire on Wed May 23, 2018 12:44 pm, edited 1 time in total.

Topic Author
valleyman123
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Re: Need help with debt strategy

Post by valleyman123 » Wed May 23, 2018 12:13 pm

UPDATE:
Employer matches up to 3% of salary into a T Rowe price investment fund (trrnx).

Lyonsguy
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Re: Need help with debt strategy

Post by Lyonsguy » Wed May 23, 2018 12:19 pm

Peer to pear lending (p2p) could save you a bunch for the high interest rate credit cards.

http://www.wisebread.com/should-you-use ... -card-debt

Just cut up your credit cards before you do that - the last thing you want is to be careless and get back into credit card debt.

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Pajamas
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Re: Need help with debt strategy

Post by Pajamas » Wed May 23, 2018 12:26 pm

valleyman123 wrote:
Wed May 23, 2018 12:13 pm
UPDATE:
Employer matches up to 3% of salary into a T Rowe price investment fund (trrnx).
Regardless of any fees, it will probably be worth it to contribute at least 3% to get the match. Otherwise, you would just be leaving money on the table. You can always roll it over to a different firm and investment when you leave the job.

Grt2bOutdoors
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Re: Need help with debt strategy

Post by Grt2bOutdoors » Wed May 23, 2018 12:35 pm

For a fellow in your situation, www.daveramsey.com. Go on youtube, search Dave Ramsey, then watch a few of his rants on paying off debt. He may be ranting, but he offers a ton of common sense that if followed will keep you on the right side of the balance sheet for the rest of your life. Follow his debt repayment principles, do not follow his "smartvestor" "heart of a teacher" stuff regarding investing. You don't need to pay 1.25% to invest your money. If you need to find a fund - start here - Vanguard Total Stock Market Index or a Vanguard Target Date Retirement fund closest to the years you think you may retire.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

researcher
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Re: Need help with debt strategy

Post by researcher » Wed May 23, 2018 12:44 pm

Pajamas wrote:
Wed May 23, 2018 11:34 am
No, OP is a young, single student who is graduating from college with a very reasonable amount of debt and a good salary, not someone with long-term problems due to a complete absence of money management skills and massive amounts of credit card debt who needs to follow bad advice....
The OP is 29 years old! Not a 22 year old fresh college grad. And you say the OP is "not someone with long-term problems."
However, he explicitly states to having "struggled with finances my entire life," "not knowing where to start" and being "really lost."
Something I dislike about Ramsey besides his religious-tinged bad financial advice is that his followers take every opportunity to recommend his bad advice on and then derail the thread into an argument about Ramsey when it is pointed out how terrible his advice is. It's like a cult.
The only person derailing the thread is you, with your multiple unhinged anti-Ramsey and anti-religion rants.

This is the fourth time you've posted such attacks, using words like "irrational" and "cult like."
To put this into perspective, here are the posts that triggered your rants…
- “I would check out Dave Ramsey's Total Money Makeover book…”
- “If you are scared you won't stay motivated to pay the debts off, then go with the Dave Ramsey approach..”
- “For a guy like you Dave Ramsey's work is the best bet.”


Certainly doesn't sound like a cult to me.

CoAndy
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Re: Need help with debt strategy

Post by CoAndy » Wed May 23, 2018 12:52 pm

researcher wrote:
Wed May 23, 2018 12:44 pm
Pajamas wrote:
Wed May 23, 2018 11:34 am
No, OP is a young, single student who is graduating from college with a very reasonable amount of debt and a good salary, not someone with long-term problems due to a complete absence of money management skills and massive amounts of credit card debt who needs to follow bad advice....
The OP is 29 years old! Not a 22 year old fresh college grad. And you say the OP is "not someone with long-term problems."
However, he explicitly states to having "struggled with finances my entire life," "not knowing where to start" and being "really lost."
Something I dislike about Ramsey besides his religious-tinged bad financial advice is that his followers take every opportunity to recommend his bad advice on and then derail the thread into an argument about Ramsey when it is pointed out how terrible his advice is. It's like a cult.
The only person derailing the thread is you, with your multiple unhinged anti-Ramsey and anti-religion rants.

This is the fourth time you've posted such attacks, using words like "irrational" and "cult like."
To put this into perspective, here are the posts that triggered your rants…
- “I would check out Dave Ramsey's Total Money Makeover book…”
- “If you are scared you won't stay motivated to pay the debts off, then go with the Dave Ramsey approach..”
- “For a guy like you Dave Ramsey's work is the best bet.”


Certainly doesn't sound like a cult to me.
+1000

gotester2000
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Re: Need help with debt strategy

Post by gotester2000 » Wed May 23, 2018 1:13 pm

Total debt - 38k Salary - 69k. It is not alarming - you are overwhelmed as there are 10 cc and loan accounts. Loan payments start by 1/2019.
Payoff all credit cards in next 3 months.
Then payoff loan account with $750 balance. So by 1/2019 you have only 5 accounts to service. Pay off in next 12 months.
Continue retirement contributions and add to emergency funds. Reduce expenses.

basspond
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Re: Need help with debt strategy

Post by basspond » Wed May 23, 2018 1:35 pm

First adhere to a barebones budget and keep your emergency fund balance between $1k-$2k.

Second need to make sure your withholding taxes are a little less then what you owe. You want the government (us) to give you a no interest loan until your taxes are due next April.

Third change from a Roth to a traditional IRA so you will reduce taxes owed until you clean up your debt.

Fourth pay off credit cards and since they are similar in balances I would start with the highest % and make minimum payments on rest.

Fifth don’t wait till January to pay off your student loans. In this case start with the smallest balance and work your way up.

Good luck you should be debt free quicker then you realize!

enclee
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Re: Need help with debt strategy

Post by enclee » Wed May 23, 2018 1:40 pm

valleyman123 wrote:
Wed May 23, 2018 7:47 am
I don't know where to start with my debt and have struggled with finances my entire life. I am looking for advice on how to tackle my debt in the best way possible. Any information is helpful, thank you in advance. My background information is as follows:

*29 Year old male in CA graduating this May with no kids or wife. *Currently take home $700/week. *Starting salaried June 1 and will jump up to $69k per year or $1327/week before taxes. *Current Cash is $1700 *ROTH IRA worth $8600 in fund HCTAX through a brokerage.I deposit $100/month into this. I believe I can withdraw up to around $4500 without penalty, would this be wise to pay off debt?

DEBT includes the following:

*Credit Card: Citi $2493 @ 13.74% *Credit Card: Capital One $1892 @ 19.40% *Credit Card: Chase $1876 @ 23.74% *Credit Card: Discover $1340 @ 0% TOTAL:$7601

STUDENT LOANS all due 1/18/2019:

*Loan A $5500 @4.29% No interest accrued *Loan B $6099 @4.29% Plus $564 Interest accrued *Loan C $5500 @3.76 No Interest accrued *Loan D $6597 @3.76% Plus $353 interest accrued *Loan E $5500 @4.50 No Interest accrued *Loan F $750 @ 4.45% Plus $17.45 interest accrued TOTAL: $30,879

I'm really lost as to a strategy on paying off all my debt. Please help.
First off you're fine, just focus on knocking out the high interest credit cards. After that you'll be fine.

Don't stress on the student loans, I was in the same situation. Except I had $32000 Federal and $15000 in private student loans. I put my federal student loans on an income based repayment plan and focused on my private loans. At the same time, I concentrated on establishing an emergency fund to build stability.

If, they are federal student loans apply for the income based repayment it'll give you some flexibility with payments, but apply for the program before you file your 2018 income tax. You'll have small payments that'll cover the interest, and take that time to build yourself some stability to avoid adding expenses on to your credit card.

You're in a good position, just stay the course.

Lyra
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Re: Need help with debt strategy

Post by Lyra » Wed May 23, 2018 7:14 pm

My daughter was in a similar situation except without a good salary in the near future. She used YNAB (You Need a Budget) and has extricated herself from almost all her debts and has savings for all upcoming expenses, including dog food, vet visits, clothes and everything you can imagine. She did this in a very short period of time, and most importantly, she feels in control, has no stress about money, and knows how to manage herself. It was really a transformation. You might want to check the website and see if it appeals to you for the budgeting part of this.

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whodidntante
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Re: Need help with debt strategy

Post by whodidntante » Wed May 23, 2018 7:20 pm

Don't withdraw from the Roth. Just don't. You'll be better off.

Your situation is easily manageable if you keep your expenses low. The credit card debt will die well. The student loans could also be gone in a year or so if you prioritize it as the main expense in your life, but I would not because the rate is low. I would make sure to fund a 401k to the match, fully fund a Roth, and fully fund an HSA before I went crazy on the student loans.

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Nate79
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Re: Need help with debt strategy

Post by Nate79 » Wed May 23, 2018 9:28 pm

I agree with the others you should check out Dave Ramsey book, podcasts, or videos. You don't need to follow every single detail. That's not the point. The point is that the Ramsey plan is extremely focused and leads to success with very little chance of failure, falling off the wagon, etc. Being intention. Living below your means. You could be completely out of debt in one year. The interest rates don't matter. It's all about being focused, intentional, etc.

Debt free in less than a year and move on in your life to saving, saving, saving. Letting the student loans hang around is no fun. Stay in debt to maybe make a few extra pennies? No thanks.

Delay the 401k or not it doesn't matter. The 3% match is nice but don't lose the intensity and focus.

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Watty
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Re: Need help with debt strategy

Post by Watty » Wed May 23, 2018 10:13 pm

Here is something critical.

Apparently Dave Ramsey gives a lot of good advice that has worked for people about how to dig yourself out of things like credit card debt and that is great.

The problem is there have been a lot of negative comments about his investing advice and how to manage your money in retirement. Frankly that is saying it politely, impolitely some of the things he suggests for investing are dangerous and contrary to what pretty much any other credible investing expert would recommend. For example his suggests that a very high level of retirement spending will work that is much higher than virtually any other credible recommendation.

If you follow his debt advice, then you need to be real careful about his other advice.

As long is you keep your expenses low to a while longer you can get the credit cards quickly paid off so the details of which you pay off first really does not make a big difference when you can get them all paid off in maybe six months or less.

venkman
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Re: Need help with debt strategy

Post by venkman » Wed May 23, 2018 10:50 pm

researcher wrote:
Wed May 23, 2018 12:44 pm
Pajamas wrote:
Wed May 23, 2018 11:34 am
No, OP is a young, single student who is graduating from college with a very reasonable amount of debt and a good salary, not someone with long-term problems due to a complete absence of money management skills and massive amounts of credit card debt who needs to follow bad advice....
The OP is 29 years old! Not a 22 year old fresh college grad. And you say the OP is "not someone with long-term problems."
However, he explicitly states to having "struggled with finances my entire life," "not knowing where to start" and being "really lost."
My take on it is that the OP has had trouble living below his means his entire life. But his means are about to go up significantly. Just by maintaining the same lifestyle and putting all the extra salary toward the CC debt, he should be able to knock it out completely by the end of the year. He's not the typical DR caller, who needs to start selling off his possessions and subsisting on beans and rice indefinitely.

The OP certainly might derive some benefit from reading DR's books, but I think all he really needs is the desire to stay out of debt and general information that can be found on the internet for free (e.g. https://www.bogleheads.org/wiki/Living_below_your_means).

cherijoh
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Re: Need help with debt strategy

Post by cherijoh » Thu May 24, 2018 6:42 am

Lyra wrote:
Wed May 23, 2018 7:14 pm
My daughter was in a similar situation except without a good salary in the near future. She used YNAB (You Need a Budget) and has extricated herself from almost all her debts and has savings for all upcoming expenses, including dog food, vet visits, clothes and everything you can imagine. She did this in a very short period of time, and most importantly, she feels in control, has no stress about money, and knows how to manage herself. It was really a transformation. You might want to check the website and see if it appeals to you for the budgeting part of this.
+1 Good advice.

Years ago, I had a friend who started a strict budget on paper (pre budgeting apps) and froze her credit card in a plastic container full of water. (This was also before you could buy stuff online, so you needed the actual credit card to make a purchase). By freezing it, she had a barrier to frivolous spending but still had her card available for a real emergency. Once she had her spending under control she unfroze the credit card, but she had developed a mental barrier to not spend what she didn't have. OP should start leaving his credit cards in a safe place and stop carrying them around in his wallet. Use a debit card or go strictly cash.

Even though the OP expressed concern about his level of debt, I don't think he is a hard core spendthrift in need of Dave Ramsey Peace University. His consumer debt is ~ $7600. IMO any amount of revolving credit card debt is TOO much, but relative to his prospective salary, this is certainly not enough to require a DR intervention!

I'm more agnostic amount student loan debt - a reasonable amount can be a prudent investment in your human capital. My recommendation would be to prioritize paying of credit card debt, followed by building an emergency fund and getting the company match for his 401k. Only after this was in place, would I recommend starting to pay extra on the student loan debt.

lazydavid
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Re: Need help with debt strategy

Post by lazydavid » Thu May 24, 2018 7:44 am

JoeRetire wrote:
Wed May 23, 2018 12:00 pm
Attempt to consolidate your student loans into a percent of income plan if possible.
Otherwise pay them off in this order:
- Loan E $5500 @4.50
- Loan F $750 @ 4.45%
- Loan A $5500 @4.29%
- Loan B $6099 @4.29%
- Loan C $5500 @3.76
- Loan D $6597 @3.76%
I would pay off Loan F first, because the balance is small, and the interest rate is essentially the same as Loan E. Then go back to the order you listed.

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valleyman123
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Re: Need help with debt strategy

Post by valleyman123 » Thu May 24, 2018 1:32 pm

So I will be checking out Dave Ramsey so that I can tighten up my budget and attack CCs first then attack the loans. I get differing opinions on whether or not I should continue contributing to my ROTH. Also, should I move my ROTH to Vanguard or schwab into a target 2055 fund? I really appreciate all the advice.

JGoneRiding
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Re: Need help with debt strategy

Post by JGoneRiding » Thu May 24, 2018 2:02 pm

valleyman123 wrote:
Thu May 24, 2018 1:32 pm
So I will be checking out Dave Ramsey so that I can tighten up my budget and attack CCs first then attack the loans. I get differing opinions on whether or not I should continue contributing to my ROTH. Also, should I move my ROTH to Vanguard or schwab into a target 2055 fund? I really appreciate all the advice.
You will safe a lot of money moving the fund.

Honestly just starting it out I would put it all in Schwab index s&p 500 as it isn't much money and that fund has the lowest expense ratio if any such fund in the industry (even less than vanguard)

Dr got me started on personal finance I was never in your shoes but still found him helpful

He rec only saving 1k before attacking your debt. You have that in the form of your Roth. So make a budget and attack the CC debt! You can do this!

I would consider one transfer but really just be intense and by Jan you will have no CC debt and one less SL

Rogue Wave
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Re: Need help with debt strategy

Post by Rogue Wave » Fri May 25, 2018 8:20 am

Contributing to your Roth in the hopes of earning 8-10% long term return (but any one year you can gain or lose more) doesn't make sense when you are losing a guaranteed 20% on credit card debt.

Until your high rate credit card debit is eliminated, saving money for retirement only provides you an illusion of achievement.

Once you've paid off your credit card debt, you should start contributing to your employer 401(k) for the match, and maybe a bit more, while you continue to pay down student debt.

Flyer24
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Re: Need help with debt strategy

Post by Flyer24 » Fri May 25, 2018 10:30 am

Focus on getting rid of the cc debt before doing the Roth. Pick one CC and tackle it. Then roll those payments into the next CC. When a CC is paid off, get rid of it!!You do not need 4 credit cards. One CC is all you need at your stage in life. Get rid of the temptations. We went through the same thing at your age. We had $20K in credit card debt with 3 cards. We did the snowball method and became debt free with only one card staying open. We never got into credit card debt again.

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