Debt vs Savings

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Topic Author
mountainair
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Debt vs Savings

Post by mountainair »

Hello,

I am 28 years old and currently earn an annual gross income of $53K. Here is a summary of my financial situation:

Checking - Generally does not fall below $2K
Savings - $3K (includes $1K for vacation which can obviously be diverted if necessary)
Retirement - Current balance $9K ($200/month contribution)

Mortgage - $89K (4.375%)
Credit card - $6.5K (11%)
Student Loan - $4.5K (3.4%)
Car note - $3K (5%)

A few notes: The checking balance generally does not fall below $2K so I guess it could be considered savings. I just leave it in the account as a cushion. The credit card is a card I no longer use so it is not accruing additional debt except for interest.

My question is, should I focus on paying off the debt or building an emergency fund? Emergency fund includes down payment on a car in the event that my car dies. I know most wouldn't consider that an emergency but the reality is that I would have to pull the money out of savings if I need to replace my car. If I were to build an emergency fund covering at least six months worth of expensive, I would need to have at least $13K. That is probably a high estimate as costs could be reduced in the event of a job loss (less gasoline and car maintenance, cut cable, food, etc.). What is more important, paying down debt or having cash in the bank? I know over the long term there are costs to servicing debt, especially the credit card but I would be in a tough spot if I cannot come up with cash in an emergency as well. I suppose the interest is the cost of holding on to the cash. On the flip side, it would obviously not be ideal to be holding significant debt in the event of a job loss. Perhaps I'm looking it this all the wrong way.

Also, general thoughts on my financial picture? I feel like I am kind of spinning my wheels in the mud not getting anywhere financially.

Thanks for any insight and suggestions.
mighty72
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Re: Debt vs Savings

Post by mighty72 »

Welcome to the forum! At 28 years, you are thinking about your financial state much before many others so you are doing good already.
  • how much do you spend each month?
    what is your current savings rate?
    How stable is your job?
Answer to these questions will help provide more meaningful suggestions.
MotoTrojan
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Re: Debt vs Savings

Post by MotoTrojan »

That CC 11% is egregious. Start there.
cherijoh
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Re: Debt vs Savings

Post by cherijoh »

mountainair wrote: Sun May 26, 2019 1:56 pm Hello,

I am 28 years old and currently earn an annual gross income of $53K. Here is a summary of my financial situation:

Checking - Generally does not fall below $2K
Savings - $3K (includes $1K for vacation which can obviously be diverted if necessary)
Retirement - Current balance $9K ($200/month contribution)

Mortgage - $89K (4.375%)
Credit card - $6.5K (11%)
Student Loan - $4.5K (3.4%)
Car note - $3K (5%)

A few notes: The checking balance generally does not fall below $2K so I guess it could be considered savings. I just leave it in the account as a cushion. The credit card is a card I no longer use so it is not accruing additional debt except for interest.

My question is, should I focus on paying off the debt or building an emergency fund? Emergency fund includes down payment on a car in the event that my car dies. I know most wouldn't consider that an emergency but the reality is that I would have to pull the money out of savings if I need to replace my car. If I were to build an emergency fund covering at least six months worth of expensive, I would need to have at least $13K. That is probably a high estimate as costs could be reduced in the event of a job loss (less gasoline and car maintenance, cut cable, food, etc.). What is more important, paying down debt or having cash in the bank? I know over the long term there are costs to servicing debt, especially the credit card but I would be in a tough spot if I cannot come up with cash in an emergency as well. I suppose the interest is the cost of holding on to the cash. On the flip side, it would obviously not be ideal to be holding significant debt in the event of a job loss. Perhaps I'm looking it this all the wrong way.

Also, general thoughts on my financial picture? I feel like I am kind of spinning my wheels in the mud not getting anywhere financially.

Thanks for any insight and suggestions.
Your credit card debt is at a high enough interest rate to make it worthwhile paying it off ASAP. (Your other debts are at rates I wouldn't rush to pay off, although 5% on a car seems pretty high). Are you currently paying only the minimum amount each month on the CC? How long before you pay it off at the rate you are going? I would definitely consider using part of your savings to pay down the CC and would put that at a higher priority than trying to build an emergency fund at this time.

How many more months have you got on your car loan? What is your monthly payment? Was the car purchased used? (Most people who still owe money on their car loan aren't worried about replacing their cars immediately). Once you pay the loan off, you can redirect that payment amount towards building an emergency fund and/or new car fund. I would also look into seeing if you are eligible to join a credit union - they usually offer inexpensive car loans.

Is your savings for retirement in an IRA or is it in a workplace retirement plan with a match? If there is no match, I would divert any new money currently going towards retirement savings to pay off your CC debt. Once the CC debt is gone, extra money can get diverted back towards an e-fund and retirement savings.

The other thing to consider is if could you take on a side hustle for some extra cash to pay down debt or is there any slack in your budget that could be trimmed (bag lunches, cut out Starbucks, cut cable, get a better phone plan, etc.). Until you are down to just a mortgage debt-wise with an adequate emergency fund, you really are just spinning your wheels. You also might benefit from reading one of the money makeover books by Dave Ramsey.
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grabiner
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Re: Debt vs Savings

Post by grabiner »

MotoTrojan wrote: Sun May 26, 2019 2:24 pm That CC 11% is egregious. Start there.
You have enough of an emergency fund now that it makes sense to put everything you can against the credit card. Don't contribute any more to retirement than you need to get the employer match (which would be an immediate 50% or 100% return). If you need money in an emergency (car needs a new transmission, roof leaks), you will have the option of putting that back on the credit card, so you are improving your ability to handle an emergency just as much by paying down the credit card as by saving money in the bank.

Once the credit card is gone, it's probably worth building your emergency fund, at least until you have enough to comfortably pay off the car loan. Paying off part of the car loan, while it has a good return, won't help with your cash flow. Paying it all off will get rid of a monthly bill, and may allow you to save even more by increasing your insurance deductibles. (The bank probably requires a $500 deductible, but if you have a good emergency fund, you can probably raise that to $1000 or $2000 and save money.)
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GerryL
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Re: Debt vs Savings

Post by GerryL »

You may already be doing this, but I'll say it just in case:
Don't put anything on your credit card that you cannot afford to pay off when the statement comes in. So, you should stop using it until you get rid of the current CC debt and then in the future use it only for what you can afford to pay off each month.
mortfree
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Re: Debt vs Savings

Post by mortfree »

The credit card debt is kind of an emergency with the 11% rate.

How much is the car payment and how much longer until that is paid off?

My initial thought was to put 2k towards the credit card debt. But if there is a good amount freed up per month by paying off the car I would consider using the 3k towards that first. Yes. That Defies the rules of paying off higher interest rates first.
dh
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Re: Debt vs Savings

Post by dh »

grabiner wrote: Sun May 26, 2019 3:28 pm
MotoTrojan wrote: Sun May 26, 2019 2:24 pm That CC 11% is egregious. Start there.
You have enough of an emergency fund now that it makes sense to put everything you can against the credit card. Don't contribute any more to retirement than you need to get the employer match (which would be an immediate 50% or 100% return). If you need money in an emergency (car needs a new transmission, roof leaks), you will have the option of putting that back on the credit card, so you are improving your ability to handle an emergency just as much by paying down the credit card as by saving money in the bank.

Once the credit card is gone, it's probably worth building your emergency fund, at least until you have enough to comfortably pay off the car loan. Paying off part of the car loan, while it has a good return, won't help with your cash flow. Paying it all off will get rid of a monthly bill, and may allow you to save even more by increasing your insurance deductibles. (The bank probably requires a $500 deductible, but if you have a good emergency fund, you can probably raise that to $1000 or $2000 and save money.)
+1 Kudos for you for getting involved with the Bogleheads at an early age. I wish I would have been on top of my finances at 28. Good for you!!!! :sharebeer
jason1
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Re: Debt vs Savings

Post by jason1 »

mortfree wrote: Sun May 26, 2019 3:58 pm The credit card debt is kind of an emergency with the 11% rate.

How much is the car payment and how much longer until that is paid off?

My initial thought was to put 2k towards the credit card debt. But if there is a good amount freed up per month by paying off the car I would consider using the 3k towards that first. Yes. That Defies the rules of paying off higher interest rates first.
That may be worth it depending on what your cash flow looks like. What is the payment on each of your debts?

Regardless, you should drain your savings( IMO, your 2K in checking should act as a temp emergency fund) and stop the retirement contribution unless there is a match. Treat 11% debt as an emergency.
Nissanzx1
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Re: Debt vs Savings

Post by Nissanzx1 »

I would suggest you look into Dave Ramsey’s program. I think you could greatly benefit from the debt snowball.

Your low cash emergency fund and high credit card balances would be my chief concerns. This suggests to me that your lifestyle needs brought down a touch to be more in line with your income.
Brian2d
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Re: Debt vs Savings

Post by Brian2d »

I would pay off 11% credit card debt even at the expense of an emergency fund. Worst case scenario is you need to use the credit card again, at least you won't be paying 11% in the interim.
Flyer24
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Re: Debt vs Savings

Post by Flyer24 »

You make a decent income. I would imagine you have room to cutback on some spending so that you can focus more on debt reduction/savings. I second the recommendation about getting on Dave Ramsey’s program. Do you have a good budget breakdown?
Last edited by Flyer24 on Sun May 26, 2019 4:44 pm, edited 1 time in total.
Eric76
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Re: Debt vs Savings

Post by Eric76 »

The retirement contributions should be put on hold until the credit card is paid off.
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ChowYunPhat
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Re: Debt vs Savings

Post by ChowYunPhat »

Welcome Mountainair. Concerning that you would even list the interest rate of your credit card debt. Pay this off as soon as you can. You don't need to worry about an emergency fund until you pay this off anyway....cc can act as emergency fund until you have your finances in slightly better shape. In the future, never carry a balance on your cc if you can help it. These should only be used as interest free financing of your personal working capital...30 days or less and should be paid off. If you are not getting rewards, then no reason not to pay cash.
A wise man and his money are friends forever...
Thegame14
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Re: Debt vs Savings

Post by Thegame14 »

you should focus on the CC debt first. does your employer offer a 401K match. You should always contribute AT LEAST enough to get the full match. So start with getting the full match on 401K, then the rest pay off your CC debt, then bring savings up to 6 months expenses, then pay off car note, then pay off student loans, then max out 401K as much as you can after that.
rj342
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Re: Debt vs Savings

Post by rj342 »

Nissanzx1 wrote: Sun May 26, 2019 4:34 pm I would suggest you look into Dave Ramsey’s program. I think you could greatly benefit from the debt snowball.
I agree about relevance of the snowball here. 11% stinks, but that car note is easier to kill and free up cash flow.
Other question is if all that CC debt is on a single card? I across more than one, then same approach could be used to kill smallest one(s) first and free up the monthly pmt for the next. The psychological reward which encourages further action, is real.

IF you think you can distinguish between the spending, a 2nd no fee card that you ONLY use for typical monthly expenses can be useful so you still have the freedom to charge during the month, and defer things a paycheck or so wo costing interest.
Regardless,ABSOLUTELY stop using that high balance card for anything else.
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grabiner
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Re: Debt vs Savings

Post by grabiner »

Thegame14 wrote: Sun May 26, 2019 4:57 pm you should focus on the CC debt first. does your employer offer a 401K match. You should always contribute AT LEAST enough to get the full match. So start with getting the full match on 401K, then the rest pay off your CC debt, then bring savings up to 6 months expenses, then pay off car note, then pay off student loans, then max out 401K as much as you can after that.
In particular, if you reduce your 401(k) contributions now to focus on the debt, you aren't endangering your retirement savings. Once a loan is gone, the money which previously being used to make payments on that loan is now available to pay down another loan (if worthwhile), or to make larger 401(k) and IRA contributions. You will be able to catch up on savings more easily once the credit card and auto loan are gone. (Depending on interest rates when those two are gone, it may not even be worth making extra payments on a deductible student loan.)
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MotoTrojan
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Re: Debt vs Savings

Post by MotoTrojan »

I’m frankly blown away at those suggesting putting an extra dollar towards the car loan before paying off the CC. I’m not familiar with Dave and the snowball but if he suggests turning down an 11% after tax return then I don’t really care to be.
Topic Author
mountainair
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Re: Debt vs Savings

Post by mountainair »

Wow, what a response! Thank you all for your inquires and suggestions. If I didn't respond to you directly, I still thank you! :sharebeer
mighty72 wrote: Sun May 26, 2019 2:21 pm Welcome to the forum! At 28 years, you are thinking about your financial state much before many others so you are doing good already.
  • how much do you spend each month?
    what is your current savings rate?
    How stable is your job?
Answer to these questions will help provide more meaningful suggestions.
1) It varies a bit but I spend approximately $2,200 to $2,500. I realize that is a wide range but it really does vary as a few dinners out or a long weekend drive can make a difference in a given month.
2) I currently put away $200/month. If you include the "vacation fund", then $400/month.
3) My employment situation is very stable. I have been with my employer for almost 4 years and I have gotten a 2-3% raise each year. With that said, I do not take anything for granted and realize things can change.
cherijoh wrote: Sun May 26, 2019 3:10 pm
Your credit card debt is at a high enough interest rate to make it worthwhile paying it off ASAP. (Your other debts are at rates I wouldn't rush to pay off, although 5% on a car seems pretty high). Are you currently paying only the minimum amount each month on the CC? How long before you pay it off at the rate you are going? I would definitely consider using part of your savings to pay down the CC and would put that at a higher priority than trying to build an emergency fund at this time.
Over the past few couple months I have been paying the minimum (approximately $130). Earlier in the year and late last year, I was paying $500/month but doing that now seems to put my checking account below the $2K floor.
cherijoh wrote: How many more months have you got on your car loan? What is your monthly payment? Was the car purchased used? (Most people who still owe money on their car loan aren't worried about replacing their cars immediately). Once you pay the loan off, you can redirect that payment amount towards building an emergency fund and/or new car fund. I would also look into seeing if you are eligible to join a credit union - they usually offer inexpensive car loans.
A little over a year (summer 2020). Monthly payment is $225 for a used 2013 Hyundai Elantra purchased in 2015. I am probably being paranoid about the car, but I do have a long commute (450 miles per week). Currently about 145K miles.
cherijoh wrote: Is your savings for retirement in an IRA or is it in a workplace retirement plan with a match? If there is no match, I would divert any new money currently going towards retirement savings to pay off your CC debt. Once the CC debt is gone, extra money can get diverted back towards an e-fund and retirement savings.
It's through my employer but there is no match unfortunately.
cherijoh wrote: The other thing to consider is if could you take on a side hustle for some extra cash to pay down debt or is there any slack in your budget that could be trimmed (bag lunches, cut out Starbucks, cut cable, get a better phone plan, etc.). Until you are down to just a mortgage debt-wise with an adequate emergency fund, you really are just spinning your wheels. You also might benefit from reading one of the money makeover books by Dave Ramsey.
I have considered part-time employment on the side although I have not really pursued it due to burnout concerns. Not saying I am above it...it would be a temporary sacrifice and something I would do if things get really dire. I could cut back on general spending. I believe food tends to be my most frivolous spending.
GerryL wrote: Sun May 26, 2019 3:49 pm You may already be doing this, but I'll say it just in case:
Don't put anything on your credit card that you cannot afford to pay off when the statement comes in. So, you should stop using it until you get rid of the current CC debt and then in the future use it only for what you can afford to pay off each month.
Yes, I no longer use that credit card. I do have three monthly bills (car insurance, cable and electric) automatically charged to another credit card which is of course paid every month, other than that I pay for everything with cash.
jason1 wrote: Sun May 26, 2019 4:21 pm
mortfree wrote: Sun May 26, 2019 3:58 pm The credit card debt is kind of an emergency with the 11% rate.

How much is the car payment and how much longer until that is paid off?

My initial thought was to put 2k towards the credit card debt. But if there is a good amount freed up per month by paying off the car I would consider using the 3k towards that first. Yes. That Defies the rules of paying off higher interest rates first.
That may be worth it depending on what your cash flow looks like. What is the payment on each of your debts?

Regardless, you should drain your savings( IMO, your 2K in checking should act as a temp emergency fund) and stop the retirement contribution unless there is a match. Treat 11% debt as an emergency.
Car: $225 (summer 2020 payoff)
Mortgage/HOA/Taxes/Sewer - $1,100 (taxes and sewer are paid quarterly but I just lumped everything together)
Student Loan Minimum: $55
CC Minimum: $130
Flyer24 wrote: Sun May 26, 2019 4:42 pm You make a decent income. I would imagine you have room to cutback on some spending so that you can focus more on debt reduction/savings. I second the recommendation about getting on Dave Ramsey’s program. Do you have a good budget breakdown?
Monthly expenditures range from $2,200 to $2,500. Looking at the numbers and having this discussion are actually very helpful as I am realizing that there are hundreds of dollars that are not really accounted for. I do believe the bulk of my frivolous spending is eating out. It's not the $30 shirt I may buy at the mall a couple times a year or the $10 movie I go to once or twice a year, it's the frequent $10 lunches and takeout for dinner that's the killer. I have cut back on eating out, but there is still plenty of room for improvement. I tend to go through phases where I will bring lunch to work for a couple weeks but then go through another period of eating out. As I replied to mighty72, a few dinners or a weekend drive can make a difference in a given month. So, I do have a rough monthly budget, but the food/pleasure category is quite broad and that seems to be where the problem lies.
rj342 wrote: Sun May 26, 2019 5:00 pm
Nissanzx1 wrote: Sun May 26, 2019 4:34 pm I would suggest you look into Dave Ramsey’s program. I think you could greatly benefit from the debt snowball.
I agree about relevance of the snowball here. 11% stinks, but that car note is easier to kill and free up cash flow.
Other question is if all that CC debt is on a single card? I across more than one, then same approach could be used to kill smallest one(s) first and free up the monthly pmt for the next. The psychological reward which encourages further action, is real.

IF you think you can distinguish between the spending, a 2nd no fee card that you ONLY use for typical monthly expenses can be useful so you still have the freedom to charge during the month, and defer things a paycheck or so wo costing interest.
Regardless,ABSOLUTELY stop using that high balance card for anything else.
Yes, the CC debt is on a single card and is no longer used. Except for a few monthly bills auto-charged to another credit card, I pay for everything in cash.

---

I appreciate everyone's thoughts and suggestions. I have a lot to think about before determining a course of action. I do think the debt snowball method has merit so I will consider it. The general suggestions seem to be:

1) Attack the CC debt with the savings and temporarily freezing retirement contributions
2) Pay off the car note for the psychological boost and to free up monthly cash flow. Apply to other debts and replenish savings
3) Cut spending - this is a given and I have to work on this
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Watty
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Re: Debt vs Savings

Post by Watty »

MotoTrojan wrote: Sun May 26, 2019 2:24 pm That CC 11% is egregious. Start there.
+1

Two things to do;

1) Call the credit card company and ask them to lower your interest rate. The surprising thing is that they often will if you have not missed any payments.

2) Find a lower, or zero, interest rate credit card. Promotional rates are nice but find one that will always be at a low rate just in case you get caught in a bind and have to carry a balance.
mighty72
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Re: Debt vs Savings

Post by mighty72 »

Based on all the information I would payoff the debt first. You start with credit card and then the car. As others have suggested, you can look to lower your CC interest.
Your emergency fund till you get debt free is your credit card. I mean there is no place you are going to get 11% rate of return.
After this you can start looking at creating an EF and increasing your contribution to retirement account.
HEDGEFUNDIE
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Re: Debt vs Savings

Post by HEDGEFUNDIE »

There are two ways to improve your net worth.

Spend less or earn more. The latter is more fun.

OP, you are young and diligent. And yet there was nothing in your OP about increasing your income. At your current level of income and expenses, you’re always going to feel tight financially.

What is your educational background? What is your job function? Are you being paid competitively? When was the last time you went out and interviewed?
mortfree
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Re: Debt vs Savings

Post by mortfree »

Based on the newest information put all 3k from savings to the credit card today.

Request a lower rate or try to open a 0% credit card and transfer the balance.

I can’t believe you are only making minimum payments on the cc. :oops:

Stop eating out for lunch. That adds up quick plus with your commute taking lunch could mean a longer workday. Work through lunch if you can.

Plan your dinners too. Get a rotation of 5-6 dinners (or more) you can make and do that each and every week.

The last thing I like to do is spend my money on someone else making me food and tipping them for it.

I have the same commute as yours for the last 19 years so I know what that is like.
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Tamarind
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Re: Debt vs Savings

Post by Tamarind »

OP it's great that you've realized that your have some slush spending in there that you weren't counting. I completely understand about food, I love to eat well also and it's a luxury category for me. I don't think you can afford that luxury right now.

11% interest is so bad that, given you have a stable job, I'm going to recommend you do a "debt snowball". Having to pay more for a car because you don't have a down payment when your current one dies is a risk, but look at it this way: that higher car loan would still only be around 5%, less than half the rate of the credit card.

Here's what I suggest you do, in order:


Short-term:
1)Liquidate your savings account and apply it all to the credit card, today. Keep the 2k floor in your checking. It's serving you as an emergency fund and you already have the habit of not dropping below it.

2) Stop contributing to your retirement for the short term, since you get no match.

3) Based on your income and non-discretionary spending, you should be able to find $1200-1400 to contribute to your credit card debt every MONTH. It will hurt a little, but you can pay off your credit card debt by the end of the year. Make that promise to yourself and imagine how good it'll feel not to have that hanging over you.

4) When you finish the credit card, you turn around and pay off the car note by the end of March 2020. It'll feel easy by comparison.


Longer term:
5) Give yourself a hand for getting out of debt, and resolve to stay that way.

6) Save up for your emergency fund (6 months expenses), and include your car fund. Since you have such a long commute, you are going to go through cars faster than average. Work to have a higher down payment every time, until you are paying cash for your cars. It's ok if it takes a couple of cycles.

7) Start contributing to retirement again alongside #6. If you want to retire at 65, contribute about $700 per month (15%). If you are interested in retiring early, try to double that.

8) Now you have a retirement contribution that matches your goals, and a solid emergency fund, you can spend a little more on vacations and food if you like because you'll actually know how much you need.
eob616
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Re: Debt vs Savings

Post by eob616 »

OP, you bought a home/condo/etc. at some point and maintain a lengthy car commute. It sounds like you currently have barely two months of expenses in an emergency fund between savings and checking, and that's even with only paying the minimum to your CC debt. That's a really low emergency fund for a homeowner, even if you didn't have the other CC/student loan/car debt. Draining the savings to pay off debt would make sense to me in a heartbeat if you were a renter, but you're at greater risk of covering home emergency costs than a renter is. And if you maintain your living situation right now, you're right that you're at the mercy of a car problem causing further financial problems.

I agree with others on these steps: stop retirement contributions (because no match), stop vacation fund savings, cut expenses significantly, try to lower CC interest rate and/or transfer to 0% card, and divert every free penny every month to either CC or car debt (not sure which). You don't have a huge amount of non-house debt, so that may be enough to stave off a crisis, as long as you resolve not to run up any new debt. But I'll ask, can you really afford to be a homeowner right now? What would happen if you sold the house, put any proceeds (if any) toward retiring the debt, and rented, maybe somewhere with a shorter commute, until you were financially more stable to purchase again?
invest4
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Re: Debt vs Savings

Post by invest4 »

A couple of other tidbits for your consideration:

* You have sufficient funds to generate additional income by leveraging bank promotions. Many offer $200-$250 by simply opening an account and letting it sit for 60 days (for example). Just google bank promotions and find the ones that make sense (you may not want hassle with ones that require direct deposit for example) and be sure you understand the requirement.

* Banking setup: Generate more interest via internet bank (ex: Cap One 360) as main source for funds as well a local bank that is linked to it for needs that may require it (ready cash). A debit card may also suffice...but I am personally not a fan. Reason is that in case of fraud, YOU have to do work to get your funds back whereas in case of smart credit use, THEY need deal with it as it is their money that has been lost.

* Agree credit card is priority. Going forward you must discipline yourself and use wisely to garner points, etc. and pay off every month. You lose a super valuable instrument in your financial toolbox if unable to be the master of this.

* Annual raises - awesome and is a key enabler to get your financial house where you want it to be in terms of paying off debt and increasing savings to desired levels.

* Retirement funds - Roth IRA all the way for you at the moment until tax deferred makes more sense (higher income). Don’t know your profession, but great if you can find employer that provides invaluable match.
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Re: Debt vs Savings

Post by cherijoh »

Watty wrote: Sun May 26, 2019 10:56 pm
MotoTrojan wrote: Sun May 26, 2019 2:24 pm That CC 11% is egregious. Start there.
+1

Two things to do;

1) Call the credit card company and ask them to lower your interest rate. The surprising thing is that they often will if you have not missed any payments.

2) Find a lower, or zero, interest rate credit card. Promotional rates are nice but find one that will always be at a low rate just in case you get caught in a bind and have to carry a balance. I believe rewards cards usually carry a higher interest rate than a non-rewards card.
I think Bogleheads tend to pay off their credit cards in full each month and are out of touch on typical CC interest rates. I don't think 11% is all that high relative to the CC universe.

OP, you might want to look at this card - there is no fee for transfers made in the first 60 days and gives you 15 credit cycles to pay off the balance. It would not be a good deal if you need to carry a balance after the introductory period, but a card offering a lower interest rate long term probably has a balance transfer fee for the intro period. IMO, one CC doesn't need to serve all purposes.
cherijoh
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Re: Debt vs Savings

Post by cherijoh »

mountainair wrote: Sun May 26, 2019 10:54 pm
cherijoh wrote: Sun May 26, 2019 3:10 pm
Your credit card debt is at a high enough interest rate to make it worthwhile paying it off ASAP. (Your other debts are at rates I wouldn't rush to pay off, although 5% on a car seems pretty high). Are you currently paying only the minimum amount each month on the CC? How long before you pay it off at the rate you are going? I would definitely consider using part of your savings to pay down the CC and would put that at a higher priority than trying to build an emergency fund at this time.
Over the past few couple months I have been paying the minimum (approximately $130). Earlier in the year and late last year, I was paying $500/month but doing that now seems to put my checking account below the $2K floor.
I'm pretty sure credit card companies are obligated to include information on how long it would take to payoff the balance making only the minimum payment on each months statement. Here's the verbiage that is included on my last statement:

If you make no additional charges using this card and each month and you pay ... Only the total minimum payment
You will payoff the balance shown on this card in about .... 12 years
And you will end up paying an estimated total of ..... $xxxx.xx

My statement also tells me the amount I would need to pay each month to pay off the debt in 36 months. (I don't know if the latter info is mandatory).

OP, please review your last CC statement for this information and think about what that tells you. I think it will give you ample incentive to make some sacrifices. Another technique for people who are carrying a CC balance is to make 2 (or more) payments a month for your CC corresponding to when you get paid. That will put your money to work faster and give you fewer opportunities to spend the money. If you are waiting until just before the due date to pay your bill you are just accruing MORE interest.

FYI, if you were able to make larger payments previously and still keep your balance about $2K that tells me that you are spending more now. Don't let your debt repayment amount be dictated by what's "left over". Lower your discretionary spending to the point that you can hit your debt repayment target.
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Re: Debt vs Savings

Post by whodidntante »

It's not a gigantic problem because the amounts involved are small. But I would use the checking/savings cash you have to pay off the 11% credit card. It's revolving credit and you can charge more to the card if you need to.

You are young still, and your income is better than average but still is not very high. It will probably increase as you gain experience, get promoted, gain education, change jobs, or even change careers, etc. But career planning is probably the most important thing you can think about financially, right now. I didn't say go to your boss and demand more money. I said career planning is important. :beer
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mountainair
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Re: Debt vs Savings

Post by mountainair »

Thank you all once again for the replies! :sharebeer To address some points made:

The reason for the commute is because I live in a high COL region so I had to go out a bit in order to afford a home. "Drive until you can buy" would be a fitting phrase to describe my situation. It also just so happens I grew up in this area and my entire family still lives here, so that is why I decided to stay rooted here. Rents are high and after a bad experience with a landlord, I have no interest in dealing with that again. The peace of mind alone is worth the mortgage and all the risks of owning a home. I would love to live closer to my job, but it is too expensive so I have to do the commute. I would be in an even more dire financial situation if I moved closer to my job.

There are opportunities for promotions at my current employer and I am in the process of pursuing them. The health benefits are also excellent and I need them in order to treat a chronic medical condition. That alone makes the job worth it. As I previously said, I realize things can change there and I take nothing for granted but for now it's a good place to work.
cherijoh wrote: Mon May 27, 2019 10:38 am
I'm pretty sure credit card companies are obligated to include information on how long it would take to payoff the balance making only the minimum payment on each months statement. Here's the verbiage that is included on my last statement:

If you make no additional charges using this card and each month and you pay ... Only the total minimum payment
You will payoff the balance shown on this card in about .... 12 years
And you will end up paying an estimated total of ..... $xxxx.xx

My statement also tells me the amount I would need to pay each month to pay off the debt in 36 months. (I don't know if the latter info is mandatory).

OP, please review your last CC statement for this information and think about what that tells you. I think it will give you ample incentive to make some sacrifices. Another technique for people who are carrying a CC balance is to make 2 (or more) payments a month for your CC corresponding to when you get paid. That will put your money to work faster and give you fewer opportunities to spend the money. If you are waiting until just before the due date to pay your bill you are just accruing MORE interest.

FYI, if you were able to make larger payments previously and still keep your balance about $2K that tells me that you are spending more now. Don't let your debt repayment amount be dictated by what's "left over". Lower your discretionary spending to the point that you can hit your debt repayment target.
Excellent points and suggestions.

I am inclined to agree with most here on attacking the credit card debt first. I am leaning in that direction. If I only pay the minimum on the card, it will take almost 20 years to pay off! Obviously that's a non-starter.

---

With all this said, I am still hesitant to let go of the cash savings I presently have (about $5K when you combine the checking and savings account). I am thinking of simply shifting the $400/month that is currently going towards savings/vacation and apply that to the credit card instead. By eliminating eating out and other discretionary spending, I should be able to pay about $1K/month on the card. If I do that beginning this month, the card should be paid off by the end of this year. If I can put more towards it, then even better! I will see how it plays out over the next month or two and see if this is a feasible plan.

I do not agree with halting the retirement contributions as I am currently not even close to saving enough so I will leave that as is for now. Never mind the casino that is the stock market, but that's for another thread. :mrgreen:
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Re: Debt vs Savings

Post by BuckyBadger »

mountainair wrote: Sat Jun 01, 2019 5:47 pm
I do not agree with halting the retirement contributions as I am currently not even close to saving enough so I will leave that as is for now. Never mind the casino that is the stock market, but that's for another thread. :mrgreen:
This statement about the market being like a casino is a little worrisome. Can you tell us what you're invested in? A simple three fund portfolio with low expense ratios shouldn't really feel that way.
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Re: Debt vs Savings

Post by mountainair »

BuckyBadger wrote: Sat Jun 01, 2019 6:14 pm
mountainair wrote: Sat Jun 01, 2019 5:47 pm
I do not agree with halting the retirement contributions as I am currently not even close to saving enough so I will leave that as is for now. Never mind the casino that is the stock market, but that's for another thread. :mrgreen:
This statement about the market being like a casino is a little worrisome. Can you tell us what you're invested in? A simple three fund portfolio with low expense ratios shouldn't really feel that way.
Oh sorry, it was more of a tongue-in-cheek comment. Right now I am invested in a global growth fund (1/3), two small cap funds (1/3 total) and then a utilities fund (1/3). Aggressive portfolio except for the utilities part.
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Re: Debt vs Savings

Post by TNWoods »

You gross 53K and have only 14K in debt.

If you make up your mind to do it, you could probably be debt free in 12 months.

That's barely over 1k per month.

Cancel cable if you have it, no more restaurants, no movies, no new clothes, and so forth, for just one year. Pay off that credit card ASAP. 11%! Live like a monk, (or nun?), just get that 11% monkey off your back, then those other smaller monkeys.

After that, you'll have so much extra money since you aren't paying those bills that you'll feel like you got a 15% raise!

And, as others have said, pay off your credit card every month, never carry a balance. Stay out of debt, save at least 15%, you'll retire happy.

TNWoods
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Re: Debt vs Savings

Post by grabiner »

mountainair wrote: Sat Jun 01, 2019 5:47 pm I do not agree with halting the retirement contributions as I am currently not even close to saving enough so I will leave that as is for now.
You won't fall further behind in retirement savings by halting them (except for enough to get a 401(k) match) while paying down your debt. Once the high-interest debt is gone, you will have more money available to invest in your 401(k), because you are no longer making payments on the debt. An extra $1000 paid now which causes the 11% loan to be cleared in a year will allow you to invest $1110 next year.
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Re: Debt vs Savings

Post by boglenomics »

mountainair wrote: Sat Jun 01, 2019 6:55 pm
BuckyBadger wrote: Sat Jun 01, 2019 6:14 pm
mountainair wrote: Sat Jun 01, 2019 5:47 pm
I do not agree with halting the retirement contributions as I am currently not even close to saving enough so I will leave that as is for now. Never mind the casino that is the stock market, but that's for another thread. :mrgreen:
This statement about the market being like a casino is a little worrisome. Can you tell us what you're invested in? A simple three fund portfolio with low expense ratios shouldn't really feel that way.
Oh sorry, it was more of a tongue-in-cheek comment. Right now I am invested in a global growth fund (1/3), two small cap funds (1/3 total) and then a utilities fund (1/3). Aggressive portfolio except for the utilities part.
That is not a broadly diversified portfolio. What are the fund symbols for these? I'm curious what the expense ratios look like.
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Re: Debt vs Savings

Post by TNWoods »

MotoTrojan wrote: Sun May 26, 2019 9:52 pm I’m frankly blown away at those suggesting putting an extra dollar towards the car loan before paying off the CC. I’m not familiar with Dave and the snowball but if he suggests turning down an 11% after tax return then I don’t really care to be.
His target audience is people who are overwhelmed with debt and and who don't plan well, or think things through well, especially when it comes to the basic math of the costs of debt. (I do not believe our OP is in this category.) Dave's logic for his target audience is this:

1. Stop spending money except for the most basic needs.
2. Get organized by listing debts smallest to largest.
3. Make minimum payments on all but the smallest debt.
4. Pay everything you can and make that smallest one disappear forever.
5. Get an endorphin rush, be proud of yourself for killing that one, and now attack the next one with added ferocity and feel good about the progress.

Step 5 is the key for him. Keep killing, and keep feeling better and better and more encouraged to stay the course.

He freely admits that it is mathematically wrong, but he rightly points out that you wouldn't be calling him if you could do math. He also points out that since you are paying the debts off way faster now than you were before, that the cost of killing a lower interest rate instead of the higher one first is usually not that great in actual dollars, it just looks bad when you compare "3%" to "11%". They are both going away soon. His contention is that the behavior of paying off your debts is the important thing, and seeing debts disappear helps your behavior, helps you find more ways to save money elsewhere so you can make the next one disappear.

So his method is a very good one, but only for the people who come to him in dire straits.

I started listening to him a long time ago, and that is why I am debt-free now, but I am good at math, so I first transferred my credit card debt to a new card that gave me 0% on transferred amounts for 18 months, and I paid off everything in order of highest interest rate first. Listening to him was very motivational, but I totally did the math. Paid off my mortgage way early too, after everything else was paid off. Now my saving rate is about 60% of my gross.

He also says "cut up your credit cards", but that's another place I strongly disagree. I say "use credit card for everything and get those rewards, and pay it in full every month." Because I can do the math.

TNWoods
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mountainair
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Re: Debt vs Savings

Post by mountainair »

boglenomics wrote: Sat Jun 01, 2019 7:17 pm

That is not a broadly diversified portfolio. What are the fund symbols for these? I'm curious what the expense ratios look like.
Not sure what the symbols are but here's some information:

American Funds Insurance Series Global Growth Fund - Class 2 : 0.80%
Delaware VIP Small Cap Value Series : 1.07%
Delaware VIP Value Series : 0.99% (my mistake, this is a large cap fund, not small cap)
MFS Utilities Series : 1.03%
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Re: Debt vs Savings

Post by boglenomics »

mountainair wrote: Sat Jun 01, 2019 8:05 pm
boglenomics wrote: Sat Jun 01, 2019 7:17 pm

That is not a broadly diversified portfolio. What are the fund symbols for these? I'm curious what the expense ratios look like.
Not sure what the symbols are but here's some information:

American Funds Insurance Series Global Growth Fund - Class 2 : 0.80%
Delaware VIP Small Cap Value Series : 1.07%
Delaware VIP Value Series : 0.99% (my mistake, this is a large cap fund, not small cap)
MFS Utilities Series : 1.03%
An important read and info graph here - https://www.bogleheads.org/wiki/Expense_ratios

Once you get done that - https://www.bogleheads.org/wiki/Three-fund_portfolio

The expense and diversification of those funds is poor and exposes you to extreme risk of missing your long term goals.

Pay off the debts, starting with the highest interest first, and look into the beauty of low cost diversified broad market funds.
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Re: Debt vs Savings

Post by BuckyBadger »

mountainair wrote: Sat Jun 01, 2019 8:05 pm
boglenomics wrote: Sat Jun 01, 2019 7:17 pm

That is not a broadly diversified portfolio. What are the fund symbols for these? I'm curious what the expense ratios look like.
Not sure what the symbols are but here's some information:

American Funds Insurance Series Global Growth Fund - Class 2 : 0.80%
Delaware VIP Small Cap Value Series : 1.07%
Delaware VIP Value Series : 0.99% (my mistake, this is a large cap fund, not small cap)
MFS Utilities Series : 1.03%
Can you share the options in your plan? You may be able to cut those fees by a factor of 10. I realize i have particularly good options, but as comparison, my highest expense ratio is 0.1 and my lowest is 0.03.

Plus maybe we can help you diversity!
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Re: Debt vs Savings

Post by cherijoh »

TNWoods wrote: Sat Jun 01, 2019 7:36 pm I started listening to him a long time ago, and that is why I am debt-free now, but I am good at math, so I first transferred my credit card debt to a new card that gave me 0% on transferred amounts for 18 months, and I paid off everything in order of highest interest rate first. Listening to him was very motivational, but I totally did the math. Paid off my mortgage way early too, after everything else was paid off. Now my saving rate is about 60% of my gross.

He also says "cut up your credit cards", but that's another place I strongly disagree. I say "use credit card for everything and get those rewards, and pay it in full every month." Because I can do the math.

TNWoods
Good for you. But I don't think the fact that you can do math is the only reason you can responsibly use credit.

I think there is a good analogy between alcohol use and debt for many people who get in trouble with debt. Quite a few people drink too much (spend too much) when they are young and stupid. Sooner or later most of them realize their behavior is hurting them and figure out how modify their behavior either on their own or with a little help. Many of them can go on to being a responsible social drinker (user of credit). But there are some people who are alcoholics (spendaholics) for whom abstaining from alcohol (credit card debt) for the rest of their lives is the best (only?) solution - otherwise sooner or later they will fall off the wagon and end up back where they started.
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mountainair
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Re: Debt vs Savings

Post by mountainair »

BuckyBadger wrote: Sat Jun 01, 2019 8:19 pm

Can you share the options in your plan? You may be able to cut those fees by a factor of 10. I realize i have particularly good options, but as comparison, my highest expense ratio is 0.1 and my lowest is 0.03.

Plus maybe we can help you diversity!
Risk Managed

LVIP BlackRock Dividend Value Managed Volatility Fund - Service Class12, 13   
LVIP Blended Large Cap Growth Managed Volatility Fund - Service Class12, 13, 14   
LVIP Blended Mid Cap Managed Volatility Fund - Service Class8, 12, 13, 14   
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Service Class1, 12, 13   
LVIP Global Conservative Allocation Managed Risk Fund - Service Class1, 3, 9, 12, 16   
LVIP Global Growth Allocation Managed Risk Fund - Service Class1, 3, 9, 12, 16   
LVIP Global Moderate Allocation Managed Risk Fund - Service Class1, 3, 9, 12, 16   
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Service Class8, 12, 13, 14   
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Service Class1, 3, 9, 12, 13, 14   
LVIP SSGA International Managed Volatility Fund - Service Class1, 9, 12, 13   
LVIP T. Rowe Price 2010 Fund - Service Class9, 11, 12   
LVIP T. Rowe Price 2020 Fund - Service Class9, 11, 12   
LVIP T. Rowe Price 2030 Fund - Service Class9, 11, 12   
LVIP T. Rowe Price 2040 Fund - Service Class9, 11, 12   
LVIP T. Rowe Price 2050 Fund - Service Class9, 11, 12   

Maximum Capital Appreciation

AB VPS Global Thematic Growth Portfolio - Class B1, 2   
Delaware VIP® Smid Cap Core Series - Service Class5, 8   
DWS Alternative Asset Allocation VIP Portfolio - Class B1, 2, 3, 9, 10   
LVIP Baron Growth Opportunities Fund - Service Class8   
LVIP SSGA Emerging Markets 100 Fund - Service Class1, 19   
LVIP SSGA Small-Cap Index Fund - Service Class8, 18   
LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Service Class8   

Long Term Growth

American Funds Global Growth Fund - Class 21   
American Funds Growth Fund - Class 2   
American Funds International Fund - Class 21   
Delaware VIP Small Cap Value5, 8   
Fidelity® VIP Contrafund® Portfolio - Service Class 2   
Fidelity® VIP Growth Portfolio - Service Class 2   
LVIP BlackRock Global Real Estate Fund - Service Class1, 2, 7   
LVIP Delaware Social Awareness Fund - Service Class5   
LVIP Delaware Special Opportunities Fund - Service Class5, 8   
LVIP Dimensional U.S. Core Equity 1 Fund - Service Class   
LVIP Mondrian International Value Fund - Service Class1   
LVIP SSGA International Index Fund - Service Class1, 18, 20   
LVIP SSGA S&P 500 Index Fund - Service Class18, 21   
LVIP Vanguard Domestic Equity ETF Fund - Service Class9, 22   
LVIP Vanguard International Equity ETF Fund - Service Class1, 9, 22   
MFS® VIT Utilities Series - Service Class2   

Growth and Income

American Funds Growth-Income Fund - Class 2   
BlackRock Global Allocation V.I. Fund - Class III1, 3   
Delaware VIP REIT2, 5, 7   
Delaware VIP Value5   
Fidelity® VIP Freedom 2020 PortfolioSM - Service Class 29, 11   
Fidelity® VIP Freedom 2025 PortfolioSM - Service Class 29, 11   
Fidelity® VIP Freedom 2030 PortfolioSM - Service Class 29, 11   
Fidelity® VIP Freedom 2035 PortfolioSM - Service Class 29, 11   
Fidelity® VIP Freedom 2040 PortfolioSM - Service Class 29, 11   
Fidelity® VIP Freedom 2045 PortfolioSM - Service Class 29, 11   
Fidelity® VIP Freedom 2050 PortfolioSM - Service Class 29, 11   
LVIP BlackRock Advantage Allocation Fund - Service Class3, 5, 12   
LVIP Delaware Wealth Builder Fund - Service Class3, 5, 12   
LVIP JPMorgan Retirement Income Fund - Service Class3, 5, 12   

Income

Delaware VIP Diversified Income4, 5   
Delaware VIP High Yield4, 5, 6   
LVIP BlackRock Inflation Protected Bond Fund - Service Class4   
LVIP Delaware Bond Fund - Service Class4, 5   
LVIP Delaware Diversified Floating Rate Fund5, 15   
LVIP Global Income Fund - Service Class1, 4, 12, 14   
LVIP SSGA Bond Index Fund - Service Class4, 18   
PIMCO VIT Total Return Portfolio - Administrative Class4   

Preservation of Capital

LVIP Government Money Market Fund - Service Class12, 17   
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Re: Debt vs Savings

Post by grabiner »

mountainair wrote: Sun Jun 02, 2019 6:03 pm
LVIP SSGA Small-Cap Index Fund - Service Class8, 18
LVIP SSGA International Index Fund - Service Class1, 18, 20   
LVIP SSGA S&P 500 Index Fund - Service Class18, 21   
LVIP Vanguard Domestic Equity ETF Fund - Service Class9, 22   
LVIP Vanguard International Equity ETF Fund - Service Class1, 9, 22   
LVIP BlackRock Inflation Protected Bond Fund - Service Class4
LVIP SSGA Bond Index Fund - Service Class4, 18   
These are all potentially low-cost options; the funds themselves are low-cost, but I don't know how much is being added to the expenses by the variable annuity wrapper (this is what "VIP" or "LVIP" means). You'll have to check the plan documents; presumably, the extra expenses are in some of those footnotes.
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Re: Debt vs Savings

Post by TNWoods »

cherijoh wrote: Sun Jun 02, 2019 11:58 am Good for you. But I don't think the fact that you can do math is the only reason you can responsibly use credit.

I think there is a good analogy between alcohol use and debt for many people who get in trouble with debt. Quite a few people drink too much (spend too much) when they are young and stupid. Sooner or later most of them realize their behavior is hurting them and figure out how modify their behavior either on their own or with a little help. Many of them can go on to being a responsible social drinker (user of credit). But there are some people who are alcoholics (spendaholics) for whom abstaining from alcohol (credit card debt) for the rest of their lives is the best (only?) solution - otherwise sooner or later they will fall off the wagon and end up back where they started.
I intended the overall context to indicate that "can do math/can't do math" was essentially a synecdoche for all that, not a literal statement about one's ability to add and subtract. I should have been clearer.

TNWoods
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Re: Debt vs Savings

Post by cherijoh »

TNWoods wrote: Mon Jun 03, 2019 8:06 am
cherijoh wrote: Sun Jun 02, 2019 11:58 am Good for you. But I don't think the fact that you can do math is the only reason you can responsibly use credit.

I think there is a good analogy between alcohol use and debt for many people who get in trouble with debt. Quite a few people drink too much (spend too much) when they are young and stupid. Sooner or later most of them realize their behavior is hurting them and figure out how modify their behavior either on their own or with a little help. Many of them can go on to being a responsible social drinker (user of credit). But there are some people who are alcoholics (spendaholics) for whom abstaining from alcohol (credit card debt) for the rest of their lives is the best (only?) solution - otherwise sooner or later they will fall off the wagon and end up back where they started.
I intended the overall context to indicate that "can do math/can't do math" was essentially a synecdoche for all that, not a literal statement about one's ability to add and subtract. I should have been clearer.

TNWoods
I didn't take it literally. :wink: My point was that some people willfully refuse to acknowledge reality.
CommitmentDevice
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Re: Debt vs Savings

Post by CommitmentDevice »

Hey OP,
+1 paying off the cc asap by cutting expenses/retirement savings and by dipping into savings account
+1 congratulations on getting an early start at owning your personal finance and investing
+1 re career planning for higher long term income. https://www.edx.org/ has particularly good value for learning new skills
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Re: Debt vs Savings

Post by GT99 »

Brian2d wrote: Sun May 26, 2019 4:38 pm I would pay off 11% credit card debt even at the expense of an emergency fund. Worst case scenario is you need to use the credit card again, at least you won't be paying 11% in the interim.
Absolutely this. If you can still use the credit card, then it becomes your emergency fund. Put the $3k in savings, plus $1k from checking against the credit card. If you do need emergency funds, put it back on the credit card. Pay off the credit card debt, then build up your emergency funds again.
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Re: Debt vs Savings

Post by BL »

According to this site,
https://www.sec.gov/Archives/edgar/data ... 3d497k.htm
for fund LVIP SSGA S&P 500 Index Fund - Service Class 18, 21
it looks like the ER is/could be 0.46% for the service class which includes a 0.25% 12b-1 kickback to someone.
There may be other fees and charges as well.


I expect most of your choices are higher than this, but don't know for sure, of course. How about scanning your list of ERs to see which are below 0.5%? Otherwise this might be a "best choice".

Agree with paying off the CC. Did you look up on your statement how long it would take to pay it off while paying just the minimum? Having CC debt at 11% is an emergency! Cut back and use your emergency fund. Then build it up again. Cut some of your "nice-to-have" expenditures and you will be in a good place much more quickly.
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BL
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Re: Debt vs Savings

Post by BL »

You might consider doing an IRA on any retirement savings up to $6000/yr, after any company 401k match, before putting more into your 401k. At Vanguard, for instance, you could get a Target Date Fund (anywhere from 10% bonds to 70% bonds) with a starting amount of $1000, and set up regular automatic payments after that, at an expense ratio of about 0.15%. Total Stock Market would be much lower ER, 0.04%, but requires a minimum of $3000 to start.

A traditional IRA could be deductible from taxes just like a 401k. If you are willing to forgo the deduction, you could put the money into a Roth IRA instead, for lifetime growth with no future taxes ever, if you leave it there until retirement. An added advantage of a Roth is that it could be a back-up emergency fund, because your own contributions (not your gains) can be withdrawn at any time with no tax consequences.

Here is a free great little pdf of 16 pages for newer investors:
https://www.etf.com/docs/IfYouCan.pdf
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mountainair
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Re: Debt vs Savings

Post by mountainair »

Hi All,

Just wanted to post a status update. It took longer than planned but I finally paid off my credit card. That was one of the biggest anchors holding me back financially and I am glad to get rid of it. I stopped saving in order to expedite the payoff but now I have the option of going back to saving $400/month. I say option because I am not sure if I should boost my savings for emergencies/new car/vacation or just get rid of the student loan.

Student Loan: $4,000
Savings: $3,500 ($400/month)
Retirement: $13K ($200/month)

So here's my current situation:

Net income after savings: $3,140
Mortgage/Taxes/HOA/Sewer: $1,100
Utilities: $60
Internet: $72
Cable: $162
Car Insurance: $100
Gas: $200
Cell Phone: $80
Student Loan $60
Subscriptions: $20
Groceries/Pharmacy: $200
Vehicle Maintenance: $230
Remaining: Approximately $850

This is just a rough budget, it's not perfect and of course varies. The budget does not account for additional spending such as eating out, haircuts, games, gifts, house stuff, etc. so a portion of the remaining $850 would be spent on that and other non-essentials depending on the month. I have to admit one of my biggest weaknesses is getting takeout or eating out but I've been good with bringing lunch and cooking at home. It makes a real difference over time. I have thought about reducing or cutting cable but haven't made any moves there.

No changes with the retirement contributions and allocation. I need to do more research there but setting up a Roth seems to make a lot of sense. Not so crazy with the options and fees associated with my IRA from work. Currently feel a lack of control with the retirement setup but saving something is better than nothing I suppose.

So this is where I am at. Far from perfect but trying.
zie
Posts: 181
Joined: Sun Mar 22, 2020 4:35 pm

Re: Debt vs Savings

Post by zie »

From a math perspective:

Looks like your student loan is @ 3.4%(based on 1st post)

If you think of your student loan as a bond that costs you 3.4% a year to buy... i.e. a negative bond.

Your stock/equities portfolio will *likely* do better than 3.4%/year (at least on average over a decade), but your bonds probably won't. If/when your bonds are paying less than 3.4%/yr, then it makes sense to then sell bonds and pay off your loan...or cashflow it off.

I don't know what bonds you have held(if any), and where, but go look them up and see what they have paid YTD this year.

From a debt is evil perspective:
. PAY IT OFF NOW!

From an emotional perspective:
Do whatever ever makes you feel better about your financial situation.

Pick one of the above perspectives, and go with it.
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