What to do first? Debt vs Savings/Retirement

[Anonymous]

Anonymous wrote:OP here. Here is an update to the debt situation:

Credit cards: $7K @ 24% (These have been paid)
Car: $30K ($820 payment monthly w/48 months remaining)
Car: $17K ($492 payment monthly w/48 months remaining)
DH's CC consolidation loan: $11K @ 5% interest (He just got this a few months ago)

Student loans?

[Anonymous]

Anonymous wrote:OP here. Here is an update to the debt situation:

Credit cards: $7K @ 24% (These have been paid)
Car: $30K ($820 payment monthly w/48 months remaining)
Car: $17K ($492 payment monthly w/48 months remaining)
DH's CC consolidation loan: $11K @ 5% interest (He just got this a few months ago)

This loan couldn't have helped his credit score.

I think you have a good and realistic attitude, OP! It must feel good to have those cc's paid off. Now set aside, $1k for emergency and put any other cash you have directly toward that consolidation loan. Then you can sit down with DH and work on how to get through or sell the cars.

[Anonymous]

OP it sounds like you’re on your way to getting back on track.

I agree with most of the other responses to tackle CC debt and the cars right away. Please also check your company’s policy and contribute to a 401k up to the employer match. That’s an 100% immediate return!

Over the next month track your expenses closely and come up with a budget. You’re definitely going to have to cut back but I would also encourage you to build in a designated “discretionary fund”

I think getting rid of everything all at once sets you up for failure. Including a small line item for fun money helps keep that in check. Say maybe $200.

There will be times where social obligations will seem important enough to spend outside of your budget. Making these decisions ad hoc is how you get into trouble. Setting a reasonable limit will get you used to budgeting. You’re not going to be able to go wine tasting for a friend’s birthday, buy a cashmere sweater and eat out every month - BUT you will be able to do some of those things and you will feel good knowing that you are staying within your budget.

Good luck!

[Anonymous]

You would really benefit from YNAB. Mint shows you what you've spent, YNAB helps you plan before you spend. You could also start a journal on the old forum (better than new). It's a very supportive community.

https://forum.youneedabudget.com/

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here. Here is an update to the debt situation:

Credit cards: $7K @ 24% (These have been paid)
Car: $30K ($820 payment monthly w/48 months remaining)
Car: $17K ($492 payment monthly w/48 months remaining)
DH's CC consolidation loan: $11K @ 5% interest (He just got this a few months ago)

This loan couldn't have helped his credit score.

I think you have a good and realistic attitude, OP! It must feel good to have those cc's paid off. Now set aside, $1k for emergency and put any other cash you have directly toward that consolidation loan. Then you can sit down with DH and work on how to get through or sell the cars.

Thanks for your helpful response. It helped it because of the utilization. However, the loan is going to be short-term and we will pay it off quickly.

[Anonymous]

Anonymous wrote:You would really benefit from YNAB. Mint shows you what you've spent, YNAB helps you plan before you spend. You could also start a journal on the old forum (better than new). It's a very supportive community.

https://forum.youneedabudget.com/

OP here. Thanks, I will sign up for that STAT.

[Anonymous]

Anonymous wrote:OP it sounds like you’re on your way to getting back on track.

I agree with most of the other responses to tackle CC debt and the cars right away. Please also check your company’s policy and contribute to a 401k up to the employer match. That’s an 100% immediate return!

Over the next month track your expenses closely and come up with a budget. You’re definitely going to have to cut back but I would also encourage you to build in a designated “discretionary fund”

I think getting rid of everything all at once sets you up for failure. Including a small line item for fun money helps keep that in check. Say maybe $200.

There will be times where social obligations will seem important enough to spend outside of your budget. Making these decisions ad hoc is how you get into trouble. Setting a reasonable limit will get you used to budgeting. You’re not going to be able to go wine tasting for a friend’s birthday, buy a cashmere sweater and eat out every month - BUT you will be able to do some of those things and you will feel good knowing that you are staying within your budget.

Good luck!

This is OP. Employer matches up to 6% of 25%. It is not good, but I'll take it. Thank you for the great advice!

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here, I have a bonus and am willing to pay off the CC's now. So that takes away $600 from my monthly expenses.

Ok, but make sure you examine where that CC debt came from. If it's just from unemployment, then you have $600 month. If you're living above your means, you need to examine.


1. Pay off credit card debt with bonus.
2. Use remainder if you haven't matched employer 401k.
3. Sell the expensive car even though underwater and use extra bonus to pay difference and get a reliable cheap car. You can't afford this car. If you decide to keep it you have to sacrifice elsewhere.
4. Sounds like you are someone who would benefit from automatic deductions to key things: 401k, 529 college plans, emergency savings fund. You'll see you have less money to play with once your basic responsibilities are covered and will be less likely to make mistakes like your fancy cars. Cars are depreciating assets and you bought them with money you didn't have.
5. Use a budgeting software like Mint (free) or YNAB (small fee) to help you think through things.

+1

This is good advice. I'd also think about getting rid of the second car (if not really needed) or selling it and buying another cash car. With your extra cash from these changes, you could build your Emergency Fund to 6 months of expenses (since you previously had 6-7 months of unemployment, that gives you a good idea of how long it would take you to get another job when unemployed) and increase your pre-tax retirement contributions and get to the Fed max.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP here. Here is an update to the debt situation:

Credit cards: $7K @ 24% (These have been paid)
Car: $30K ($820 payment monthly w/48 months remaining)
Car: $17K ($492 payment monthly w/48 months remaining)
DH's CC consolidation loan: $11K @ 5% interest (He just got this a few months ago)

This loan couldn't have helped his credit score.

I think you have a good and realistic attitude, OP! It must feel good to have those cc's paid off. Now set aside, $1k for emergency and put any other cash you have directly toward that consolidation loan. Then you can sit down with DH and work on how to get through or sell the cars.

Thanks for your helpful response. It helped it because of the utilization. However, the loan is going to be short-term and we will pay it off quickly.

Everyone else here has said a lot of smart stuff (and some snarky stuff), so I'll just add that this is the second or third time you have mentioned credit score, and you guys need to pretty much stop thinking about credit.

This is one of the things you'd get from Dave Ramsey that would really be worth your while (and I'm an atheist who does not share his views on money and spirituality, AND he is dead wrong about a lot of things pertaining to investment, but he is 100% right about behavioral finance, so start listening to his podcast--it's free and covers everything in the books).

Credit score can have an impact on insurance rates--so shop around--but it is primarily relevant as it pertains to your ability to buy more stuff using credit. With your income and debt, you shouldn't buy anything else on credit--including a house--for about 5-10 years. That is more than enough time for whatever small impact a decrease in utilization has today to completely wash out. So stop looking at your credit scores and just watch those debt numbers going down.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This is OP. I guess I should have mentioned that our household income just got to 230K. It was 210K as of two weeks ago. So now that we have more, we can use more to get out of this hole.

Congratulations! This is a big shovel! I imagine that taxes are killing you guys because you aren't contributing much to your 401ks. Up those retirement contributions!

You can do this!

Thanks! We were always told that we should get rid of debt first and THEN save the max for retirement. I paid off $7K of high-interest CC debt last night, so that's gone. Now I need to tackle this car situation.

That advice is not good for people who are earning as much as you guys. The tax benefit is a huge deal for your income level. What happened to you guys is what you see - your high income made you feel like having such high carpayments and other expenses were doable and so instead of paying off student loans and saving cash for cars, you basically gave yourselves more rope to get in to deep trouble.

[Anonymous]

My only concern with her keeping only 1k as a baby emergency fund is that her budget is incomplete and she has zero sinking funds. With the consolidation loan of ccs and the ccs (congrats on paying those off, OP!), she does not yet have a working budget or sinking funds set up. She also has a child. I think she should save a baby efund of at least a few thousand and set aside some money for car repairs/christmas presents, etc - upcoming costs that are coming.

YNAB will let you do that OP: It lets you allocate money and roll it forward if it is unspent each month.

So I think she should save out a few thousand for her emergency fund and also because she has zero sinking funds now. OP, your goal should be to NOT USE the ccs at all. Put zero on them.

Then if money is left over from the bonus, use that to get out of that crazy high carpayment and interest.

[Anonymous]

OP, just wanted to say that you have a great attitude. This thread has had a lot of advice and some criticisms and you are handling it really well. Be kind to yourselves because learning new things is hard. Some of us kind of got dropped in to the deep end of the pool wrt to finances and it is painful learning how to swim while having to stay afloat, kwim? You can do this, but changing our habits is hard and takes effort. It is work!

You can do this!

[Anonymous]

Anonymous wrote:

Anonymous wrote:Look into YNAB or Mint. I haven't used them myself, so maybe others can chime in, but I think you'll find them helpful. And definately check out Dave Ramsey. You can download his podcasts. Very motivating.

Ok, I have Mint already but I realize I need to refine my budget and add other things that aren't fixed daily living expenses. I like some of Dave's stuff but some of his views on housing are hard to adhere to here in the DC area. It's very expensive here.

OP, here's an article on using Mint to help with budgeting: http://www.theluxestrategist.com/my-favorite-mint-tips-and-tricks/

Also, congratulations on paying off the credit cards!

My advice: Save @ 2 months of expenses in an emergency Fund (a savings account or Money Market Account that you would only touch in case of unemployment or a medical emergency). Then work on saving up enough so that you can buy an inexpensive, reliable used car, sell the very expensive car, and pay back what you owe on it. That will get you over $800 back in your monthly budget that you can save for retirement or to further beef u your Emergency Fund.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You would really benefit from YNAB. Mint shows you what you've spent, YNAB helps you plan before you spend. You could also start a journal on the old forum (better than new). It's a very supportive community.

https://forum.youneedabudget.com/

OP here. Thanks, I will sign up for that STAT.

OP, if you Google "You Need A Budget free 3 month trial" you will find many links that offer that.

For example:

https://www.reddit.com/r/ynab/comments/7nk8p8/blog_i_read_sponsored_by_ynab_3_months_free/

[Anonymous]

I think the bare minimum emergency fund should always be one months mortgage/rent, in readily available cash.