Debt payoff / savings...

[Deleted]

How much should someone have in savings if they are trying/focusing on paying off debt?
Also would you still contribute to savings?

We currently have 7.5k in savings which after August might will come down to ~4-5k and we contribute $200/week to it.

Debt that we plan to payoff in the next 5-8 years (pushing for 5)
Our car loans
Credit card (8k at 0% till April)
About 150k in student loans (6.9%)

Of those 150k, 80k are Federal Loans for my wife so going to make the income base payments for the full 10 years (8 years left).

The plan is to start with the smaller loans $900, 2.5k, 5k, 7k that range from $40-90/month each (so $250/month combined)

That would leave us with 4 loans (2 Feds and 2 sallie Mae ) to focus on each month and pay down.

Gross Income combined is ~100k

[BeenThere...DoneThat...]

How much should someone have in savings if they are trying/focusing on paying off debt? ...between 3-9mos' expenses...
Also would you still contribute to savings? ...yes...

[Deleted]

Ok ; so that would put us at about 15k at a minimum. And here I was thinking my 5k would be enough

Thank you.

[midjd]

Cawaiu, I think the size of your EF really depends on your situation. Phil is fine with $5K (which I'm guessing is about a 1 month EF) because he has substantial other assets and multiple streams of income. Someone with a seasonal job or SAH spouse will need more like 6 mos- 1 years' worth of expenses because there's a much greater chance of a period of no income.

Your EF should consist of (at the minimum) enough to cover all insurance deductibles - health, auto, renter's/homeowner's. That way if the shit hits the fan all at once, at least you'll be able to get it fixed right away.

Then I think you need to decide what your most likely emergency would be. Job loss? Car kicks the bucket? Health issues? New roof? You and your DW aren't homeowners so that eliminates a whole category of possible emergencies.

You also have to consider whether you could cut your budget down in a true emergency. For instance, our EF is only about 2 months of current expenses, but I could cut about 40% from our budget (especially if one of us wasn't commuting). If either of us lost our job we'd probably be eligible for unemployment, so it might stretch another 4-5 months.

For you guys, $10K would probably be more than enough - you're not homeowners and you could probably cut a lot of fat if necessary. Plus, if your income was substantially reduced, your wife's SL payments would be as well.

[Deleted]

Your wife needs to make more money

[Malarky]

caiwa,

You and DW are DH and I just starting out except we didn't have SL's. Instead we took on a mortgage that equalled your SL's 18 years ago. On 1/3 ? the income you have now. Together we made $60,000.

We bought a house for 128,000, we've dropped that much into improvements and maintenance in all these years.

In that time we jumped in with both feet and had two kids because we want them. So now DS is a year away from college and we won't be able to cover all the costs, but we'll be able to help AND we brought an amazing, productive human being into the gene pool.

There were certainly years where we struggled, but I'm not sorry.

What else could we have done all those years? Since neither of us were going to cure cancer, we needed to do something good locally. DS and DD fit the bill.

Mission accomplished. Replace two human beings who have the best interests of humanity with two of the same.

[Deleted]

Jul 29, 2012 20:24:46 GMT -5 @mmc said:

Your wife needs to make more money

I keep on telling her that but she has yet to follow through

I need a sugar mama

[Deleted]

MidJD: yeah that would make sense. Our 5k represent about 1 month of current expenses which could get cut dramatically in case of a true emergency.

Malarky: We make about 100k combined so you were closer to 2/3 of our current income. We will have kids eventually and believe me, it will be because we want them. I guess we don't want them bad enough or still a bit selfish because we are yet ready to sacrifice certain things to have them: savings/debt payoff for me, standards of living for my wife. Nothing wrong with your method or ours, different strokes for different folks.

[Malarky]

Not meaning to knock your choices.

Just trying to point out that lots of us jump in with both feet and trust that we can make it work.

I'm not sure that I would have my kids now if I'd known the financially reality when I had them. But then again, they are amazing people The world would be a sadder place without them.

[Deleted]

I'd put 3 months of expenses (including COBRA or individual healthcare) away before getting aggressive with loan elimination. That does not have to be in cash, could be invested, but has to be relatively liquid. You've mentioned previously buying a home or investment property. Do you have a separate savings account for that & are not including it in the available $s mentioned?

Why is your credit card debt so high? I think I'd address what caused that first and before any debt elimination discussion. You have $7.5K savings, but $8K in debt, so basically you put money in savings while using the cc to buy stuff so it was kind of a false savings. I think a thorough budget analysis is in order. Plug the holes and get on the right track.

[Deleted]

Marlarky: I understood what you were trying to say and did not take any offense to it. One thing you said was "lots of us jump with both feet trusting that we could make it work. Here you go, I am not there yet, and when I am... I will too jump in with both feet trusting that I will make it work.

I don't fool myself that all in life goes according to plan and if my finances are in order all will settle in nicely. Hell no! But that is my thing, the one thing in my life I want to have some control over or tidy up a bit before I make the jump. Some folks wait till they get married, or settle in their career or buy a house... Mine is have some of our debt gone before I have a kid and knock on wood in 2 years I will be there. It's just my thing or hiccup.

Rock It: the credit card debt used to be 14k or so and that was my wife tuition for last year of grad school and about 2k repairs that my car needed. Been at 0% for the past 2 years and now we don't want to roll it over once more come May, just pay it off.

As for investment property that will have to wait with the possible move to MA, if it ever happens. Right now we are more focus on the debt payoff and get in a position that allow us more breathing room (disposable income / EF) in the next 2-3 years.

[busymom]

We did our credit card payoff a little dangerously. We did it "Dave Ramsey" style. We only had $1000 in savings. But, we paid off the highest interest rates first before moving onto the next card. Yes, we had a couple of setbacks, but we not only paid off the cards, but we were motivated to pay extra, and everything was paid off months early. We even "garage-saled" some stuff, and applied the proceeds towards our debt. And, any extra money that came in went towards our debt too. (Yes, we did stuff like saving aluminum cans, & getting $$ from recycling.)

Work towards the prize, even if you can't see the finish line yet. It is SO worth it to have the peace of mind of NO credit card debt. Cut up your DW's cards if you need to, to get her on board, and cancel accounts & work only with cash. Because, when the cash is gone, it's gone! (Yes, I know, this'll drive your DW crazy!) But, you can't argue with success.

[zibazinski]

I don't see that his DW is charging anymore and he explained what the charges were for. I think you are both okay with the 5k in savings, start the debt payoff but keep in mind the month the zero per cent loan needs to be paid off. Account for that. Don't go nuts with christmas, birthdays, weddings, showers, and the like. You guys go way overboard with those things.

[Deleted]

Have you ever read Dave Ramsey? The guy has a lot to be desired for investment advice, but his debt payoff plan is very effective and works for a lot of people because it attacks money problems from a psychological angle. According to Dave you should start out with only a small emergency fund ($1000 for those making under 70K, $2000 for those making over). All other savings should go towards your debt. His reasoning is, not only does it get you out of debt faster, but the "uncomfortable" feeling you get by not having that big cushion will motivate you even more and encourage you to stay on track so you can rebuild your savings.

[Gardening Grandma]

I'd put 3 months of expenses (including COBRA or individual healthcare) away before getting aggressive with loan elimination. That does not have to be in cash, could be invested, but has to be relatively liquid.

[Deleted]

- All our other credit cards are paid off each month, balance from $50-200 (groceries, gas, etc). The 8k is the remaining balance from 2007-2008 when we paid for her last year of grad school. And yes, the current goal is to have it paid off by the time the 0% expires.

- I have read Dave Ramsey and that is somewhat why we are attacking the smaller student loans first; mostly because we want to reduce the amount of payments we have to make each month lol. Also I won't feel comfortable with just 1-2k in EF, a simple car repair will have it all gone. I guess we just need to figure out what is our middle ground.

- The reason we don't want to stop with the savings contributions is because we only have 1 savings account that is used as EF / vacation fund / Holy crap fund. We don't have other savings or particular accounts earnmarked for a specific purchase/event.

[Deleted]

Here's the way I look at it. If you take your savings to pay down your credit card debt and all hell breaks loose, you still have the option of putting your emergency back on the cards, the net result is the same, meanwhile you're not paying that interest. I'm sure the emergency fund isn't making much.

[giramomma]

Well, here's what I would do in your situation:

1. Start a separate sinking fund account, to separate out an emergency vs I'm going to spend it eventually funds. We don't put our car repair, vacation money or anything like that with our EF. Our EF is simply for job loss, and thankfully, we've never had to touch it.

2). I'd commit to paying off as much debt as you can in the next year or so. For sure, the CC loan and then the car loans.

3). Then, I'd save like a mad person until that baby comes. I'd bump up the EF to 15K and work on beefing up the savings for baby.

I would make sure that you have plenty of cushion to purchase things that didn't get purchased at showers or she decides last minute that she really wants to take a 6 month leave instead of a 3 month one. (And, you don't know if it will hit. I was really quite fine with going to work after my first two. For some reason, with my third, I don't want to go back to work, and it's causing much anxiety.) Or if she decides she needs to redo the baby's room every 2-3 years.

[daisylu]

How much should someone have in savings if they are trying/focusing on paying off debt?

For most people, this is a comfort level situation. The 7.5K that you currently have would be suffiient for me, so I would stop adding to that and instead send it debt payoff. But you seem more like my DH - he likes to hoard cash "just in case". Though he is debt adverse, so if we had that $8000 CC hanging over us he would do whatever he could to make sure that it is gone long before April comes and certainly before he worried about paying off any of the student loans.