Debt

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Pennypacker

New member
Are some of you guys still carrying your school loan debt around with you? I'm trying to pay mine off. I owe about $30,000 and I graduated in 2000. Just seems like a lot to still have.



What about car loan debt? I think I can pay that off soon, but I might sell the thing anyway, drive my mom's Corolla around instead (she moved to Scotland), and use the proceeds to pay off my school loan. It would be refreshing to not have debt of any kind--even the type deemed by most as "acceptable."



I do have credit card debt right now, but it's only $266. Guess what that was for? Yup, the Flex.



Anyways, anybody have an opinion, thoughts, advice?

Thanks
 
When you have a variety of debt.. always p/o the lowest balance first, and then use that monthly payment amount that you paid off against for the next loan.



Example...



P/O

1. CC $266

2. Car loan

3. School loan

4. Mortgage.
 
Yea, the more debts you have, the more interest you are paying. So like Macruz said, take out the lowest ones first. Then you don't have to worry about those and you are no longer paying interest on them.
 
Macruz19 said:
When you have a variety of debt.. always p/o the lowest balance first, and then use that monthly payment amount that you paid off against for the next loan.



Example...



P/O

1. CC $266

2. Car loan

3. School loan

4. Mortgage.
Click to expand...



Logically, it makes sense to pay off the highest interest debt first but it isn't always the best choice. Money is a very emotional thing and if one is deep in debt, they tend not to regard this matter in a very logical manner.



In this case, it would be best to pay off the smallest debt first and build up a snowball, whereby the debt payment per item continually increases until all debt is erased.



Nonetheless, in this very specific case both theories have the same outcome.
 
mshu7 said:
+2 to what Holden_C04 said. Have you listened to Dave Ramsey before Holden?
Click to expand...



I picked up that little gem from a great blog I read called, The Simple Dollar. Its a fantastic read.
 
Gotcha! If you're into financial stuff like that, you might check out DaveRamsey.com. Basically, his philosophy is to not borrow money (duh!). He has a step-by-step process to get out of debt and live in "financial peace". My wife and I are almost half-way through his 13-week Financial Peace University. It's completely changed the way we think about money.
 
mshu7 said:
Gotcha! If you're into financial stuff like that, you might check out DaveRamsey.com. Basically, his philosophy is to not borrow money (duh!). He has a step-by-step process to get out of debt and live in "financial peace". My wife and I are almost half-way through his 13-week Financial Peace University. It's completely changed the way we think about money.
Click to expand...



Yeah, I've begun to handle money a little bit differently. I noticed in one post a remark you made about not wearing the latest fashion because it wasn't necessary to live - I knew right away you were reading the same sort of stuff I was.



Mind you, I like nice threads. It makes me feel better but I never pay full price. My last Perry Ellis shirt was $20.
 
It would be refreshing to not have debt of any kind--even the type deemed by most as "acceptable."
Click to expand...



That's where my wife and I are, zero debt, and yeah, it does make for good peace of mind.



I'll use the Home Equity Line or my margin account from time to time as a cash-flow buffer (up to an amount I can easily pay off), but I simply won't borrow/owe money in the normal sense. I want interest to be something I *earn*, not something I *pay* and I simply don't like the idea of being beholden to others. We're retired, and we plan to stay that way ;)



I realize that this isn't always the *smartest* way to manage money (e.g., 1.9% financing when even a money market account pays more than that)..but it's just the way I want things run in my life.
 
Thanks for all the input.



Accumulator, that's most impressive!



I do like the lowest balance first philosophy. I think, however, if I had a large cc balance at 20% or more (compared to 5% on the school loan, for ex.), I'd opt to prioritize based on the rates. Fortunately though, I don't have to contend with that and the rates on the car loan and student loan are about equal, so I think paying the lowest balance first is a good approach.



I'm still debating whether I should sell my car, though. That's a tougher one for me to decide. I'm fairly certain I could get around 21k for it and that would go a long way towards knocking down that student debt. My head is saying one thing and my heart is saying another..:faint:
 
pennypacker- IMO there are intangible things worth paying for, if you can (really) afford the luxury. I've sold cars when that was the "smart" way to raise cash (hey, no hit to the earnings stream, no capital gains.. seemed like a no-brainer), and most of the time I've looked back and decided I woulda been happier if I'd kept the car.



I think there are plenty of subjective things worth paying for as happiness isn't always determined by 100% objective criteria (hah! not by a long shot ;) ). One of those might be keeping a car you like; question is whether that pleasure is worth the additional x% that carrying the debt works out to :nixweiss
 
I am of the philosophy that unless you can pay for it in cash, don't pay for it. Apart from a house, of course.



There is a guy at work that was driving a brand new '08 Ford truck. He is going to get rid of it, and drive around in a $500 Ford he just bought. He will drive it for a couple of years to save money and with that pay of some debt.



Seems like the responsible thing to do, right?
 
Pennypacker said:
I'm still debating whether I should sell my car, though. That's a tougher one for me to decide. I'm fairly certain I could get around 21k for it and that would go a long way towards knocking down that student debt. My head is saying one thing and my heart is saying another..:faint:
Click to expand...



Penny, something to keep in mind that appears to be often overlooked is what you actually still owe on the vehicle. The vehicle may be worth 21K but if you owe nearly that much or worse yet are upside down you may not feel very unburdened. Less the fact that you could contribute the monthly payment towards other sources of debt.



Similarly, I'm startled how many people I've seen trade their vehicle in simply b/c they can get credit approval for a bigger/better/newer model. This completely undermines their ability to get ahead on their auto debt.
 
I'm at the point where I am really debating what I want to do with a car. I'm in a good financial spot, I own a house, I have no credit card debt, my current car, 05 Mazda 3 with 51k miles, will be paid off very shortly (when I get my tax return), my student loan of 2k has lower interest than my savings account, so I just pay that monthly, and I have 6 months of net pay in my savings, which I will keep if I get a new car.



I really want a new car. I'm at a stage in my life where I can get something impractical, I'm young and single with a good job with a Fortune 1000 company. Between trade equity and down payment, I could buy a nice car straight up. I want something fun. I throughly enjoy driving. I can put a smile on my face by driving, if I have something fun to drive. The 3 just isn't doing it anymore. I could easily afford the payments on a RWD luxury car, as they seem to be the only practical RWD cars.



I had made up my mind on buying a car like that, but every so often I think I could buy a Civic in cash and be practical. Is fun worth it? I will still be able to save money and will always have a positive equity on the car I want. I base my bills on worst case scenario (no OT and no outside sources of OT), and currently have a roommate and overtime(which will continue for a while) adding to that.



What to do...
 
Yes you are young and single, but don't forget about the power of compounding interest. What you can save and invest when you are young will have a huge impact later in life when you want to quit working. I don't advocate living like a miser, but if you can get by on a small budget early on and start socking away money for retirement early, you can take it a little more easy later on when you really will be in a tighter situation finanacially if you plan to get married and have kids.
 
Playing devil's advocate...



As I mentioned earlier, my wife & I are taking a financial class put on by Dave Ramsey. Looking at your situation, I would say no to the new car. Obviously, you're doing a lot better than most people with your situation. However, as Dave Ramsey would say, "You have to live like no one else to live like no one else." What he means is that if you sacrifice "stuff" now, you can have that stuff, and much more later. He doesn't recommend ever buying a new car unless you are so financially stable that you can afford to lose thousands of dollars of depreciation on something like that. My personal suggestion would be to keep driving your 3 after it's paid off (I have an '05 3 as well). After it's paid off, take whatever your car payment amount was and throw it into savings for a couple years. Then, you can buy a nice used car and be able to pay for it in cash or pay it off quickly. This will save you money in the long run. While it's not as fun as buying a new car, later down the road when you are financially set, you can "have your cake and eat it too."



Just food for thought.
 
bumoftheday said:
I'm at the point where I am really debating what I want to do with a car. I'm in a good financial spot, I own a house, I have no credit card debt, my current car, 05 Mazda 3 with 51k miles, will be paid off very shortly (when I get my tax return), my student loan of 2k has lower interest than my savings account, so I just pay that monthly, and I have 6 months of net pay in my savings, which I will keep if I get a new car.



I really want a new car. I'm at a stage in my life where I can get something impractical, I'm young and single with a good job with a Fortune 1000 company. Between trade equity and down payment, I could buy a nice car straight up. I want something fun. I throughly enjoy driving. I can put a smile on my face by driving, if I have something fun to drive. The 3 just isn't doing it anymore. I could easily afford the payments on a RWD luxury car, as they seem to be the only practical RWD cars.



I had made up my mind on buying a car like that, but every so often I think I could buy a Civic in cash and be practical. Is fun worth it? I will still be able to save money and will always have a positive equity on the car I want. I base my bills on worst case scenario (no OT and no outside sources of OT), and currently have a roommate and overtime(which will continue for a while) adding to that.



What to do...
Click to expand...



I believe you were asking about cars to purchase in another thread no?



anyways, I wish I could offer some quality advice to you, but I sway back and forth the same as you sound like you're doing. I too have no cc debt, live in a house for $500/month, no other debts, make a decent salary, and could live on my savings account alone for about 18 months. I have tried the entry level car purchase twice now, once being a new 2005 Civic VP with crank windows and all, for only $11.8K new, $200 under invoice. I paid cash, got 40mpg, and used reg gas....but it was sooo boring for a enthusiast like me (and you too it sounds like). But fast forward to now, when I just bought a brand new 2007 350Z. Even at the sweet deal I got it for, I didnt want to take out of savings to put any money down, so I pay $525 a month for 5 yrs at 4.9%. Not good, but certanly not bad. That payment is 20% of what I take home a month....not sure if that's good or bad, but I still save well over $500 a month and earn decent interest on my savings.



But...here i am...contemplating selling the Z already, and doing as you said (buy a cheap, reliable commuter and save save save!). But I sure do love driving a sports car. :(
 
etml12 said:
Penny, something to keep in mind that appears to be often overlooked is what you actually still owe on the vehicle. The vehicle may be worth 21K but if you owe nearly that much or worse yet are upside down you may not feel very unburdened. Less the fact that you could contribute the monthly payment towards other sources of debt.



Similarly, I'm startled how many people I've seen trade their vehicle in simply b/c they can get credit approval for a bigger/better/newer model. This completely undermines their ability to get ahead on their auto debt.
Click to expand...



Thanks for the feedback.



The situation I have is: $30,000 in school loans, $12,000 owed on the car, and $18,000 in savings (not including the 401k). So I could hypothetically pay off the car and then sell it for roughly 21k and then use that, in addition to the 6k left in savings, to pay off most of my school loans. It would end up working out to a $3,000 remaining school loan balance as my only debt.



If I didn't sell it, then I would owe $24,000 (30+12-18).



One reason I'm considering doing this is that my mom's fully-paid-for '99 Corolla is sitting in the garage unused because she now lives in Scotland (and has been for the past 4 years). She mentioned she wouldn't have any problem renting a car on the occasional visit over. I could (with mom's permission) sell the Corolla instead, but I'd only get about $5,000 for it at best.
 
I say sell the car and pay off as much debt as you possibly can. Keep $1000 in the bank as an emergency fund so that if something does come up while you're paying down your debt, you don't have to borrow (credit card) money to pay for it. Once you pay off all your debt, get your 3-6 months of expenses saved and in the bank.
 
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