My background: I've been on TMF since 1999. I read that I should get rid of debt which I've been working on for some time since it was sizeable. Got married in 2000 and we've been working pretty steadily on paying stuff off. We've also been working changing our mindsets about spending money.Confession: I've been trying to write this post for a couple of hours now. Truth is, I'm too embarrassed to post actual income and expenses. I guess I'm hesitant because I know what you're gonna say: don't spend so much on that, you're wasting money here. It just feels so *extravagant* compared to the real struggles of others on this website.Perhaps mazske's questions will help me to respond in relative comfort:>>Start a new thread that tells us a little bit about your debt and your plan for paying it off.<<Right now, we have several cards that we've been consolidating and moving to 0% interest:Capital One -- balance: 10K, 0%Two discover cards -- balance: 9K, 0% until Oct. 2003. Much of that is schooling for my wife of which her employer reimbursed a large percentage. We are holding about 6K from that reimbursement, just because the interest is 0% on the card and the money's earning a little bit of interest.One of our bills is a loan against my TSA -- balance left: about 6K. Interest is 8.5%. When I talked to the money advisor, he thought that what I'm paying in interest is going back into my TSA account. I haven't checked on this, but it doesn't make sense to me. How would they make any money?Our house, another bill, is worth about $190K and we owe about $113K. Payments are $700/month.No car payments.We have a bigscreen TV (5K) and a computer (3K) with no payments/no interest until March 04 and June 04, respectively.My plan for paying it off is related to my efund, so here's that:>>As far as building an e-fund up, tell us a little about your current situation as in are you married, kids, living with parents, going to school etc. Depending on your situation would make a difference to me in how much of an e-fund you build up.<<Married, child from a previous marriage (12), wife wants kids. Money advisor pointed out that my big fear is being laid off, so for that few months, we've been putting about $3K/month into our efund. It's now about $31K. My 6 month estimate if NOTHING changed was $34K. My thinking is that if one of us got laid off, we'd cut back on stuff (satellite, cell phones), thus making the 6 month figure more like $24K.Other savings we put away, per month, for annual expenses:Xmas club: $150Car stuff (insurance, tags, maintenance): $200Home stuff (Insurance and taxes): $300Slush fund (vacation): $500If one of us got laid off, the slush and Xmas club would also stop and that money would go to the efund.We essentially put my wife's check and little bit of mine, into savings. And she makes a good chunk.My plan was to continue putting money in the efund and pay the bills when they no longer were interest free. If something should happen between now and then, we could have a nice cushion to fall on.I think I should keep our money until bills are paid since interest is 0%. I can earn a little bit of interest on the money in the mean time. Is there something wrong with this thinking?This month, I became frustrated because I felt like there was no room in the budget for home improvement. I want to put $2K into the efund and use the $1K for home improvement *if I need it* and put it back if I don't. The freedom alone to do this helped me to feel better, more in control.I think we can be debt free within the next 12 months.So, here it is. I hope you guys don't laugh me off cyberspace...
It's always good to get everything laid out in black and white. Don't be embarrassed! We're all different, especially in the standard of living we're willing to accept. Some comments: When I talked to the money advisor, he thought that what I'm paying in interest is going back into my TSA account. I haven't checked on this, but it doesn't make sense to me. How would they make any money? If I'm guessing right and this is a loan from a work-based retirement plan, this is how it works. When you borrow, you borrow your own money out of the plan. When you pay it back, you pay interest, but the interest is deposited into your own plan balance. They don't make money - but they shouldn't, because it was your own money you borrowed, not theirs. I think I should keep our money until bills are paid since interest is 0%. I can earn a little bit of interest on the money in the mean time. Is there something wrong with this thinking? Nothing at all, as long as you are disciplined enough to keep the money in an interest-bearing account rather than spending it. I've done the same thing with 0-percent credit card offers.The only follow-up suggestion I have for you is this: once you have your e-fund in the shape you want it, think about setting some goals for investing. You can get plenty of help with that here.dan
I hate to say it, but I wish that I could be packing away $4k a month regardless of how much you have out there...Yes you do have a lot of outstanding debt, but you are also relatively liquid and could pay a significant amount of that off right now if you wanted to...The key is to not add to the debt that you have outstanding.RaVeN
One of our bills is a loan against my TSA -- balance left: about 6K. Interest is 8.5%. When I talked to the money advisor, he thought that what I'm paying in interest is going back into my TSA account. I haven't checked on this, but it doesn't make sense to me. How would they make any money?It is going into your account. You basically borrowed the money from yourself and now you are paying yourself back with interest. If you leave the gov't you will have to pay back the full amount left immediately or it will count as an early withdrawal and you will have to pay penalties. I have heard that some people think this is a bad move, but to tell you the truth I can't see that much wrong with it.
I think we can be debt free within the next 12 months.Stick to this part of your plan and do your best to never incur debt again that is not 0% or cannot be paid off within a month or so. Just on surface appearance it seems you like nice items and are willing to pay for them. I may be wrong here and just say so if I am. You are looking for advice on preparing to FIRE if I remember correctly so I just want to help.I think your e-fund is pretty well funded. Your mortgage is less than mine and I can tell from your figures that you make well more than I do. We'll gross about 45K or so this year and my just recently refinanced 15 year mortgage payment is almost $800/month.I would first open two Roth accounts, one for you and one for your wife, if your income is not over the limit and deposit 3K in each. Just open a Vanguard IRA to keep it simple.Then, open another account such as another Vanguard account that is a regular taxable account and deposit 3K or more each month into that. Put it in your mind that your IRA's are completely untouchable until you are FIRE'd. Also, do the same with your taxable account, but the loophole is that if you have a downright emergency you can withdraw from that account.One reason that I can save what I do on my income is that I live on what I keep available to me. I know I have money in savings that I could touch if I really wanted to, but I don't touch it. I don't have time to type much more here at this moment, but keep hanging this board and you'll get more tips as time goes on.
We have a bigscreen TV (5K) and a computer (3K) with no payments/no interest until March 04 and June 04, respectively.One thing I'd do is plan to pay these off at least 30 days before the interest free period ends. Read the fine print on these agreements--typically if you don't pay them off before the interest free period is over, they go back and apply hefty interest charges retroactive to the day you took them home. You want to make sure those payments are posted with ample time before the grace period expires.Thanks• Jeff
Assuming you don't intend to be laid off in the next few months, my suggestion would be this:Take the 6k work reimbursement and send it to the credit cards. Reduce your eFund to your expected 6 month minimal level (24k) and send the remaining 7k (31-24) to your debts. You may consider repaying the TSA Loan first since even though you are paying "yourself" interest, that portion of your money is no longer invested and isn't able to grow with the market. (IIRC, that's how our 401k loan worked.) Then I'd use your $3k per month that you were putting to eFund and split 50/50 to pay off the remaining debts and further fund the emergency account. I'm one that doesn't like debt hanging over my head... and even though you can hold the cash while the interest is 0% I would still attempt to pay them down aggressively. If you do the math based on the interest rate your getting for the savings is that $$ figure really worth the "burden" of outstanding debts? Maybe that is a stress that your advisor didn't factor in.If I added it up right, looks like about $30k in non-mortgage debt. If you paid the 13k immediately and split the efund as suggested you could pay off the remaining debt in your 12 month window, raise the eFund back to 36k and have an extra $6k to invest!Just food for thought, 96hokies
Thanks for your sincere consideration on our budget. I have been thinking a lot since I posted my OM. I didn't like putting stuff out there like that and quite honestly, I thought some comments were presumptuous. I'm not trying to make anyone feel bad, I'm just saying. And it gave me a lot to think about, too. Realizing that we had $33K in debt (not counting the mortgage) though it was "manageable" and most at 0% (for now) was eye-opening and shocking. And embarrassing.Think I did. I ran various scenarios, various "what ifs", various options. One option was to pay off everything. We would still have a little left ($3K) not counting our prefunded stuff (car insurance, house insurance, etc.). The psychological benefits of that are appealing, but it's a little risky. Still, every dollar we saved from then on would be our money without owing people anything.Second option was to stay the course. Sock away money into savings and pay off amounts as they came due. This appeals because we would have a cushion that would keep on growing while we used other people's money (0%) to earn a little bit of our own money (2% at ING - for now).The third option was based on 96's ideas. That is, we'd reduce the efund, stop holding on to that reimbursement and be more aggressive in paying stuff off.I finally talked to DW about it and presented her with the three options. We've decided to take 96's ideas and put them in place. DW says, "You know, having a chunk of money in the bank was nice, but having a bunch of debt at the same time seems stupid." God bless her. :-)Here's what we're going to do: We're going to drop our 6 month reserve to $24K (about $6K) and take the money we're holding for the school reimbursement (another $6K) and use it to pay off stuff. Add to that the $3K we would have put in savings, we'll be able to pay off $15K of stuff come Sept. 1. God willing and everything stays the same, we'll apply $3K to our debt for the next 6 months and we should be free by March '04. We also have another reimbursement check coming and some other "extra" cash from a consulting thing I'm doing. Those will go to the debt and will make it happen by Feb., probably.As soon as that is done, we'll take mazske's advice and open Roth IRAs and an Index fund and figure out how much we can apply to paying down the mortgage.Thanks again for you help and options...Daniel
I'm happy you and your wife were able to come up with a plan that suits you. It's very important to balance your QOL and comfort level with the suggestions offered on the fool. Many people on these boards would tell you to cut cable, fitness memberships, eat in, sell your cars, etc. DH and I aren't on that extreme but we do want as much of our money working for us as possible (while having fun!)Just for additional motivation, you may want to put entries in your calendar for specific goals... like debt down to $x (3/4 of the way there!) or something that keeps it in the forefront.Good luck, glad I could help.96hokies
Daniel said Thanks for your sincere consideration on our budget. I have been thinking a lot since I posted my OM. I didn't like putting stuff out there like that and quite honestly, I thought some comments were presumptuous. I'm not trying to make anyone feel bad, I'm just saying. And it gave me a lot to think about, too. Realizing that we had $33K in debt...was eye-opening and shocking. And embarrassing.Think I did. ... I finally talked to DW about it and presented her with the three options....Here's what we're going to do: ...Thanks again for you help and options...I just wanted to say I appreciate your openness, honesty and illumination into your thought processes. Even the awkward stuff...especially the awkward stuff. I think we're so used to seeing smooth transitions in movies and on TV and never see the awkward embarassing stuff (unless it's there for comedic value) which we all have in real life. Kudos for stepping out of your comfort zone and being really real. =) Jen
>>I just wanted to say I appreciate your openness, honesty and illumination into your thought processes... Kudos for stepping out of your comfort zone and being really real.<<Jen,It's like a month since you posted this, but I just read it. Thanks for the support. It was really difficult to put my stuff out there and some of the stuff stung at the time -- though, as I read it now, I think I took things harder than I should have.I was looking back at this post because I was thinking of "updating," though an update is all that revealing. We put our new plan into place and paid off about half of our debt, mostly using money we had in savings. Our current situation is this:Capital One, 0%, balance = $8,200Big Screen, 0%, no payments until March, balance = $5,000Computer, 0%, no payment until June, balance = $2,600Total debt (other than mortgage) = $15,800.Our new timeline shows that we will be rid of this debt in March, assuming all things stay the same. I'll be back when that happens.Thanks again for your support...Daniel
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