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Hi, I'm new to the board but have loved reading it as a guest. Now I'm getting serious and I joined because I need the help support that seems really great here.

My Confession... I think it helps to admit your debt, so here goes.

In 1997, I moved to my current city newly divorced, with some money and a brand new job. From 1997 - 2001 I was flying high. I bought a house, I switched jobs about every 9 months or so (not by choice, most were layoffs, completely closings, etc. - I'm in IT) but upped my salary so it was doubled in only 3 years.

Fast forward to 2001. I had a great job as a contractor making a TON of money (per hour, I was not working all year). I had a 401K, savings, mutual fund and was starting to do a little stock investing. BOOM, 9/11 happened, the IT world started to come down, salaries started slipping, jobs went away. Between 2001 and 2004, I was employed on and off, each year working from 6-9 months on a contract basis (all I could find). I wasn't disciplined with money, I didn't expect this to last so long and the next thing I know:

-I had depleted my 401K, mutual fund, stocks and savings
-Racked up 30K on credit cards (I was in TOTAL denial)
-refinanced so many times that my original mortgage of 130K was now 200K (still should have about 50K equity)

Last August I got a permanent job and went to town on my finances. I put together a budget. I looked at my credit card statements (YIKES), wrote down each balance, the APR, etc. I spent hours on the phone re-negotiating balances and started snowballing. Eventually I was able to move about 8 cards down to 2, one with FF rewards and 6.9% and the other with 0% interest for 6 months. I also got married but my husband is starting over in a new country so cannot make much money yet, but does make enough to help.

I was on a track to pay off the debt in one year. We were going great guns, I felt SO good. Then in May this year, lost my job.

I'm back where I started 8 months ago. Fortunately we can keep afloat without incurring more debt until I find a new job (close to getting one I think) but here is my issue:

My husband doesn't like debt (again, he's new to the U.S. and it's debt-happy population) and most new jobs look like they will pay less than I was making before so it might take 2 or more years to get that 30K down. He wants it gone today and wants us to sell the house to pay off the debt. The house has about 50K at most in equity. 20K would not be enough for downpayment on a smaller house or condo, right? Is this ever advisable? To sell your house to pay off consumer debt?

Also, currently this is the only consumer debt we have. No school loans, no car payments, just credit cards. My husband won't even use a credit card, only a debit, he's SO afraid of falling into the debt trap.

Sorry this is kind of long and rambling but I wanted to introduce myself and hopefully use this board for advice and support. I loved reading some of the stories of people who were able to pay off triple what I have in debt! It's inspiring to me.
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oops, I forgot to mention... Last year I sat down when I finally had a permanent job, and I did my best to cut back on all expenses. I cut the cable service down, switched cell phone plans, switched land phone, things like that. My husband and I share one car, a 1997 Jeep Cherokee with 87,000 miles. I was taking the bus to work. I also kept track of all expenses.

We were paying about $1000 a month toward the debt before I lost my job. I had planned on 2000/month but somehow it only came up to be 1000, we were also saving for another car.
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I think what hurts most is your cashing out your 401k. What a waste of retirement savings. No more taking money away from yourself (ie don't touch the remaining home quity). Buckle down and get busy.

Fuskie
Who thinks you seem to know what you need to do and looks forward to watching you do it...
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I agree! That was 10 years worth, too. They made it really easy to withdraw funds by fax and when I ran out of money, I just faxed in a request. Yes I regret it but it's the past, can't change it now.

I know my post was rambling but I do want to know what drawback there would be to selling my house to pay off debt and starting over again in something smaller? I would not sell the house and rent, only if we could buy again.

ALSO, I refinanced this year to an interest-only loan, with the idea of using the extra money to pay off the credit debt and then we had been thinking about moving in the next few years anyway. SO, within 4 years we will have to refinance again or sell and move (or continue paying more on the interest only, which I do not intend to do).

I can think of advantages to selling and buying something newer/lower cost:

- it's an older house, lots of maintenance yet in a desireable neighborhood that sells fairly quickly
- it has a huge yard with a pond and other landscaping features that take a lot of time/money to maintain.
- get out of the interest only loan

and disadvantages:

- it is a starter home, priced low. buying even lower means something very tiny or in bad shape or in a bad neighborhood.
- we would start with very little equity, 20K at best

Has anyone ever done this or considered doing it? I always thought staying in your house is the best choice but I've been weighing the odds. Having no cc debt would be SO freeing.
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Welcome to the board!

First off, I agree with your husband about not using the cards. However, I would go one step further and say that you shouldn't be using debit cards either. It's much easier to spend money using a debit card than it is to spend it using cash. Switching to cash is not an easy thing, but it is very enlightening.

2 or more years to get rid of $30K in debt doesn't seem unreasonable at all. You didn't get into the debt overnight, and your husband shouldn't expect to get out of it overnight either. Selling your house to get rid of the debt seems like a really MAJOR commitment and doesn't tackle the issue of what got you into debt in the first place. Imagine that you sell the house, move someplace smaller (you'll inevitably need to spend money on repairs here and there, and for things that you didn't think about before the move). A year from now you won't have that $30K in debt, but you won't have that $50K in equity either. You'll be sitting on empty cards, tempting to be used again because you're not used to living on your (potentially) smaller salary.

Others may disagree, but I think working hard to pay off the $30K without tapping into the equity is the way to go. You'll get a great sense of accomplishment and you'll be less tempted to charge up the cards again. You're more likely to work hard and cut costs to pay off that debt if it's still sitting there than you would be to work hard and save up the $30K for something else.
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And if you sell the house and pay off all the cards, what systems to you have in place to prevent you from running them up again? Most of the time, high CC debt is a symptom of an underlying problem (spending more than you make), and unless you take care of that root cause, selling the house would just be a band-aid, because you'll find yourself in the same boat a year or two down the road.

Personally, I wouldn't even think about selling the house until you've proven to yourself that you can stay off the credit cards - in my case, that would mean 6 months without a single new charge...
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Just because you have $50K in equity, it does not mean that you will clear $50K from the sale. By the time you consider 6% real estate commission, repairs, and the cost of moving, it is easy to throw away $20-$30K on a $250,000 home. It also means that you would not have a downpayment for the next house which means paying PMI on the new property.

I understand the desire to have all debt paid off. Selling your home is not the best long term choice.

Debra
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Thank you for the welcome.

I lean toward what you're saying. I felt really good when I was working and paying at least $1000/month toward that debt. Being unemployed has been a setback but I'm getting back on the horse again.

However, I wanted to be open to my husband's idea and see them out. We do plan on buy another house eventually because this one was mine and now there are two of us and it's not "our" house and is small, we want a different neighborhood BUT, I want to wait until we're ready, no debt, and can afford what we want, not be forced.

I'm hoping to have a job soon and really start putting money toward the cc's and maybe he'll feel better then and stop thinking about selling the house. But I always like to hear ideas.

One thing we both decided. We are not moving up in a house, just over. We don't want or need anything really expensive just because we "qualify", but there are things we want in the house that we don't have now.

I watched my parents in their early 50's, with 3 mortgages on the house, sell the house, pay cash for a small condo, save for the next 10-12 years and were able to build a house on a 40 acre plot in a beautiful canyon with cash. They did take about 10-20K loan out when the stock market fell but now they are semi-retired so they have health insurance and 800K in retirement savings. Now there is a success story! So you can start late but I would advise anyone to start early, start young, I wish I had but it's still not too late.
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Welcome to the board....

The debt is manageable. The DH may not like it, but that's the best thing to do, most likely.

If you're going to move into a smaller house, your 50k of equity is likely to be gobbled up in large part due to expenses related to selling the current house. I just had to pay 6% to a realtor, and 1% to the state to sell my house. In your case, that's $17k. You have nearly $30k of debt. That would leave you with only $3k cash to put towards a new home - not even enough for the typical closing costs.

Are the APRs on the cards decent at this time?

I don't see selling the house as a good idea. It costs too much in fees to sell and buy a home. If you have good job prospects, I think selling the home now is premature. It sounds like you can handle the minimum payments, and you will land another job, so I see no reason to pay a realtor a nice commission just to satisfy the urge to be debt free. The reality is that you need a place to call home, and having a home of your own is one of the best investments you can make. Selling the home would put you back into the land of paying rent most likely.

Good luck...

- Lan
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Is this ever advisable? To sell your house to pay off consumer debt?

Sure, like if you can't afford the house payment.

I hate debt as much as anyone, but I think that selling your house would be a bit extreme as long as it is not killing you right now.

Not only is it extreme, but it's naive to think that if you sell your house that even if you collect $50K in equity that it will all go to your debt. There are moving costs, realtor commissions, financing costs, etc--not to mention costs associated with a new home. So, if you don't have to move, then don't.

Also, why did you do so much refinancing in the past? Were there debt problems then too? Have you learned the lesson that you can't borrow out of debt?

If you are managing okay without a current assignment right now, then why not pick up work anywhere doing anything and get a little ahead?

Fred



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One thing we both decided. We are not moving up in a house, just over. We don't want or need anything really expensive just because we "qualify", but there are things we want in the house that we don't have now.

Unless required by a job move, or a neighborhood that is quickly deteriorating, moving "over" makes no sense. It costs too much to repair the current house, pay a realtor, pay the taxes, and then to move, let alone closing costs on the NEW home.

However, I wanted to be open to my husband's idea and see them out. We do plan on buy another house eventually because this one was mine and now there are two of us and it's not "our" house and is small, we want a different neighborhood BUT, I want to wait until we're ready, no debt, and can afford what we want, not be forced.

This is all the more reason not to sell now. Keep the home you have. It won't be as easy, but you're maintaining your current equity and you're not going through the expense of a move.

I don't like interest-only mortgages (or option ARMS) but see their advantage for cash flow purposes. It's not preferred, but you do have to have somewhere to live, and otherwise you'd just be spending money on rent that buys you nothing anyway. If you could lock in at a decent rate for minimal closing costs, fine, but otherwise, since you're planning to move in a few years you might as well keep the loan you have.

- Lan
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Others may disagree, but I think working hard to pay off the $30K without tapping into the equity is the way to go. You'll get a great sense of accomplishment and you'll be less tempted to charge up the cards again. You're more likely to work hard and cut costs to pay off that debt if it's still sitting there than you would be to work hard and save up the $30K for something else.

I agree with OtherVoices. That is what I would do -- I would not sell the house.
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Yes, my APRs are decent, I have a 0% and a 4.9% and I am watching as they are for 6 months I think, then I will move them again. I have a few smaller amounts on higher APRs that are being paid off first.

Hmmm, what is the answer to debt problems? Hmmmmm. Boy, if I could answer that one. I guess when I was not working, I spent my savings. Then the next month, took 401K money. Unemployment paid less than half my expenses. I paid COBRA so I would be insured, $325/month I think. The other part was just that I had never had to budget, I have always lived pretty manageably in the past but I think part of it was that I lived a simple life for years as I was building a career, then I started earning more and more and spending more and more. It was an unexpected hit to suddenly not have an income and changing my spending habits was something I had never done. I had worked hard for years to be able to have a little extra money, I was tired of scrimping.

For 15 years I always did well, though I wasn't a big earner, didn't have a lot of savings, but didn't have debt, until 3 years ago. It just hit me.

Not good answers but those are my reasons. Then the depression when you lose a job and the market is so bad you can't find another quickly.

Now I know what to do, tighten up and don't overspend, don't use the credit cards. Don't get depressed when the world is at war, the markets are failing you're getting older - HA. : )
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Also, why did you do so much refinancing in the past? Were there debt problems then too? Have you learned the lesson that you can't borrow out of debt?

Up to a point I can defend this...

'99 - financed 15yr/7.125%
'01 - refi 15yr/6.125% No Closing Costs.
'02 - refi 30yr/5.625% No Closing Costs.
'04 - refi 15yr/4.99% biweekly No Closing Costs.

Each time I refinanced, the bank picked up the expense of refinancing. In the first case, my loan was with Wells Fargo solicited me to refinance with them. In the latter, they were "Home Equity" loans that didn't require the same closing process as a mortgage (ie, title insurance)

- Lan
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{{For 15 years I always did well, though I wasn't a big earner, didn't have a lot of savings, but didn't have debt, until 3 years ago. It just hit me.}}


I think maybe it would help for you to reevaluate your defintion of doing well. If after 15 years you had not saved very much, I do not think you were doing well. It sounds like you were simply getting by.



{{Hmmm, what is the answer to debt problems? Hmmmmm. Boy, if I could answer that one.}}


Simply, it is to spend less than you make. It seems the key to figuring out why you chose to spend so much when you had a job that caused you not to save very much.


c

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It's much easier to spend money using a debit card than it is to spend it using cash

Not for me. It is much easier for me to spend $$$ using cash. It goes through my fingers like water. My debit card actually reigns me in.



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Unless required by a job move, or a neighborhood that is quickly deteriorating, moving "over" makes no sense. It costs too much to repair the current house, pay a realtor, pay the taxes, and then to move, let alone closing costs on the NEW home.

How about being tired of hearing gun shots in the neighborhood? Reason to move over? That's really why I want to move but we don't need a bigger house or a bigger mortgage. It is an up and coming neighborhood but it is also in a city.
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I think I would weigh your desire to be debt free vs. your desire to have a home, however it's financed.

For some people, a sketchy job situation and lots of debt would give them an ulcer to the point where they would get out of the house no matter what (sounds like your husband is one of these types).

Other people might think: I'm sitting on a gem of a property that has lots of upside, and once I land my next job and my husband does too, we will be able to wipe out the debt in [blank] timeframe ...

So it really comes down to what kind of person you are, what kind your husband is, what your property is worth vs. what you owe, and how well grounded your employment situation is.

One argument I might have for selling the house *NOW* is that if there is a housing bubble in your area, you might want to get out from under your no-interest loan while your house will still pay off all your debts. What would happen if your equity plummets and you are forced to refi a few years from now at higher rates? What if you're unemployed again and don't qualify for financing?

~dswing
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I don't really think I asked for opinions on what "doing well" meant. That's very personal and subjective to each individual. I had different goals in the past and I have some new goals now. I was just looking for some support and advice. I got a lot and I thank you all for your advice.

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{{I don't really think I asked for opinions on what "doing well" meant. That's very personal and subjective to each individual. I had different goals in the past and I have some new goals now. I was just looking for some support and advice. I got a lot and I thank you all for your advice}}


I reread my previous post and I understand why you got defensive. I did not phrase want I wanted to say very well. Your story about being in debt to over-spending is a common topic on this board. Many posters want to get out of debt, yet they do not want to evaluate the reasons why they were spending more than they earned. That evaluation is hard. It requires a lot of introspection. It is quite common for a person to get into debt, take out equity from a house to pay off the credit cards and then in a few years runt he credit cards back up. This is what I was trying to get at.

To become debt free is more than just paying off your debts now. You need to see the importance of maintaing emergnecy funds, freedom funds, reitrement funds, etc.



c
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I'm back where I started 8 months ago. Fortunately we can keep afloat without incurring more debt until I find a new job (close to getting one I think) but here is my issue:

My husband doesn't like debt (again, he's new to the U.S. and it's debt-happy population) and most new jobs look like they will pay less than I was making before so it might take 2 or more years to get that 30K down. He wants it gone today and wants us to sell the house to pay off the debt. The house has about 50K at most in equity. 20K would not be enough for downpayment on a smaller house or condo, right? Is this ever advisable? To sell your house to pay off consumer debt?

Also, currently this is the only consumer debt we have. No school loans, no car payments, just credit cards. My husband won't even use a credit card, only a debit, he's SO afraid of falling into the debt trap.

Sorry this is kind of long and rambling but I wanted to introduce myself and hopefully use this board for advice and support. I loved reading some of the stories of people who were able to pay off triple what I have in debt! It's inspiring to me.


Hi mew!

Welcome to The Motley Fool, as well as to this board! Your post is exactly what this board is all about, and I'm glad you posted. You're sure to get plenty of ideas and support. Consider all of the information you receive here as well as all of the fact-finding I'm sure you're doing and make the final decisions that work best for you and your husband.

What impressed me most about your post is not the problems that you found yourself with, but how deftly and successfully you've already gone about addressing them. You've cut back on your expenses, you've made a budget, you've eliminated cards and reduced interest rates. Good for you! Knowing where you've been and where you are is the only way to assure success in where you're going and reaching your goals.

I don't have too much to add to the excellent advice you've received thus far, but I did want to chime in on the house issue.

From what information you've given, I'd be very hesitant sell the house. Doing so could well end up with you ultimately close to being in the same situation as you are now, only without the equity you have in the real estate you currently own. In most areas, property values only continue to increase, and holding onto it would most likely prove much more fruitful for you in years to come. At the very least, give yourselves time to truly think things through. You don't want to make a major decision that you could possibly regret afterwards.

Since you're already very Foolish (that's a good thing!) in knowing the steps to take toward your debts, I'd suggest going forward in working to reduce the debts as best you can or at least maintaining your status without incurring more debt until you find your new job---which certainly will happen, and hopefully before too long.

Finally, the most important advice I can offer is to keep good, open communication going with your husband. Make decisions together, decisions on which you both can agree. Nothing is more important than a relationship and far too many people damage theirs because of nothing more than financial matters. Ultimately, money matters are just issues that can be solved, but relationships are what really matter.

Keep us posted, and again, welcome!

Tony
...but I still am...

Off2Aruba
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How about being tired of hearing gun shots in the neighborhood?

That would be a deteriorating neighborhood... I'm assuming that you didn't BUY in a neighborhood with gunshots at that time...

- Lan
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Lan:

Nope, it's getting better. I had no idea I would hear gunshots when I bought the house but sure enough, several that first summer, then they went down. One block away from me are homes selling for $500-600 and on my same street, just 8 blocks south, are million dollar homes. This is an old tree-lined neighborhood, very desireable. I'm on a good block but surrounded by "changing" blocks where houses are being purchased in the low 100's and renovated to sell close to 300K and they are selling. Old brick homes that are updated are very desireable. I'm several blocks from a new housing development that you have to get on a waiting list to buy a home there. It's actually a new city, built on old airport land, diverse housing from low-income to homes in the millions. New retail is coming all over the place and I'm 3 miles from the downtown area yet have a huge grassy lawn.

Yet still, there are drugs and prostitution on a famous strip near the city, not near my home but there is enough crime (i.e. gunshots) I even witnessed someone one night pull out a gun and shoot it up in the air in the middle of my street, police came, guy drove off, left his girlfriend who said it was nothing. It was drug-related. ANYWAY.... thought I would justify this. Cities change and I do live in a hot area, realtors tell me this all the time.

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c:

That's OK. Communication is more than just words, the internet is limited that way.

BTW, I think I wrote in my original post, when I was doing what I considered well, I had a nice 401K, a mutual fund, stocks and a few months salary in savings. So I wasn't just getting by. In addition, I had just purchased a house, my first ever. So I think my portfolio was going well until the crash of the IT market in my city. Also, I was married to a man who supported me. I have an art degree and I think after getting divorced in that situation, going to making 6 figures in 5 years is pretty darn good.

However, the "6 figures" was only my contract rate. I never worked 12 months on that except one year. That was the year I started the mutual fund and the stock portolio.

It was very difficult when my contract ended and the market was down and I couldn't find anything. I was in a pretty high income bracket and although I was willing to lower my rates, recruiters and companies thought I wouldn't stick around when they went up. My last job ended in May and I was making the lowest I had made in 5 years but it was still OK with me. I just wanted something permanent, not contract. But even permanent jobs lay people off, sigh, which is what happened.

I am 45 and was not in debt like this until 3 years ago, I had never had more than 2K on a credit card, so I do believe it was circumstantial; not working and having a home makes it hard to really scrimp. I kept thinking another job would come "any day now". I know better now.

For 3 years, I've been employed as a contractor because it was all I could get; 3 months here, 6 weeks there, with MONTHS off in between. I couldn't work in retail or anything administrative because nobody here was finding work and all the "any type of jobs" were filled up and they didn't want to even look at the IT people who would leave when the market came back.

I definitely know about emergency funs, freedom funds and especially retirement. I have a whole plan for it but no income. However, I am confident something will come up for me in a job and my husband is working his way up, he's younger and very smart, he just has to break through the new cultural barriers in the U.S. He's already working in his field (television) and he works really hard. Together, we'll be OK.

BUT, I have to pay off those credit cards. I have a plan to do it in a year and a half, paying $2000 a month toward that debt whenever I start drawing a paycheck. I have an art-related side business that brings in a dribble of money and I'm working on that on the side, hoping to drum up more business.

The art side of me though, tends to make me sometimes forget the practical. So I want to stay on this board to get support.

Thanks...


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2 or more years to get rid of $30K in debt doesn't seem unreasonable at all. You didn't get into the debt overnight, and your husband shouldn't expect to get out of it overnight either.

snip

Others may disagree, but I think working hard to pay off the $30K without tapping into the equity is the way to go. You'll get a great sense of accomplishment and you'll be less tempted to charge up the cards again. You're more likely to work hard and cut costs to pay off that debt if it's still sitting there than you would be to work hard and save up the $30K for something else.

I'm with OtherVoices. I started my current paydown effort about 3 years ago with close to 26K in debt, and I expect to pay off the last of it very soon. My great debt paydown the last three years has gone well because I managed to finally secure a job that I have been able to keep, after doing my own stint as an only-sometimes-employed IT professional. I could have done it in even less time, but I decided that since my debts were at quite low rates I would save a lot in my 401k and such, and I bought a house along the way. With 2 people who can earn income and prod each other towards LBYM, you should be able to pay the debt down once you gain employment.

The one thing that concerns me is that you still seem to be having difficulty holding a job. Perhaps it is worthwhile to consider moving to an area with a better market for your skills, which might increase the likelihood of you being able to continue making financial progress. I did it, and am enjoying my 2nd promotion in three years.

d
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I don't really think I asked for opinions on what "doing well" meant. That's very personal and subjective to each individual. I had different goals in the past and I have some new goals now. I was just looking for some support and advice. I got a lot and I thank you all for your advice.

You might not have asked for the opinion on doing well, but sometimes on a message board like this you get it. I hope you don't let the fact that people here give their opinions scare you off--I promise you will get used to it and if you stick around long enough, let loose with some of your own opinions. :o)

cattleman may not have given you the feedback that you were looking for, but he does have a point...that when you get back on your feet employment wise you and DH would really do well to work hard on getting expenses low and keeping expenses low. You seem to really admire the type of retirement your parents have, and one of the best ways to replicate that type of life is to save tons of money whenever you can.

d

saving 19% of gross right now, and planning to increase it with the next raise.



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