$100k in student debt

[treizerxh]

So yes, that title about sums up my horror...

To keep this short and concise, I won't go into why I chose to put myself into 100k debt, but suffice it to say, a career change was necessary.

That said, I would love to hear people's advice about how to clean down this debt while paying about $1400 a month in expenses, rent, and student loan payments included.

[Tabs]

Can you please provide a detailed list of that cash flow? Your income, your current bills, debts (including the student loans) etc.

[disneysteve]

In and of itself, having 100K in debt isn't necessarily bad. You need to give us more info, though.

Your expenses, including loan payments, are $1,400.

How much is your income?

[treizerxh]

Sorry,

Here's the breakdown (i'm rounding all these numbers up just to keep the math easier):
Salary: $60k a year
net monthly income $3200 and change

Expenses:
Car payment: 169
car insurnace: around $177/mo (it's a lease, so full coverage is necessary)
motorcycle payment $169/mo
motorcycle Insurance: $1200/yr divided into 4 equal payments
cell phone plan: $121/mo
Internet: $80/mo
Private student loan (currently in repayment): $106/mo
Federal Student Loans (totalling almost $88k): estimated to be around 500 a month without consolidation
Rent: $650

This does not factor in gas and food, but i'm estimating that to be about $200 per bi-weekly paycheck.

Credit card debt is negligeble, though i did have to make some emergency bereavement expenses which tacked on a few hundred dollars, but generally speaking, I usually pay my cards off within the same pay period or at least every few months.

[disneysteve]

A few things jump out at me.

1. You leased a car. NEVER, NEVER, NEVER lease a car.
2. You have 2 vehicles. If you are the only driver, you don't need and can't currently afford two vehicles. Sell the motorcycle. That frees up $269/month that you can use toward debt repayment.
3. You don't always pay off your credit card in full every month. That's a huge red flag that you are living beyond your means. Stop using credit until you control your spending sufficiently so that you aren't spending money you don't have. If the money is not already sitting in the bank to pay the bill, don't make the charge.
4. You didn't actually say this, but the fact that you aren't always able to pay your CC bill in full suggests that you don't have an adequate emergency fund in place. You need to fix that.

All of that said, you currently have about a $700 surplus, so even if you keep the motorcycle, this is doable. Assuming you have no emergency fund, for the next 2 months, put that $700 surplus aside as your starter EF of $1,400. After that, start attacking the debts. First pay off any credit card balance. Then start on the student loans focusing on the highest interest loan first.

[treizerxh]

A few things jump out at me.

1. You leased a car. NEVER, NEVER, NEVER lease a car.
2. You have 2 vehicles. If you are the only driver, you don't need and can't currently afford two vehicles. Sell the motorcycle. That frees up $269/month that you can use toward debt repayment.
3. You don't always pay off your credit card in full every month. That's a huge red flag that you are living beyond your means. Stop using credit until you control your spending sufficiently so that you aren't spending money you don't have. If the money is not already sitting in the bank to pay the bill, don't make the charge.
4. You didn't actually say this, but the fact that you aren't always able to pay your CC bill in full suggests that you don't have an adequate emergency fund in place. You need to fix that.

All of that said, you currently have about a $700 surplus, so even if you keep the motorcycle, this is doable. Assuming you have no emergency fund, for the next 2 months, put that $700 surplus aside as your starter EF of $1,400. After that, start attacking the debts. First pay off any credit card balance. Then start on the student loans focusing on the highest interest loan first.

I forgot to mention also that I put away about $375 per paycheck away into savings account for rainy days (emergency fund as you mentioned). I just started at it, so I'm about $2000 in. But thank you for the advice thus far, it's really appreciated.

[disneysteve]

I forgot to mention also that I put away about $375 per paycheck away into savings account for rainy days (emergency fund as you mentioned). I just started at it, so I'm about $2000 in. But thank you for the advice thus far, it's really appreciated.

That's great. So pretty much the whole surplus is currently going into savings. $2,000 is a reasonable point at which to stop, or at least cut back, on funding the EF and start attacking the debt. So going forward, instead of putting $375/pay into savings, do something like $75 into savings and $300 toward the debts in the order I mentioned above.

If you really want to get serious, though, the motorcycle needs to go.

How much time is left on the lease? The other thing you need to be preparing for is the PURCHASE of a vehicle at the end of the lease term.

[treizerxh]

That's great. So pretty much the whole surplus is currently going into savings. $2,000 is a reasonable point at which to stop, or at least cut back, on funding the EF and start attacking the debt. So going forward, instead of putting $375/pay into savings, do something like $75 into savings and $300 toward the debts in the order I mentioned above.

If you really want to get serious, though, the motorcycle needs to go.

How much time is left on the lease? The other thing you need to be preparing for is the PURCHASE of a vehicle at the end of the lease term.

The lease has two years left on the term. The residual value on the car (2014 toyota corolla LE plus) is $12k.

[disneysteve]

The lease has two years left on the term. The residual value on the car (2014 toyota corolla LE plus) is $12k.

The residual value is meaningless. That would only matter if you were going to buy the car, which wouldn't be a wise move unless you're trying to keep the student loans around for the next 20 years.

When the lease is up, you want to buy a car that you can easily afford. You may need to take a small loan but you certainly don't want to be financing a $12,000 car. Somewhere in the neighborhood of half that amount is probably what will make sense, but it depends a little on what happens to your income between now and then.

The bottom line is you really need to decide if your goal is getting out of debt or living the high life and carrying those loans for another two decades.

[pflyers85]

Sell the motorcycle ASAP. You are simply not at a point in your life where you can afford two vehicles. I would also look at scaling back your cell phone plan or looking for another carrier perhaps prepaid unless you absolutely need that much of a plan for work. By selling the motorcycle, canceling the motorcycle insurance, and cutting your cell phone bill in half you could save almost $4,000 alone in a year. I would use this saved money to start attacking my debts. Definitely give the car back at the end of the lease. With proper research you can get a very reliable used car for $6-8K when the lease is up. You have a decent emergency fund saved up right now so I would start a car fund where you save $250/mo instead of $375/mo. In 2 years you will have $6K to buy a used car with cash. Take the extra $125/mo or $1500 per year and add it to the $4000 you saved above to use towards tackling your debt. In 2 years with the used car you will have no car payment and your insurance cost will be reduced allowing more of your income to be used for eliminating debt.

By adding the additional approximated $5500 saved per year to the $7272 you pay currently you can knock off around $12,700 of your student loan debt per year. When you own a used car that you paid for with cash and have a cheaper insurance policy you will have even more money to add to the estimated $12,700 figure. It would definitely be doable to get your loan cleaned up in under 7 years with this approach. Even with an emergency here or there where you have to scale back getting it cleaned up in 10 years is possible.

[Weird Tolkienish Figure]

A few things jump out at me.

1. You leased a car. NEVER, NEVER, NEVER lease a car.

I strongly disagree. There's no real benefit to owning a depreciating asset like a car.

AT $169 a month he's not paying much for his primary transportation at all.

I do agree about your other points.

[disneysteve]

I strongly disagree. There's no real benefit to owning a depreciating asset like a car.

AT $169 a month he's not paying much for his primary transportation at all.

So he's paying $169/month. Let's say he does that for 3 years. He will have paid just over $6,000 plus anything he put down at the time. Instead, he could have purchased a $6,000 car. In 3 years, it would be paid off and he could keep it until it dies. Instead, at the end of the lease, by your line of thinking, he would lease another car. Let's say that is another $169/month for another 3 years. Then another 3 after that. Then another 3 after that. He will have a monthly car payment forever.

I bought a used car in 1998 for $18,000. I paid off the loan over a couple of years and kept that car for 14 years. So I had 12 years of no car payment. I then bought another used car in 2012. I paid that one off in a year so I've now had 2 years payment-free. How is that worse than committing to a monthly payment indefinitely?

[Weird Tolkienish Figure]

So he's paying $169/month. Let's say he does that for 3 years. He will have paid just over $6,000 plus anything he put down at the time. Instead, he could have purchased a $6,000 car. In 3 years, it would be paid off and he could keep it until it dies. Instead, at the end of the lease, by your line of thinking, he would lease another car. Let's say that is another $169/month for another 3 years. Then another 3 after that. Then another 3 after that. He will have a monthly car payment forever.

I bought a used car in 1998 for $18,000. I paid off the loan over a couple of years and kept that car for 14 years. So I had 12 years of no car payment. I then bought another used car in 2012. I paid that one off in a year so I've now had 2 years payment-free. How is that worse than committing to a monthly payment indefinitely?

Well I should have said, that buying vs. leasing is not the slam dunk people think it is. There are economic reasons to leasing, IMO, the same reasons why you might rent vs. own a house... actually there are even weaker reasons to own a car vs. renting.

To me, leasing vs. owning is all about risk, you are basically guaranteeing a car payment, which things like $2000 repairs are much rarer (although admittedly not unheard of) with new cars, because of warranties, and less wear and tear. And after 3 years, if you hate the car you can get rid of it. You put $6000 into a car and you might be stuck with it if you end up hating it and nobody wants to buy except at a much lower price.

Also, the older the car is, the more the maintenance costs are going to be, it's a matter of entropy: ordered systems become disordered over time. Of course, dealerships have figured this all into their pricing, so obviously they aren't losing money.

Another issue: I had an experience that made me think twice about whether the "drive it forever" mentality is as good as people say: my "drive it forever" car with 125K miles was totaled. So while the car was well maintained the insurance company just looked at it's blue book value basically, it wasn't worth much at all. I didn't get much on trade in, ended up having to borrow for my next vehicle anyway.

Believe me, the market has priced used cars very efficiently, you pay less for them, but the maintenance costs will be higher than a new car.

And with a leased car you get all the bells and whistles, there are certain features of newer cars that make them worthwhile in certain circumstances. I like things like gas mileage savings, onboard computers (older cars had computers too but they are nothing like they are now). They can add a lot to older cars, but not the technology that integrates tightly with engines.

I just think that buying being better, economically, is not the rational certainty people say it is.

On the other hand, someone in here had the opinion that instead of buying a new car you can have your older car professionally detailed... not a bad idea at all. You can even swap out the older radios for newer ones with bluetooth, etc.

For this person, leasing might not be a bad economic decision as long as they have priced it all out.

We can just agree to disagree.

I've had 2 cars with over 200K miles in the last 15 years, 1 with 125k. This last car my wife and I made a decision to lease because buying a used car is such a PITA. So far, no regrets.

[treizerxh]

Well I should have said, that buying vs. leasing is not the slam dunk people think it is. There are economic reasons to leasing, IMO, the same reasons why you might rent vs. own a house... actually there are even weaker reasons to own a car vs. renting.

To me, leasing vs. owning is all about risk, you are basically guaranteeing a car payment, which things like $2000 repairs are much rarer (although admittedly not unheard of) with new cars, because of warranties, and less wear and tear. And after 3 years, if you hate the car you can get rid of it. You put $6000 into a car and you might be stuck with it if you end up hating it and nobody wants to buy except at a much lower price.

Also, the older the car is, the more the maintenance costs are going to be, it's a matter of entropy: ordered systems become disordered over time. Of course, dealerships have figured this all into their pricing, so obviously they aren't losing money.

Another issue: I had an experience that made me think twice about whether the "drive it forever" mentality is as good as people say: my "drive it forever" car with 125K miles was totaled. So while the car was well maintained the insurance company just looked at it's blue book value basically, it wasn't worth much at all. I didn't get much on trade in, ended up having to borrow for my next vehicle anyway.

Believe me, the market has priced used cars very efficiently, you pay less for them, but the maintenance costs will be higher than a new car.

And with a leased car you get all the bells and whistles, there are certain features of newer cars that make them worthwhile in certain circumstances. I like things like gas mileage savings, onboard computers (older cars had computers too but they are nothing like they are now). They can add a lot to older cars, but not the technology that integrates tightly with engines.

I just think that buying being better, economically, is not the rational certainty people say it is.

On the other hand, someone in here had the opinion that instead of buying a new car you can have your older car professionally detailed... not a bad idea at all. You can even swap out the older radios for newer ones with bluetooth, etc.

For this person, leasing might not be a bad economic decision as long as they have priced it all out.

We can just agree to disagree.

I've had 2 cars with over 200K miles in the last 15 years, 1 with 125k. This last car my wife and I made a decision to lease because buying a used car is such a PITA. So far, no regrets.

Honestly, this is why i got my car in the first place. Prior to the job i have now, I had another job that was paying me substantially lower, however I had a used Nissan Maxima that i'd owned for years and was paid off.

The drawback to this car was two fold: One, gas expenses were so high that I was essentially paying the equivalent of a car payment as it was (ranged between 280-320 dollars based on gas price fluctuations). Second, it was getting very high in mileage (175k at the time I sold it) and the repairs were beginning to become too costly.

Counter-intuitive as it may seem, based on my $15/hr job, it was becoming increasingly difficult to keep up with the repairs and pay for the gas on the car, despite the fact that I owned it outright. Having not been able to find a new position at the time, and realizing that i was not going to be able to continue to make the necessary repairs, a decision had to be made:

a.) get into another USED car and potentially have to deal with the repairs I already made on my car all over again

b.) Find a really good deal on something new and cheap that provided warranty coverage, excellent gas and a low monthly payment that would equal the money i was already spending on gas alone for my current car yet alleviate me from having to pay another 2-4k a year in labor for car maintenance (keep in mind I live in a condo where i cannot do the work myself as I would normally have in the past, not to mention I don't have all the tools to do what was necessary at the time)

I opted to go route B. Yes, it's a lease that unfortunately places restrictions however, given the insanely cheap lease payment I have, it more than made up for the difference as I am now paying my Maxima's gas expenses but getting the benefit of a brand new machine. Insurance is higher unfortunately, but I figure the offset of that is the fact that I now have peace of mind in knowing that i suddenly won't have to shell out nearly $2k dollars when 5 major components all decided to go within the same time frame. If I had the job then that I do now...I may have considered things differently because I would have had the money to keep up with the maintenance that was necessary. But, despite having a low income, it doesn't make sense to drive something that will start draining your emergency funds when it keeps needing repairs, especially when you are having trouble even putting 5 dollars away per paycheck.

Now...as for the bike....on that I'm stubborn, because that's my therapy from the hectic life I have between school and work. Getting out on the road and just being part of the scenery is something that is completely indescribable. What I do plan to do, now that I've got a decent EF set away, is knock down the cards (which should be doable within a month's/month and a half's time frame) then knock off another grand on the bike, and pull a personal loan to clear the title yet drop my payment by hopefully around $25 dollars or more a month. This will also allow me to not carry such a high premium as I don't use it as a primary mode of transport (plus my medical insurance through work already covers me for just about everything. this has already been tested once unfrotunately :/ ).

The other issue i've been considering is the student loan consolidation act, however these do scare me in that, I'm certain I'll lose borrower benefits that I have now. That said, it could potentially drop my payments to the $200+ dollar range by extending payments to 30 years, freeing up a substantial amount of income a month, thus allowing me to contribute more to a retirement savings and, over time as my income rises, hopefully allow more money to knock out the balance. I'm aware that interest will make the total go up, but it's at a point where I feel it's about choosing the lesser of the two evils. Each side seems to have pros and cons. which one is the better Con? I don't know.

[pflyers85]

I strongly disagree. There's no real benefit to owning a depreciating asset like a car.

AT $169 a month he's not paying much for his primary transportation at all.

I do agree about your other points.

The benefit is that when I complete payment I own the vehicle and my financial obligation to a lender or dealer is over.

The whole car repair cost argument against owning an older used car is more often than not proven to be poor math. A $169/mo lease payment plus $177/mo insurance breaks down to $4152 a year. I would guess that the vast majority of people driving a 8-10 year old used car are not even paying half of that amount per year in repairs and many are paying a quarter or less than that figure.