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Old 04-04-2010, 01:08 PM
 
Location: Wisconsin
677 posts, read 1,502,923 times
Reputation: 633

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The "What is your net worth" thread has been one of many deciding factors that has helped me see that I really need to start paying down my debt. I don't want to end up buried up to my eyeballs. I will continue going deeper into debt the longer that I'm in college if I don't make some serious changes now.

I've been doing a bit of research on various debt elimination methods. The 'snowball' idea seems to be the most efficient, paying off the credit card with the lowest balance first while paying minimums on the others, then moving onto the one with the next lowest balance, etc.

In addition to 3 credit cards (totaling just under $2,000) I also owe about $7,000 on my car and about $10,000 in student loans (I don't technically have to pay back the student loans for a few years). My only other expenses are car insurance, gasoline, food, a medical bill, and helping out my parents anytime that they need money. My ultimate, short-term goal is to be able to pay out of pocket for all of my college expenses that grants will not cover, and to be able to help my parents when they are strapped for cash. I'm done with loans. That being said, I have a whopping $5.00 in my savings account

My question for you, perhaps more experienced, people is this...Should I establish an emergency fund before paying off my debt? It seems that it's recommended in most cases to do this, however, I'm 19 years old. I live with my dad right now and am extremely fortunate in that I do not have to pay rent. Should anything happen to him, my mother has always said that I'm more than welcome to move back in with her. It seems that the emergency fund advice seems to be aimed toward those with families or mortgages. Since I don't have those responsibilities, should I worry about establishing an emergency fund before cracking down on my debt? If so, how much would be sufficient?

Also, should I worry about paying off my car quickly? My first priority is obviously to pay off the credit cards. I'm just not sure if I should focus my efforts on paying off all debt right now or if it would be better to just make my normal monthly payments on the car and save the rest of my money for school/family?

Thank you so much for any advice Happy Easter to those who celebrate it!
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Old 04-04-2010, 01:27 PM
 
Location: California
32,627 posts, read 36,040,073 times
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Do you have an income?

I would concentrate on eliminating those CC debts and then "snowball" that into savings. Your goal is to get through college without taking on more loans or debt so stick with that and dont' worry about paying off the car at this time. And watch yourself with the "helping family" thing. It's noble but it shouldn't come at the expense of your personal finances.
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Old 04-04-2010, 01:42 PM
 
Location: Wisconsin
677 posts, read 1,502,923 times
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Quote:
Originally Posted by Ceece View Post
Do you have an income?

I would concentrate on eliminating those CC debts and then "snowball" that into savings. Your goal is to get through college without taking on more loans or debt so stick with that and dont' worry about paying off the car at this time. And watch yourself with the "helping family" thing. It's noble but it shouldn't come at the expense of your personal finances.
Oh! Yes, I should have mentioned that. I work between 32 and 40 hours per week at a hotel. I only make 8.50 per hour (7.30 after taxes I need to change my W4 to claim 0 instead of 1...that might bring me a bit more). I've been thinking about looking for a better paying job or just a second job but I don't want my resume to be too choppy. Maybe that's something to look into, though?

Ok, thank you for the advice. I also forgot to mention that the car is in my dad's name and I have a pretty decent interest rate, so I guess that might be one more reason to not worry as much about it.

This is where I'm stuck...I do sometimes get frustrated because I feel like if I keep bailing out my parents I'll never actually get ahead. But things are only going to get worse in the coming months because my dad's unemployment is running out and my mom seems to never be able to come up with enough for her bills. It's a stressful situation. The only way to remove myself from it is to get my own place but I could never afford that on top of everything else.
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Old 04-04-2010, 02:14 PM
 
1,819 posts, read 4,174,867 times
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Quote:
Originally Posted by mchelle View Post
Oh! Yes, I should have mentioned that. I work between 32 and 40 hours per week at a hotel. I only make 8.50 per hour (7.30 after taxes I need to change my W4 to claim 0 instead of 1...that might bring me a bit more). I've been thinking about looking for a better paying job or just a second job but I don't want my resume to be too choppy. Maybe that's something to look into, though?
.
The opposite is what you need to do. Claiming '0' on the W4 means you're claiming zero exemptions from tax liability, which means MORE will be withheld from your paycheck, not less. Claiming a number higher than '0' allows you to REDUCE the amount that is withheld, which yields more take-home per pay period.

Clear as mud?
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Old 04-04-2010, 02:16 PM
 
Location: Montgomery Village, MD
516 posts, read 1,270,746 times
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Dave Ramsey says to save 1000 in the bank, then snow ball the debt.. so that's what I would suggest for you.. 1000 can cover a car break down, etc.
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Old 04-04-2010, 02:20 PM
 
Location: Wisconsin
677 posts, read 1,502,923 times
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Quote:
Originally Posted by hindsight2020 View Post
The opposite is what you need to do. Claiming '0' on the W4 means you're claiming zero exemptions from tax liability, which means MORE will be withheld from your paycheck, not less. Claiming a number higher than '0' allows you to REDUCE the amount that is withheld, which yields more take-home per pay period.

Clear as mud?
Ah, thank you for the clarification. I was told the opposite by quite a few people...Weird. Should've done my homework Well I really hope that I'm mistaken and am currently claiming zero and can change it to one, because otherwise...my paychecks are laughable
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Old 04-04-2010, 02:23 PM
 
Location: Wisconsin
677 posts, read 1,502,923 times
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Quote:
Originally Posted by mamaecho View Post
Dave Ramsey says to save 1000 in the bank, then snow ball the debt.. so that's what I would suggest for you.. 1000 can cover a car break down, etc.
Ah, that's something I didn't think about: possible car problems. My only worry is that it will take me three to four months to save up that much money. Although by summer I'll be out of classes and able to work a lot more..thank you for the advice, I'll keep it in mind
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Old 04-04-2010, 04:41 PM
 
Location: Montgomery Village, MD
516 posts, read 1,270,746 times
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Here's what Dave Ramsey says about it:
An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen.

This beginning emergency fund will keep life’s little Murphies from turning into new debt while you work off the old debt. If a real emergency happens, you can handle it with your emergency fund. No more borrowing. It’s time to break the cycle of debt!
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Old 04-04-2010, 05:00 PM
 
13,647 posts, read 23,816,395 times
Reputation: 13917
Quote:
Originally Posted by mamaecho View Post
Here's what Dave Ramsey says about it:
An emergency fund is for those unexpected events in life that you can’t plan for: the loss of a job, an unexpected pregnancy, a faulty car transmission, and the list goes on and on. It’s not a matter of if these events will happen; it’s simply a matter of when they will happen.

This beginning emergency fund will keep life’s little Murphies from turning into new debt while you work off the old debt. If a real emergency happens, you can handle it with your emergency fund. No more borrowing. It’s time to break the cycle of debt!
That doesn't make any logical sense. You're actually further ahead by paying off the debt therefore reducing your interest payments.

Example, $1000 balance @ 30% interest.

$25/month in interest.

You pay it off and have $0 balance but $0 in savings. 6 months later you incur a $1000 repair and charge it to your credit card, and have a $1000 balance again. However you saved 6 months x $25/month in interest = $150.

Or, you have $1000 balance and have $1000 in an emergency fund. 6 months later you have a $1000 charge and spend your emergency fund. Now you have $0 in savings and a $1000 balance on your credit card (still).
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Old 04-04-2010, 05:17 PM
 
4,805 posts, read 21,279,191 times
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Pay the debt first. As you pay it down you free up available credit which you can use in an emergency if it happens. And you are improving your credit score, which will improve your interest rate, which will reduce your total debt, and will allow you get approval for credit cards with lower interest that you can transfer your debt to. All of these are good things.

These things will accomplish much more than putting the same amount of money into a savings account, which accumulates far less interest and won't do anything to improve your credit score/report/worthiness.

If you are absolutely set on creating a savings account, get a high-interest account like ING, and put a little bit in. Just $10/week will add up fast.
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