Could use some money advice

[TheRedHare]

Hi all,

I've got a quick question, I'll take this post down once I get some advice. As you may or may not know, I've got a good bit of student debt. Currently I'm at $28,103 with the highest interest rate at 6.8% and the lowest being 3.7%. In my checking account I have $10,826. Now of course I would like to have a little nest egg set aside so that I've got something to lean on if something should come up, but I don't want all this money just sitting around when I've got interest building on those student loans. Another thing is that my current truck (1996 Ford Ranger) is on it's way down due to a crappy transmission, so I don't know how much longer that thing is going to survive. If I have to get another car I want to avoid a car payment at all costs.
I make $45,000 a year, but will hopefully make a bit more due to bonuses and stuff. Any advice is greatly appreciated!

Here are my fixed costs: I spend on average about $1,000 -$1,300 a month
Rent: $50
Utilities: ~$95
Car Insurance: ~$85
Gas: ~60
Food: ~100
Jujitsu: ~$135
Student Loan: ~$300
Health Insurance: $325
Total: $1,150

[suomalainen]

Breakdown and balances of your student loans? If you can even pay one off and roll the payment, that would help tremendously.

[TheRedHare]

Breakdown and balances of your student loans? If you can even pay one off and the payment, that would help tremendously.

Yep, that's what I was planning on doing. Just focusing on one at a time. Here is the break down

Unsubsidized Principal $2,454.42 @ 6.800% fixed
Subsidized Principal $3,413.78 @ 3.400% fixed
Subsidized Principal $4,399.11 @ 3.860% fixed
Unsubsidized Principal $2,187.16 @ 3.860% fixed
Subsidized Principal $4,316.04 @ 4.660% fixed
Unsubsidized Principal $2,153.90 @ 4.660% fixed
Subsidized Principal $4,435.98 @ 4.290% fixed
Unsubsidized Principal $2,053.06 @ 4.290% fixed
Subsidized Principal $2,637.66 @ 3.760% fixed
Unsubsidized Principal $38.56 @ 3.760% fixed
Accrued Interest $13.36
Total $28,103.03

[suomalainen]

For me, easy decision to at least pay off the 6.8%. In this environment, a guaranteed 6.8% return is yuuuuge! That still leaves you with ~7 months of emergency fund if that’s what you’re using your cash for.

[classical_Liberal]

...

[CS]

I'd second paying off the 6.8% loan for sure, maybe the unsubsidized 4.66% one too. I think keeping some cash on hand wouldn't be the worse thing in the world - especially if you might need deal with the car quickly. Cash for a used one is going to be a lot easier than dealing with a credit card. Car loan rates are not cheap - it'd be best to avoid that if at all possible.

[TheRedHare]

In your situation, if you have good credit, I'd get a CC for emergencies and ditch the student loans with my assets and surplus income ASAP. Worst case with CC debt is a bankruptcy. More likely than not you wont have an "emergency" next year and can start building assets in 2019 after the student debt is gone. Baby the car, drive as little as possible, get it through 2018. Worst case the tranny craps out, if you absolutely need another get a late model Japanese shitbox with high miles to get you through, it'll only cost you one months earnings surplus.

Thanks for the advice, yeah I think just getting an old shitbox car would do the trick for a while. I live very close to work and everything else, you could say that I don't need a car, but I visit family at least once a month which is about an hour drive for me. I'm also thinking it might be unlikely that I'll have an emergency, but I'd like to keep about 4 or 5 grand in the bank to give me a cushion. Thanks for that link for the car haha, that's pretty much what I'll be looking for.

[Gilberto de Piento]

Another thing is that my current truck (1996 Ford Ranger) is on it's way down due to a crappy transmission, so I don't know how much longer that thing is going to survive.

Do you know anything about car repair or know anyone that does? I haven't done that particular job but swapping a trans on a truck shouldn't be terrible if you have a decent place to work on it and tools. You'd also have to find a good trans for a reasonable price but that probably can be done.

[TheRedHare]

Another thing is that my current truck (1996 Ford Ranger) is on it's way down due to a crappy transmission, so I don't know how much longer that thing is going to survive.

Do you know anything about car repair or know anyone that does? I haven't done that particular job but swapping a trans on a truck shouldn't be terrible if you have a decent place to work on it and tools. You'd also have to find a good trans for a reasonable price but that probably can be done.

I don't. But I know some people who do, but putting in a new transmission sounds like a hassle. Plus my truck is probably worth around $1,500 at the most, and a new transmission is about $1,200 so I don't see the point in putting money into something that's not even worth that much to begin with. I could see it being worth it if it was a classic car, but 96 isn't really considered a classic.

[Fish]

Plus my truck is probably worth around $1,500 at the most, and a new transmission is about $1,200 so I don't see the point in putting money into something that's not even worth that much to begin with.

I don't necessarily agree with the statement that "my car is worth X so it doesn't make sense to spend more than X to fix it."

Supposing it is possible to find a running, identical replacement car for X, then it would make sense to simply purchase the replacement and discard the broken car (presuming the disposal costs are negligible). But usually X is what a dealer or 3rd party would pay you for your car. Due to the bid-ask spread an identical replacement will also cost more than X.

My thought process would be to compare all costs (capital, operating, maintenance, depreciation, insurance) for the case of repair and replacement, over the expected life of the vehicle, and choose based on that.

Outside of these forums, the expensive repair quote is often used to rationalize buying a new car, e.g. it's time to replace my $1k beater with a vehicle whose purchase price is many multiples of the beater repair quote.

[OTCW]

Drain and fill the transmission fluid. Assuming it is an automatic. Assess from there.

[Farm_or]

I would also recommend looking at options to fix your existing ride.

With buying another used vehicle, you have the risk of the unknown. That's exactly where I went wrong years ago when I bought a used Civic and it ended up being a basket case of $300/ quarter just to keep it on the road.

A good used transmission can be had around $500. Paying labor will be another $500, if you shop around. For $1000, you will have a good idea of what you have.

[JamesR]

Do you have large limits on your credit cards or do you have an unsecured line of credit from your bank with a large limit?

If you are able to summon up a lot of cash quickly from credit cards/line of credit, I would basically count that as my "emergency stash", and I would personally dump ALL of the $10k cash into paying off the debt.

I wouldn't keep more than $300-500 in cash around, every paycheque I'd immediately dump it into the loans. That way you'd pay off the remaining $18k debt in 7-8 months.

Do you think your truck can survive another 8 months? If not, I suppose you could earmark $3k-5k for buying another car? Mr money mustache has some good articles on buying a car for cheap. Personally I'd just dump all the cash into paying off my debt quick and then save up for a car later WHEN it finally breaks. I prefer to be reactionary in that situation when you don't know exactly when the car might break. Maybe I'd go a couple months without a car at all just to save up the money to buy one etc..

[distracted_at_work]

I agree with James. Get a good credit card to use as your emergency fund and dump all available cash into student loans. I keep 500 cash in an account in case I need it to jump on a Craiglist transaction on short notice. Otherwise minimize cash.

Relevant... I'm quite literally currently waiting for my transmission to be fixed and putting that on a credit card to be paid off in January.

[Campitor]

Thanks for the advice, yeah I think just getting an old shitbox car would do the trick for a while. I live very close to work and everything else, you could say that I don't need a car, but I visit family at least once a month which is about an hour drive for me. I'm also thinking it might be unlikely that I'll have an emergency, but I'd like to keep about 4 or 5 grand in the bank to give me a cushion. Thanks for that link for the car haha, that's pretty much what I'll be looking for.

Have family visit you or Skype. Your solution is as easy as the price your willing to pay for it. Ditching the car, insurance, and jujitsu will net you 280 dollars a month. That is 20 dollars short of what you pay for student loans a month. You can pay off the 6% loan and still have 900 bucks left over at the end of the year to pay for a new transmission or put toward the 4.6% debt.

Sacrifice, sacrifice, sacrifice.

[Riggerjack]

Wow. Lots of good, frugal, hardcore advice here.

Now I have to wonder if I'm contrarIan, or just soft, but I think you are doing well so far. I'd focus on clearing the debt, but I aim for a pinch, not a squeeze, when making the uncomfortable cuts. You are making and saving money, which means you are already doing fine. How hard you save after that I think has more to do with your goals and comfort zone than anything else.

For what it's worth, I have swapped out a transmission. It's hard, as a transmission is heavy, has to be lifted into place from a very awkward position, if you don't have a lift. The bolts at the top of the bell housing have to be reached from below, and are a real hassle. This is a job where having the right sockets, and wrenches, and offset wrenches, and deep sockets, and a crows foot set is very handy.

It's totally a DIY job, if you don't have a better option, and/or have a seriously gear headed friend, and all the time you need. Other than that, hire it out.

[jacob]

@OP - You make $45k/year and spend <16k/year and have 28k in loans. Doing the simple subtraction, this seems like a problem that will solve itself within 12 months if you do nothing anyway. Maybe by making some changes, you can speed it up by some or several weeks ... Overall, it doesn't seem critical?

[TheRedHare]

Have family visit you or Skype. Your solution is as easy as the price your willing to pay for it. Ditching the car, insurance, and jujitsu will net you 280 dollars a month. That is 20 dollars short of what you pay for student loans a month. You can pay off the 6% loan and still have 900 bucks left over at the end of the year to pay for a new transmission or put toward the 4.6% debt.

You're definitely right and I thought about it, but I decided that I want to keep those two things. Visiting family is important for me, and I'm not willing to make exceptions on that. Jujitsu has been a great experience and a useful skill so I'd like to keep that going too.

[TheRedHare]

Do you have large limits on your credit cards or do you have an unsecured line of credit from your bank with a large limit?

If you are able to summon up a lot of cash quickly from credit cards/line of credit, I would basically count that as my "emergency stash", and I would personally dump ALL of the $10k cash into paying off the debt.

I wouldn't keep more than $300-500 in cash around, every paycheque I'd immediately dump it into the loans. That way you'd pay off the remaining $18k debt in 7-8 months.

Do you think your truck can survive another 8 months? If not, I suppose you could earmark $3k-5k for buying another car? Mr money mustache has some good articles on buying a car for cheap. Personally I'd just dump all the cash into paying off my debt quick and then save up for a car later WHEN it finally breaks. I prefer to be reactionary in that situation when you don't know exactly when the car might break. Maybe I'd go a couple months without a car at all just to save up the money to buy one etc..

I only have one CC right now, and it has a $2,000 limit. My credit score has gone up a lot, it's in the 700s now, so I think I should be able to get a better CC with a bigger limit on it. I'm not experience with having a CC as an emergency...I feel somewhat insecure about it. What happens if I were to lose my job? I work for a startup, and as well as things are going, I still don't feel very comfortable without having some type of emergency fund.

As far as the car goes, I'm getting it checked out this week so I'll find out what the damage is...if things are looking bleak, I'll have them put a new transmission in it, or get a super cheap car and try to make that last for the next year or two.

[TheRedHare]

I think savings rate is probably the most important criteria for you. For example, if you are saving a few hundred a month I would opt for a large cash buffer, there are too many traps with debt. If you are saving 1500+ per month, then it's less risky to pay off the loans. Job stability and the chances of easily finding a replacement job are important too.

The higher savings rate and income stability, sure, pay it all off and get an emergency CC, like one of those 0% rate for a year ones. The lower the savings rate and income stability, hoard cash to avoid debt traps.

You pretty much summed up my thinking on this issue. My savings rate isn't the best, but it's decent. I'm thinking of maybe setting aside about $5,000 and putting the rest towards student loans. I'm expecting a pretty decent bonus from my job..around 7 or 8k so that could all go towards the debt, plus tax returns of maybe 2k.