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Posted: 1/20/2015 2:29:43 PM EDT
[#1]
ALL your extra income towards debt until all you owe is the house
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Posted: 1/20/2015 2:38:55 PM EDT
[#2]
How much is the balance on the student loan?
Savings isn't a bad thing when you have young'uns to depend on you. Just realize that you're having the savings at the cost of your student loans. |
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Posted: 1/20/2015 2:39:19 PM EDT
[#3]
Keep $1000 for an emergency fund, then hammer the debt.
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Posted: 1/20/2015 2:46:50 PM EDT
[#4]
$1000??
What's that, a house payment or two? A small part of your health care deductible? You need a bigger cushion than that IMO. |
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Posted: 1/20/2015 3:27:49 PM EDT
[#5]
Six months living expenses in savings, then pay down extra on the student loan. The interest rate isn't all that high so I wouldn't be in a hurry to pay it off. If it were a CC with a 16% or higher interest rate my response would be different.
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Posted: 1/20/2015 4:23:05 PM EDT
[#6]
Ok, thanks for the responses guys.
The balance on the student loan is around $15K and I already have $8K in our emergency fund. We could get by for 3-4 months on that if we had zero income. Something else I left out. I have $3k in a HSA through my employer that will nearly take care of my family's out of pocket maximum for this year. That obviously will help a lot. |
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Posted: 1/20/2015 4:36:32 PM EDT
[#7]
The $1000 is a starter emergency fund, pay debt, then save up 3-6 months for a fully funded emergency fund. It's the Dave Ramsey baby steps.
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Posted: 1/20/2015 4:53:04 PM EDT
[#8]
Quote HistoryQuoted:
The $1000 is a starter emergency fund, pay debt, then save up 3-6 months for a fully funded emergency fund. It's the Dave Ramsey baby steps. So you're saying to put $7k of my current emergency fund into the student loan debt? That doesn't seem to make sense to me with my situation. Sure if it was just me and I lost everything no big deal, I could handle it but a 5 year old and a new born as well as my wife? That doesn't make sense. |
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Posted: 1/20/2015 5:01:38 PM EDT
[#9]
Quote HistoryQuoted:
So you're saying to put $7k of my current emergency fund into the student loan debt? That doesn't seem to make sense to me with my situation. Sure if it was just me and I lost everything no big deal, I could handle it but a 5 year old and a new born as well as my wife? That doesn't make sense. Quote HistoryQuoted:
Quoted:
The $1000 is a starter emergency fund, pay debt, then save up 3-6 months for a fully funded emergency fund. It's the Dave Ramsey baby steps. So you're saying to put $7k of my current emergency fund into the student loan debt? That doesn't seem to make sense to me with my situation. Sure if it was just me and I lost everything no big deal, I could handle it but a 5 year old and a new born as well as my wife? That doesn't make sense. No, I'm not sure why people are thinking you only have 1k, when you said twice you have 8k. I would save up a little more to get to 6 months expenses and then start throwing everything at the loans. |
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Posted: 1/20/2015 5:14:18 PM EDT
[#10]
Quote HistoryQuoted:
So you're saying to put $7k of my current emergency fund into the student loan debt? That doesn't seem to make sense to me with my situation. Sure if it was just me and I lost everything no big deal, I could handle it but a 5 year old and a new born as well as my wife? That doesn't make sense. Quote HistoryQuoted:
Quoted:
The $1000 is a starter emergency fund, pay debt, then save up 3-6 months for a fully funded emergency fund. It's the Dave Ramsey baby steps. So you're saying to put $7k of my current emergency fund into the student loan debt? That doesn't seem to make sense to me with my situation. Sure if it was just me and I lost everything no big deal, I could handle it but a 5 year old and a new born as well as my wife? That doesn't make sense. It depends on how bad you want to get out of debt. You could pay off half the debt now. A lot of people like Dave Ramsey's Baby Steps. Listen to him on radio or through his website. Decide for yourself. One thing that does need to happen now is have a written monthly budget, then decide from there. There are a lot of methods for getting out of debt. I like Dave Ramsey and so do a lot of people here. Find what works for you, this is just a suggestion. |
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Posted: 1/20/2015 5:24:21 PM EDT
[#11]
Quote HistoryQuoted:
So you're saying to put $7k of my current emergency fund into the student loan debt? That doesn't seem to make sense to me with my situation. Sure if it was just me and I lost everything no big deal, I could handle it but a 5 year old and a new born as well as my wife? That doesn't make sense. Quote HistoryQuoted:
Quoted:
The $1000 is a starter emergency fund, pay debt, then save up 3-6 months for a fully funded emergency fund. It's the Dave Ramsey baby steps. So you're saying to put $7k of my current emergency fund into the student loan debt? That doesn't seem to make sense to me with my situation. Sure if it was just me and I lost everything no big deal, I could handle it but a 5 year old and a new born as well as my wife? That doesn't make sense. Yes that is what I would do. I might wait until the new baby is born and healthy first. Let me ask you it in reverse. If you woke up and you had $1,000 in savings, and $8,000 on a student loan would you go out and borrow $7,000 more and stick in you savings so you could have 8k in savings? If you keep your savings and don't pay your debt that is essentially the decision you are making. If you think that is a good idea why not go borrow another 5 or 10k to beef up your savings more? The $1000 in savings is not supposed to be a comfortable place. It is supposed to scare you and motivate you to get out of your debts and then build up your savings to around 6 months of expenses. |
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Posted: 1/20/2015 5:28:00 PM EDT
[#12]
Quote HistoryNo, I'm not sure why people are thinking you only have 1k, when you said twice you have 8k. I would save up a little more to get to 6 months expenses and then start throwing everything at the loans. That was my original line of thinking. Been reading a lot lately and everyone seems to say to kill debt ASAP but I think you have to take your individual circumstances into account. |
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Posted: 1/20/2015 5:30:50 PM EDT
[#13]
Quote HistoryYes that is what I would do. I might wait until the new baby is born and healthy first. Let me ask you it in reverse. If you woke up and you had $1,000 in savings, and $8,000 on a student loan would you go out and borrow $7,000 more and stick in you savings so you could have 8k in savings? If you keep your savings and don't pay your debt that is essentially the decision you are making. If you think that is a good idea why not go borrow another 5 or 10k to beef up your savings more? The $1000 in savings is not supposed to be a comfortable place. It is supposed to scare you and motivate you to get out of your debts and then build up your savings to around 6 months of expenses. I see where you're coming from but what if something were to happen and I did have to take out a significant loan to cover it? The interest rate would most likely be much higher than the 6.55% I'm getting on my student loans. I follow a written monthly budget and have a handle on my expenses. Just looking for opinions and appreciate all of the feedback. |
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Posted: 1/20/2015 5:31:45 PM EDT
[#14]
Personally, I would leave the 8k where it's at for now. I'd focus on all extra income on paying off the 15k. Put $700/month on the debt and be done in under two years. If you come across any additional money via tax return or whatever you can get the debt paid off even sooner.
Any other debt? |
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Posted: 1/20/2015 5:35:07 PM EDT
[#15]
OP, $1k is just a suggestion, if you're more comfortable with $2.5k in the bank then do that. The good thing is you are ready to get out of debt and are taking the correct steps to do so.
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Posted: 1/20/2015 5:39:55 PM EDT
[#16]
Quote HistoryQuoted:
I see where you're coming from but what if something were to happen and I did have to take out a significant loan to cover it? The interest rate would most likely be much higher than the 6.55% I'm getting on my student loans. I follow a written monthly budget and have a handle on my expenses. Just looking for opinions and appreciate all of the feedback. 6.55% isn't exactly a great rate. If you have good credit you could likely borrow at that rate if you needed to. What about a compromise? Pay half of your 8k to the debt as well as all excess money from your budget. Then once your debt is paid for beef up your emergency fund? The problem with debt is you get complacent with it and keep it around forever. I know people in their 40s and 50s still paying on student loans. Being debt free is a lifestyle choice and it has changed my life in amazing ways. Lets do some math. 15k student loan. Pay 4k on it leaving you 4k in savings. 11k student loan left. Pay $700 a month on it. 16 months and you are debt free. Then you have $700 a month to save or do whatever you want with. |
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Posted: 1/20/2015 5:49:35 PM EDT
[#17]
Quote HistoryQuoted:
6.55% isn't exactly a great rate. If you have good credit you could likely borrow at that rate if you needed to. What about a compromise? Pay half of your 8k to the debt as well as all excess money from your budget. Then once your debt is paid for beef up your emergency fund? The problem with debt is you get complacent with it and keep it around forever. I know people in their 40s and 50s still paying on student loans. Being debt free is a lifestyle choice and it has changed my life in amazing ways. Lets do some math. 15k student loan. Pay 4k on it leaving you 4k in savings. 11k student loan left. Pay $700 a month on it. 16 months and you are debt free. Then you have $700 a month to save or do whatever you want with. Quote HistoryQuoted:
Quoted:
I see where you're coming from but what if something were to happen and I did have to take out a significant loan to cover it? The interest rate would most likely be much higher than the 6.55% I'm getting on my student loans. I follow a written monthly budget and have a handle on my expenses. Just looking for opinions and appreciate all of the feedback. 6.55% isn't exactly a great rate. If you have good credit you could likely borrow at that rate if you needed to. What about a compromise? Pay half of your 8k to the debt as well as all excess money from your budget. Then once your debt is paid for beef up your emergency fund? The problem with debt is you get complacent with it and keep it around forever. I know people in their 40s and 50s still paying on student loans. Being debt free is a lifestyle choice and it has changed my life in amazing ways. Lets do some math. 15k student loan. Pay 4k on it leaving you 4k in savings. 11k student loan left. Pay $700 a month on it. 16 months and you are debt free. Then you have $700 a month to save or do whatever you want with. I hate having the debt over my head. Either way I'm on pace to pay it back early but I see what you're saying. My issue is I feel like I'm leaving my family vulnerable by spending our savings. They will always be priority #1 for me. I do see your line of thinking though and it's very intriguing. If I was single I'd be all over it. |
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Posted: 1/20/2015 6:10:41 PM EDT
[#18]
Quote HistoryQuoted: Yes that is what I would do. I might wait until the new baby is born and healthy first. Let me ask you it in reverse. If you woke up and you had $1,000 in savings, and $8,000 on a student loan would you go out and borrow $7,000 more and stick in you savings so you could have 8k in savings? If you keep your savings and don't pay your debt that is essentially the decision you are making. If you think that is a good idea why not go borrow another 5 or 10k to beef up your savings more? The $1000 in savings is not supposed to be a comfortable place. It is supposed to scare you and motivate you to get out of your debts and then build up your savings to around 6 months of expenses. Quote HistoryQuoted: Quoted: Quoted: The $1000 is a starter emergency fund, pay debt, then save up 3-6 months for a fully funded emergency fund. It's the Dave Ramsey baby steps. So you're saying to put $7k of my current emergency fund into the student loan debt? That doesn't seem to make sense to me with my situation. Sure if it was just me and I lost everything no big deal, I could handle it but a 5 year old and a new born as well as my wife? That doesn't make sense. Yes that is what I would do. I might wait until the new baby is born and healthy first. Let me ask you it in reverse. If you woke up and you had $1,000 in savings, and $8,000 on a student loan would you go out and borrow $7,000 more and stick in you savings so you could have 8k in savings? If you keep your savings and don't pay your debt that is essentially the decision you are making. If you think that is a good idea why not go borrow another 5 or 10k to beef up your savings more? The $1000 in savings is not supposed to be a comfortable place. It is supposed to scare you and motivate you to get out of your debts and then build up your savings to around 6 months of expenses. |
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Posted: 1/20/2015 7:12:02 PM EDT
[#19]
IMO 8k in savings with a wife and 2 kids should scare the crap out of you right now. I would keep the 8k I'm savings and pay a little more aggressively on your loans. If you lost your job, you could put the loan on hold and stay afloat for a few months while job searching. If you have 1k in savings and lost your job, from your math, you'd have 2 weeks to find a new job and receive a paycheck.
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Posted: 1/20/2015 10:46:28 PM EDT
[#20]
Quote HistoryQuoted:
IMO 8k in savings with a wife and 2 kids should scare the crap out of you right now. I would keep the 8k I'm savings and pay a little more aggressively on your loans. If you lost your job, you could put the loan on hold and stay afloat for a few months while job searching. If you have 1k in savings and lost your job, from your math, you'd have 2 weeks to find a new job and receive a paycheck. Only having the $8k does scare me. That's why I'm torn. Someone asked if I had any other debt. Only our house and a small amount owed interest free to a local hospital. |
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Posted: 1/21/2015 6:29:10 AM EDT
[#21]
OP, I'd keep doing exactly what you have been doing until the baby is delivered. Then I'd condider maybe taking some of the savings you have and putting on the debt and/or adjusting you debt/savings ratios. You have a lot to loose if you can't make your mortgage for a few months...
Also, I have heard ramsey say that the $1k seems more like a figure for people who don't have a mortgate or so many responsibilityes. |
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Posted: 1/21/2015 2:14:56 PM EDT
[#22]
Quote HistoryQuoted:
My issue is I feel like I'm leaving my family vulnerable by spending our savings. They will always be priority #1 for me. I do see your line of thinking though and it's very intriguing. If I was single I'd be all over it. Like I said originally I think it would be wise to hang on tho the savings until the child is born and back home and healthy but after that the best thing you can do for your family's financial health is getting out of debt. The advice I gave you was not meant just for a single person. It is what I would recommend for anyone and is what I did for my family with a stay at home wife and 2 kids. |
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Posted: 1/21/2015 10:34:17 PM EDT
[#23]
Quote HistoryQuoted:
Like I said originally I think it would be wise to hang on tho the savings until the child is born and back home and healthy but after that the best thing you can do for your family's financial health is getting out of debt. The advice I gave you was not meant just for a single person. It is what I would recommend for anyone and is what I did for my family with a stay at home wife and 2 kids. Quote HistoryQuoted:
Quoted:
My issue is I feel like I'm leaving my family vulnerable by spending our savings. They will always be priority #1 for me. I do see your line of thinking though and it's very intriguing. If I was single I'd be all over it. Like I said originally I think it would be wise to hang on tho the savings until the child is born and back home and healthy but after that the best thing you can do for your family's financial health is getting out of debt. The advice I gave you was not meant just for a single person. It is what I would recommend for anyone and is what I did for my family with a stay at home wife and 2 kids. Op personally id leave your numbers as they are until you build a lot more savings. Once your baby is home and healthy it still takes money to eat and live. Imagine this scenario: you deplete your savings and hammer some debt. You are almost there. Congrats! Then you lose your job and run out of money before you can find another bc you had very little savings. You just lost your house but atleast your debt load is low. That was a 380 thousand dollar lesson for me. You get it for free. Financially i lost 12 years of life digging out of that hole. |
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Posted: 1/22/2015 9:06:42 AM EDT
[#24]
I'd opt for a nice sized savings fund. Six months is not unreasonable in this environment. A new heat pump, transmission job on a car, etc, can cost several K. If you ahve a government job I'd feel comfortable with slightly less, but even then disability could cause some financial hardship.
BTW, if it truly is an emergency fund would you put in a roth? IIRC you can withdraw the principal penalty free. |
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Posted: 1/22/2015 2:19:32 PM EDT
[#25]
No matter what you do, I'd got your student loans refinanced. 6.55% is way too high for a student loan. I refinanced some of my student loans last fall and got a rate just under 4%. I used a company called sofi (sofi.com), but there are others that do the same sort of thing.
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Posted: 1/22/2015 10:58:24 PM EDT
[#26]
Quote HistoryQuoted:
No matter what you do, I'd got your student loans refinanced. 6.55% is way too high for a student loan. I refinanced some of my student loans last fall and got a rate just under 4%. I used a company called sofi (sofi.com), but there are others that do the same sort of thing. I'll be doing this asap. Didn't realize this was even an option. |
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Posted: 1/22/2015 11:00:09 PM EDT
[#27]
Decided to put $600 a month on the loan. Picked up some side work and will put all of that extra income towards savings and debt.
Thank you guys for the help. Interesting to see the differing view points. |
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Posted: 1/22/2015 11:10:46 PM EDT
[#28]
Quote HistoryQuoted:
No matter what you do, I'd got your student loans refinanced. 6.55% is way too high for a student loan. I refinanced some of my student loans last fall and got a rate just under 4%. I used a company called sofi (sofi.com), but there are others that do the same sort of thing. What plan did you pick? Best rate I'm seeing is 3.8 with the 5 year variable. Would I be safe taking a variable loan? |
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Posted: 1/23/2015 3:22:25 AM EDT
[#29]
Quote HistoryQuoted:
Op personally id leave your numbers as they are until you build a lot more savings. Once your baby is home and healthy it still takes money to eat and live. Imagine this scenario: you deplete your savings and hammer some debt. You are almost there. Congrats! Then you lose your job and run out of money before you can find another bc you had very little savings. You just lost your house but atleast your debt load is low. That was a 380 thousand dollar lesson for me. You get it for free. Financially i lost 12 years of life digging out of that hole. 
ouch! That is why I don't lik ehte dave ramsey dogmatism. I get it that you need to look at debt as the slavery that it is, that you need to get hyperfocused on it etc, but not to the point that you make yourself especially vulnerable to loosing the equity that you have accumulated in your house b/c you get forclosed before you get a new job up and going. I think you said that your debt was house and student loans, but remember that credit cards & auto can be defaulted on easy enough if it comes to that or loosing your house... |
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Posted: 1/23/2015 11:13:19 AM EDT
[#30]
Quote HistoryQuoted:
What plan did you pick? Best rate I'm seeing is 3.8 with the 5 year variable. Would I be safe taking a variable loan? Quote HistoryQuoted:
Quoted:
No matter what you do, I'd got your student loans refinanced. 6.55% is way too high for a student loan. I refinanced some of my student loans last fall and got a rate just under 4%. I used a company called sofi (sofi.com), but there are others that do the same sort of thing. What plan did you pick? Best rate I'm seeing is 3.8 with the 5 year variable. Would I be safe taking a variable loan? The general consensus is that rates have no where to go but up so taking a variable rate is generally a bad idea. In your case you should be paying it off so fast that it won't matter much. At $600 a month you should knock this debt out in about two years. One year from now your balance should be $7800. Each percentage point the rate moves at that point amounts to $78 a year in interest. |
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Posted: 1/23/2015 12:17:10 PM EDT
[#31]
Quote HistoryQuoted:
The general consensus is that rates have no where to go but up so taking a variable rate is generally a bad idea. In your case you should be paying it off so fast that it won't matter much. At $600 a month you should knock this debt out in about two years. One year from now your balance should be $7800. Each percentage point the rate moves at that point amounts to $78 a year in interest. Quote HistoryQuoted:
Quoted:
Quoted:
No matter what you do, I'd got your student loans refinanced. 6.55% is way too high for a student loan. I refinanced some of my student loans last fall and got a rate just under 4%. I used a company called sofi (sofi.com), but there are others that do the same sort of thing. What plan did you pick? Best rate I'm seeing is 3.8 with the 5 year variable. Would I be safe taking a variable loan? The general consensus is that rates have no where to go but up so taking a variable rate is generally a bad idea. In your case you should be paying it off so fast that it won't matter much. At $600 a month you should knock this debt out in about two years. One year from now your balance should be $7800. Each percentage point the rate moves at that point amounts to $78 a year in interest. The refi company lets you refinance again with no fees. So if rates got crazy I could lock in a long term option. However, like you said, my plan is to have this thing paid off in 2 years or less |
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Posted: 1/28/2015 4:54:09 PM EDT
[#32]
Another way to look at this is the fact that your student loan is unsecured debt. You lose your job and can't pay on it no big deal in the short-term "gotta keep my family alive" aspect.
Your house is secured debt, you lose your job and can't pay for it you're now homeless. People that are recommending you kill your emergency fund to pay down an unsecured debt are suggesting a High risk, high reward option for you. Yes, the reward of wiping out your E-fund in order to pay down debt has it's rewards, but that doesn't come without risks, and for a guy with a family that risk is HUGE, and IMHO it far out-weighs the rewards. FWIW I'm in a similar situation but I suspect my rates are a bit lower than yours which does make the reward of paying down debt smaller for me. Mortgage is at ~$100k @ 3.75%, $11k in wife's student loans at 2.9%. Every month we have ~$1k surplus income after the bills are paid. Not a single penny is going to my debt. Yes, it would be great to get out of debt in a couple years, but that isn't my long-term goal. My long-term goal is to get out of debt and still own my house, support my family in the meantime, and take every action I can to protect them from the evils of the world (including hunger, homelessness, lack of medical care etc). The best way I can accomplish my #1 priority (my family) is to have an emergency fund that can weather through a pretty serious financial crisis. |
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Posted: 1/29/2015 1:31:17 PM EDT
[#33]
True student loans are not secured with something like your house but they are one of the worse types of debt because they are not bankruptable.
I am not positive on this but I also think they have more powers to get their money back such as garnishment without a judgement, etc since they are government loans. |
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Posted: 1/30/2015 8:36:52 AM EDT
[#34]
Quote HistoryQuoted:
True student loans are not secured with something like your house but they are one of the worse types of debt because they are not bankruptable. I am not positive on this but I also think they have more powers to get their money back such as garnishment without a judgement, etc since they are government loans. Keep in mind that we're talking about job-loss, all out personal SHTF here. Would it be better to have your student loan paid off and lose your house or have the ability to keep your house but risk having your non-existent wages garnished because of a student loan debt? Obviously the ideal situation is pay them both and not have any of this happen. But a wise person will be prepared for the worst but hope for the best... |
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Posted: 1/30/2015 11:36:42 AM EDT
[#35]
Quote HistoryQuoted:
Keep in mind that we're talking about job-loss, all out personal SHTF here. Would it be better to have your student loan paid off and lose your house or have the ability to keep your house but risk having your non-existent wages garnished because of a student loan debt? Obviously the ideal situation is pay them both and not have any of this happen. But a wise person will be prepared for the worst but hope for the best... Quote HistoryQuoted:
Quoted:
True student loans are not secured with something like your house but they are one of the worse types of debt because they are not bankruptable. I am not positive on this but I also think they have more powers to get their money back such as garnishment without a judgement, etc since they are government loans. Keep in mind that we're talking about job-loss, all out personal SHTF here. Would it be better to have your student loan paid off and lose your house or have the ability to keep your house but risk having your non-existent wages garnished because of a student loan debt? Obviously the ideal situation is pay them both and not have any of this happen. But a wise person will be prepared for the worst but hope for the best... So how do you decide how much debt you should have to be prepared for this shtf scenario? Should OP try go borrow 25k more and stick that in his savings account just in case he loses his job? That would give him even more cushion and time he could pay his house payment if he lost his job. Don't get me wrong I get what you are saying but it just think it is strange to decide the amount of debt someone happens to have is the right amount to save. |
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Posted: 1/31/2015 1:21:39 AM EDT
[#36]
Quote HistoryQuoted:
True student loans are not secured with something like your house but they are one of the worse types of debt because they are not bankruptable. shame how so much of the current young are an entire generation of debt slaves now, worse than high rate CC debt IMO. Thrilled that me and the wife don't have any. |
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Posted: 1/31/2015 9:03:07 AM EDT
[#37]
Quote HistoryQuoted: shame how so much of the current young are an entire generation of debt slaves now, worse than high rate CC debt IMO. Thrilled that me and the wife don't have any. Quote HistoryQuoted: Quoted: True student loans are not secured with something like your house but they are one of the worse types of debt because they are not bankruptable. shame how so much of the current young are an entire generation of debt slaves now, worse than high rate CC debt IMO. Thrilled that me and the wife don't have any. We have a decent affordable 4 year school close to my house and I have always planned to send the kids there so they could live at home and not pay dorm or food costs to the school. I was talking to a coworker and she told me she forced her kids to live on campus at the same school for the college experience. I know others that have sent their kids out of state to schools that are 50k a year for the same reason. That just doesn't make sense to me. |
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Posted: 2/4/2015 9:24:53 AM EDT
[#38]
Quote HistoryQuoted:
So how do you decide how much debt you should have to be prepared for this shtf scenario? Should OP try go borrow 25k more and stick that in his savings account just in case he loses his job? That would give him even more cushion and time he could pay his house payment if he lost his job. Don't get me wrong I get what you are saying but it just think it is strange to decide the amount of debt someone happens to have is the right amount to save. There isn't an "amount" of debt that is ok, nor is there an "amount" of emergency fund that is ok. There are general guidelines but every single person's situation is vastly different and each person must make that call himself/herself. The conundrum of emergency fund vs. debt is a simple risk mitigation problem that everybody must solve themselves. There is risk on both sides of the argument, but you must weigh the risks/rewards/consequences of all and determine what risk you're willing to take on and what risk you want to mitigate. For me, losing my job would crush our family. We would lose our health insurance, our prime income, and would be homeless within 2 years. That's a pretty harsh consequence. You know what would make it worse? If I had $1,000 emergency fund instead of the $30,000 emergency fund I do have we would be homeless within a few months. That's a BAD consequence. The 2 years gives me time to try to find another job. A couple months gives me a lot a stress, pressure, and not much time to find another job. On the other side of the isle, at my 2.875% fixed mortgage rate and 2.9% rate on my wife's last student loan, the benefit to paying off my debts with my emergency fund is that I can save a couple thousand dollars over the life of the loan by using that money now. It really boils down to my family's financial security vs. $1,000-2,000 savings. You make the call for you, I'll make the call for me. |
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Posted: 2/4/2015 11:58:56 AM EDT
[#39]
Haven't checked in for a while. Lot's of good opinions here, exactly what I wanted to see.
I understand both sides of the coin and I think it all boils down to what each person in comfortable with and what they feel is best for their situation. Either way I've taken steps to improve the situation. I'm currently refinancing the loan and have decided to make a $600 monthly payment. I've also gotten my act together and picked up extra side work to bolster my savings. I'll should be able to get the loan paid off in a couple years and still increase my emergency fund. Maybe not the perfect approach but it lets me sleep at night. I think at the end of the day we all simply have to be willing to do what's necessary to take care of our own. Having another child on the way has been a wake up call of sorts. Doing ok simply isn't good enough anymore. Thanks for all the opinions and info. Don't let me stop the debate though! |
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Posted: 2/6/2015 8:39:24 PM EDT
[#40]
Quote HistoryQuoted: There isn't an "amount" of debt that is ok, nor is there an "amount" of emergency fund that is ok. There are general guidelines but every single person's situation is vastly different and each person must make that call himself/herself. The conundrum of emergency fund vs. debt is a simple risk mitigation problem that everybody must solve themselves. There is risk on both sides of the argument, but you must weigh the risks/rewards/consequences of all and determine what risk you're willing to take on and what risk you want to mitigate. For me, losing my job would crush our family. We would lose our health insurance, our prime income, and would be homeless within 2 years. That's a pretty harsh consequence. You know what would make it worse? If I had $1,000 emergency fund instead of the $30,000 emergency fund I do have we would be homeless within a few months. That's a BAD consequence. The 2 years gives me time to try to find another job. A couple months gives me a lot a stress, pressure, and not much time to find another job. On the other side of the isle, at my 2.875% fixed mortgage rate and 2.9% rate on my wife's last student loan, the benefit to paying off my debts with my emergency fund is that I can save a couple thousand dollars over the life of the loan by using that money now. It really boils down to my family's financial security vs. $1,000-2,000 savings. You make the call for you, I'll make the call for me. Quote HistoryQuoted: Quoted: So how do you decide how much debt you should have to be prepared for this shtf scenario? Should OP try go borrow 25k more and stick that in his savings account just in case he loses his job? That would give him even more cushion and time he could pay his house payment if he lost his job. Don't get me wrong I get what you are saying but it just think it is strange to decide the amount of debt someone happens to have is the right amount to save. There isn't an "amount" of debt that is ok, nor is there an "amount" of emergency fund that is ok. There are general guidelines but every single person's situation is vastly different and each person must make that call himself/herself. The conundrum of emergency fund vs. debt is a simple risk mitigation problem that everybody must solve themselves. There is risk on both sides of the argument, but you must weigh the risks/rewards/consequences of all and determine what risk you're willing to take on and what risk you want to mitigate. For me, losing my job would crush our family. We would lose our health insurance, our prime income, and would be homeless within 2 years. That's a pretty harsh consequence. You know what would make it worse? If I had $1,000 emergency fund instead of the $30,000 emergency fund I do have we would be homeless within a few months. That's a BAD consequence. The 2 years gives me time to try to find another job. A couple months gives me a lot a stress, pressure, and not much time to find another job. On the other side of the isle, at my 2.875% fixed mortgage rate and 2.9% rate on my wife's last student loan, the benefit to paying off my debts with my emergency fund is that I can save a couple thousand dollars over the life of the loan by using that money now. It really boils down to my family's financial security vs. $1,000-2,000 savings. You make the call for you, I'll make the call for me. If you can't find a new job within 2 years, I think you need a new profession I'd hit your debt hard at this point. |
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Posted: 2/8/2015 8:05:52 PM EDT
[#41]
Quote HistoryQuoted:
If you have 2 years worth of income, you're going better than I'd say 75% of Americans. Probably more to be honest If you can't find a new job within 2 years, I think you need a new profession
I'd hit your debt hard at this point. My 2 year figure has a few assumptions built into it. First, and foremost, it assumes this is a standard job loss scenario wherein I will receive unemployment and my wife will continue working. If something serious happened where-in I were forced to stop working for some reason and therefore I couldn't receive unemployment, and my wife also couldn't work, our emergency fund is much closer to a 6-7 month fund. Either way, my point was that a $1,000 e-fund isn't an e-fund at all. For example, in my state, you can't even file for unemployment until you've been unemployed for 2 weeks. After that time, processing the claim may take a couple more weeks. If anything happens and the claim were rejected and you had to appeal it may be a couple months before you get a check. Simple job-loss, plus a couple things going wrong could land you in financial trouble pretty quickly with such a small E-fund. |
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Posted: 2/13/2015 9:49:27 AM EDT
[#42]
I am in a very similar situation. I have some low interest CC debt and very low interest student loan debt that I would like to pay off, but I'm only making basically minimum payments until I can get my savings to 6 mos of expenses. CC is 2% and student loan is 2.55%.
Do NOT take all but $1k out of your savings to pay off debt. One of the foremost financial calamities anyone will see is unemployment and you can't pay mortgage/rent with a credit card. I would rather have the safety net before paying off debt. |
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Posted: 2/15/2015 1:12:33 PM EDT
[#43]
Quote HistoryQuoted: I am in a very similar situation. I have some low interest CC debt and very low interest student loan debt that I would like to pay off, but I'm only making basically minimum payments until I can get my savings to 6 mos of expenses. CC is 2% and student loan is 2.55%. Do NOT take all but $1k out of your savings to pay off debt. One of the foremost financial calamities anyone will see is unemployment and you can't pay mortgage/rent with a credit card. I would rather have the safety net before paying off debt. |
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Posted: 2/15/2015 7:25:43 PM EDT
[#44]
Quote HistoryQuoted: In a lot of situations/apt complexes, you can pay rent with a CC. But I definitely see your point. I'm struggling with the same quandary whether I should just keep hammering away at debt with the $1k e-fund, or beef up savings to cover me for 3-6 months before I resume aggressive debt repayment. Quote HistoryQuoted: Quoted: I am in a very similar situation. I have some low interest CC debt and very low interest student loan debt that I would like to pay off, but I'm only making basically minimum payments until I can get my savings to 6 mos of expenses. CC is 2% and student loan is 2.55%. Do NOT take all but $1k out of your savings to pay off debt. One of the foremost financial calamities anyone will see is unemployment and you can't pay mortgage/rent with a credit card. I would rather have the safety net before paying off debt. If it will take you 5 years to get out of debt...then yeah, put some cash in savings because something WILL happen within 5 years where you will need some money. But if you'll be out of debt within a year or two? Maybe keep plugging away at debt. |
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Posted: 2/15/2015 10:35:09 PM EDT
[#45]
Quote HistoryQuoted:
I think it depends on a case by case basis If it will take you 5 years to get out of debt...then yeah, put some cash in savings because something WILL happen within 5 years where you will need some money. But if you'll be out of debt within a year or two? Maybe keep plugging away at debt. Quote HistoryQuoted:
Quoted:
Quoted:
I am in a very similar situation. I have some low interest CC debt and very low interest student loan debt that I would like to pay off, but I'm only making basically minimum payments until I can get my savings to 6 mos of expenses. CC is 2% and student loan is 2.55%. Do NOT take all but $1k out of your savings to pay off debt. One of the foremost financial calamities anyone will see is unemployment and you can't pay mortgage/rent with a credit card. I would rather have the safety net before paying off debt. If it will take you 5 years to get out of debt...then yeah, put some cash in savings because something WILL happen within 5 years where you will need some money. But if you'll be out of debt within a year or two? Maybe keep plugging away at debt. I agree. It really depends on your situation. I like Dave Ramsey's ideas but they are a generalization and a path for people who really don't know what to do to get on track. If you are single and live in an apartment then $1,000 e-fund is probably OK. If you have a wife that doesn't work, 3 kids, a mortgage etc then things are obviously different. Each person has to decide what is best for them. The most important thing, IMO, is to make a plan and stick with it. |
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