Hi Mr. Dunn,
I recently discovered your blog and I started listening to your radio show. I’m almost 26 years old and royally stuck. I feel like I’m a financial mess. I am a college grad with both my master’s and bachelors, employed, and living at home with the huge guilt trip. I moved home last year because I lost a roommate and was paying 50% of my salary to my rent for 6 months.
So on my 25th birthday, I came to dear old mom and dad broke, in credit card debt, student loan debt, and car debt. There was no way I could move back out on my own. I have been home for 6 months. I paid off all credit card debt as well as two student loans. I also got a new job that gave me a generous raise but offers no 401K. I have been using what I would have been saving for a 401K to pay down my loans.
When I came home 6 months ago, I was frustrated and I wanted to buy a house because after I spent over 13,000 of my salary on housing, I felt like I kept a rich old man richer in Florida. But now I’m realizing that, if I stay home, pay off my student loans, and progressively save for a house; it will be a financial burden on my parents and I don’t want to overstay my welcome. I also have a boyfriend in New Jersey, (I live in Pennsylvania) and it’s a serious relationship, I think a house purchase would be smarter to do on dual income when my boyfriend and I are married.
So my question is how can I gracefully leave my parents, start investing for my retirement again, and still progressively pay off my student loans. I would like to be debt free in 5 years. Below is my messy financial life:
· Salary: $53,000 which works out to be $1,633 dollars every two weeks after taxes.
· Car debt: $7,000 but it has a fixed APR. (This is due to be paid off November 2016) $229 monthly
· Student Loans: $24,000 (was $27,000) $189 monthly
· Savings: $6,000
· 401K from old job: $3,500
· Savings Bonds from childhood: $7,500
Thank you for your help,
Jenna’s situation is so common, I decided to have her on The Pete the Planner Radio Show on WIBC this week. Listen below to hear Jenna and I talk through her situation:
Jenna’s current debt pay-down plan:
Jenna saves 50% of her paycheck. But instead of saving her money for the future, Jenna is using her savings to pay off debt. Every month, Jenna pays the minimum payment on all her debts and stockpiles 50% of her paycheck into a savings account until she has enough to pay off a whole debt in one payment.
While I admire her discipline to save 50% of her paycheck and for working toward paying off her debt, I have a new plan for her I’m sure will work better.
Listen to my plan here:
My plan for Jenna:
– Leave $3,000 in savings, use other $3,000 to make a large payment on the car.
– Switch your focus from the student loans to the car payment, use the $1,600 you save each month to pay off your car. This will do two things, it will free up $229 a month once it’s paid off and it can be paid off faster giving you positive momentum to keep up your hard work.
– Car should be paid off in a few months and when it is you’ll have an extra $229 to combine with the $1,600 you are already setting aside for debt pay-down. Use the $1,829 to aggressively pay off your student loans.
– Your student loans will be paid off in just over a year, and when they are paid off you can move out of your parents’ house. Use your freed up income to pay your rent and to build an emergency fund.
– Also, since your employer doesn’t offer a 401(k), start a retirement fund somewhere and begin to fund it each month. As soon as your debt is paid off, increase your contributions.
Jenna, there are two parts to paying off debt, the first is realizing your debt is an issue and the second is actually paying off your debt. You are halfway there because you’ve already realized having debt sucks and you’ve altered your lifestyle to help you accomplish your goal. You will get there and you will move out of your parents house and you will absolutely thank yourself in the future. Good luck!
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.
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