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rated:
After a graduate degree, a couple investment properties purchased before the crash, and yes, a lot of unneeded spending, I find myself, in January 2013, pretty deep in debt. Luckily, I recently finished school and started a better paying job and have decided that it's time to get serious about my debt.

Summary, updated as of Nov. 1, 2014

Credit cards: $0, 0% of the original $35,000
Student loans: $105,200, 82% of the original $129,000
Mortgages: $304,200, and refinanced both mortgages
Blog: I'm at a top-level domain and tweet about my progress; neither are linked to here

2014 goals
†Pay off $27,000 in debt: Through Nov. 1, I've paid off $14,900; likely will not be able to hit this
Contribute $17,000 to retirement savings: †Through Nov. 1, I've added $20,000; huzzah
Add $1,378 to emergency fund through the 52-week savings challenge: On track and have added $990 through Nov. 1

2013 goals

Credit cards:
[DONE] Call all three companies to ask for lower rates; B of A lowered from 22% to 20% and Citi lowered from 20% to 16%
[DONE] Pay off all debt over 10%; explicitly, that means paying off the $5,000 at 22% and the $16,000 at 20%, by paying $1000 toward credit card debt with every bi-weekly paycheck; Have paid off all $35,000

Student loans:
[DONE] Get smart enough about these in regard to deferral and forbearance, to write a knowledgeable post about it by 1 Feb ; it was knowledgeable-ish
[DONE] Make a plan based on that knowledge and implement it by July when deferral ends ; Have started making payments as of May. The plan is to pay $1,025

Mortgages:
[DONE] Have both appraised and figure out cash flow by 1 Feb ; only appraised more expensive one, didn't need to appraise VA loan
[DONE] Refinance to a lower rate, if possible, by 1 March ; VA loan is refinanced! Green Tree loan (formerly B of A) is also refinanced!

Blog:
[DONE] One blog post every two weeks documenting my status, and what I've learned about debt ; I am blogging two to three times per week

Taxes:
Put together a plan by May 15

The WYSIWYG makes me lose my code formatting



Date Action Amount CC Balance Notes
01/08/2013 Started n/a (35,000) 21,000 at 20%+
01/14/2013 Payment 1000 (34,000)
01/28/2013 Payment 1000 (33,200) 200 in interest
02/04/2013 Balance Tfer n/a (33,200) but now, $14,500 is at 0%
02/08/2013 Payment 1000 (32,200)
02/11/2013 Payment 1000 (31,200)
02/21/2013 Payment 1000 (30,200)
02/28/2013 Payment 1000 (29,200)
03/11/2013 Payment 1000 (28,200)
03/11/2013 Payment 600 (27,600) to 0% debt, of which $13,900 remains
03/18/2013 Payment 1000 (26,700) 100 in interest
03/22/2013 Payment 1000 (25,700)
03/31/2013 Payment 700 (25,000) Yes!
04/08/2013 Payment 1025 (24,000) Payments are bigger now
04/11/2013 Payment 280 (23,700) to 0% debt, of which $13,600 remains
04/15/2013 Payment 10100 (13,600) Only 0% debt remains
04/22/2013 Payment 1025 (12,575) To 0% debt
05/13/2013 Payment 75 (12,500) Slowing the pace on paying 0% debt
06/12/2013 Payment 500 (12,000) Just makin' the minimums here
07/13/2013 Payment 500 (11,500) Not trying to be a hero
08/19/2013 Payment 500 (11,000) Minimum payment
09/12/2013 Payment 500 (10,500) Minimum payment
10/14/2013 Payment 5500 (5,000) Big payment
11/21/2013 Payment 2100 (2900) Another payment
12/12/2013 Payment 2900 0 She's done
I'll start tracking student loans too now that I'm paying them off

Date Action Student loan balance Notes
01/08/2013 Started (129,000)
06/01/2013 Update (130,300) Paid $2500 since Jan, still in deferral
07/01/2013 Update (128,000)
08/01/2013 Update (125,600) Deferral ended
09/01/2013 Update (122,700)
10/01/2013 Update (121,000)
11/01/2013 Update (120,900)
12/01/2013 Update (120,400)
01/01/2014 Update (120,100)
02/01/2014 Update (117,400)
03/01/2014 Update (115,800)
04/01/2014 Update (115,700)
06/01/2014 Update (114,000)
07/01/2014 Update (113,000)
08/01/2014 Update (111,900)
09/01/2014 Update (108,300)
10/01/2014 Update (105,700)
11/01/2014 Update (105,200)






Member Summary
Most Recent Posts
Awesome! I was just thinking about this last week and was looking for an update.

stopsignhank (Nov. 05, 2014 @ 2:12p) |

I was just doing some math today for my 2014 so far and felt like over-sharing:

$68k My take-home net of all cash bonuses... (more)

debtblag (Nov. 21, 2014 @ 2:28p) |

Time for a not great net worth update for December 2014:

Debt did nothing to stay at ($105,200)
Retirement savings went up... (more)

debtblag (Dec. 16, 2014 @ 12:56p) |

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rated:
I figure the new year is as good a time as any to finally get started on paying this down.
Total: $460,000

Credit cards: $35,000
Bank of America: $5,000 at 22%
Citi: $16,000 at 20%
USAA: $14,000 at 8.9%
Student Loans: $131,000
Grad PLUS: $64,000 at 7.9%
Stafford: $65,000 at 6.9%
Consolidated: $2,000 at 3.3%
Mortgages: $305,000
Bank of America: $168,000 at 7.5%
USAA: $137,000 at 6.5%

Income
I had the good fortune to get offered a full-time job by my summer internship which paid approximately $100,000 per year, when bonus is included (and with 401k match up to 6%)

Monthly budget
$4,800 Work income (take-home)
$2,200 Average rental income, net of all fees and expenses. Numbers from 2012, usually ranging from $2100 to $2600
($1,050) Rent
($100) Transport per month
($2900) Mortgage payments (inc. property tax, insurance)
($250) 401k contribution
------
$2,700 balance before student loan repayment starts

($700) Grad plus student loan payment
($700) Stafford loan repayment
------
$1,300 balance after student loan repayment starts


Background
It seemed to be a pretty normal life up to this point, and yet here we are. I'm 32, single, and live in New York, which means that I share an apartment and don't need a car. The mortgages are rental/investment properties I bought in 2004 and 2007, the student debt came from earning a Master's. The credit card debt just sorta built up over time as I back-filled months of rent coming up short to cover the mortgages, while I worked public sector jobs (mostly military) or went to school.

I'm looking to pay this off as quickly as possible while adding to retirement accounts at the same time in the smartest, most FWF way possible.



Here were my goals for 2013:

Credit cards:
[DONE] Call all three companies to ask for lower rates; B of A lowered from 22% to 20% and Citi lowered from 20% to 16%
[DONE] Pay off all debt over 10%; explicitly, that means paying off the $5,000 at 22% and the $16,000 at 20%, by paying $1000 toward credit card debt with every bi-weekly paycheck; Have paid off all $35,000

Student loans:
[DONE] Get smart enough about these in regard to deferral and forbearance, to write a knowledgeable post about it by 1 Feb ; it was knowledgeable-ish
[DONE] Make a plan based on that knowledge and implement it by July when deferral ends ; Have started making payments as of May. The plan is to pay $1,025

Mortgages:
[DONE] Have both appraised and figure out cash flow by 1 Feb ; only appraised more expensive one, didn't need to appraise VA loan
[DONE] Refinance to a lower rate, if possible, by 1 March ; VA loan is refinanced! Green Tree loan (formerly B of A) is also refinanced!

Blog:
[DONE] One blog post every two weeks documenting my status, and what I've learned about debt ; I am blogging two to three times per week

Taxes:
Put together a plan by May 15

rated:
Any equity in the two rental properties? Any possibility of refinancing on those properties?

How about your credit score?

From the looks of it, your best best is to refinance the properties and get as much cash out of them as you can (it's the only debt you have that's deductible). See if you can get another 0% card and transfer over as much of that CC debt as possible for another year.

With 100k income, you're looking at say ~70k after taxes which gives you about 6k monthly, after expenses about 4.5k. Just attack each loan systematically highest interest rate or lowest balance first, whichever makes you feel better.

rated:
CC's first, including if they've got a promo rate on them (or at least make sure you've got the cashflow to cover the full debt before the promo rate expires). When you get down to just mortgages and student loans, I think the laws regarding their tax deductions, your potential default on them, IBR or other forgiveness possibilities, and the like become more important than the small difference in nominal rates.

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lotusgardener said:   Any equity in the two rental properties? Any possibility of refinancing on those properties?

How about your credit score?

From the looks of it, your best best is to refinance the properties and get as much cash out of them as you can (it's the only debt you have that's deductible). See if you can get another 0% card and transfer over as much of that CC debt as possible for another year.

With 100k income, you're looking at say ~70k after taxes which gives you about 6k monthly, after expenses about 4.5k. Just attack each loan systematically highest interest rate or lowest balance first, whichever makes you feel better.


He can't cash-out refinance the rentals if he's not using the cash on the rentals.

You're cash-flow negative on the rentals. Can you straght refinance to a lower rate, sell and get out from under or raise rent to break even?

If you can put $3500 a month at the cards, you should get those paid off in a year. I'd pay those first.

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lotusgardener said:   Any equity in the two rental properties? Any possibility of refinancing on those properties?

How about your credit score?

From the looks of it, your best best is to refinance the properties and get as much cash out of them as you can (it's the only debt you have that's deductible). See if you can get another 0% card and transfer over as much of that CC debt as possible for another year.

With 100k income, you're looking at say ~70k after taxes which gives you about 6k monthly, after expenses about 4.5k. Just attack each loan systematically highest interest rate or lowest balance first, whichever makes you feel better.


Equity
The state estimates my property values (for taxes) at $152,000 and $230,000 respectively, meaning I've got $15,000 in equity on one and $61,000 in the other. It may be worth noting that I used my Vets Home Loan Guaranty on the first. I will contact my bank regarding refinancing those properties.

Credit score
Just now, I pulled my Experian score which was 719

And thanks. Trying to think up the best goal for how to go after this. Makes the most sense to go after the credit cards first, of course...

rated:
Veteran?
Look into a refi through Navy Federal.
They also have a 0% BT offer right now.

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b0mbrman said:   lotusgardener said:   Any equity in the two rental properties? Any possibility of refinancing on those properties?

How about your credit score?

From the looks of it, your best best is to refinance the properties and get as much cash out of them as you can (it's the only debt you have that's deductible). See if you can get another 0% card and transfer over as much of that CC debt as possible for another year.

With 100k income, you're looking at say ~70k after taxes which gives you about 6k monthly, after expenses about 4.5k. Just attack each loan systematically highest interest rate or lowest balance first, whichever makes you feel better.


Equity
The state estimates my property values (for taxes) at $152,000 and $230,000 respectively, meaning I've got $15,000 in equity on one and $61,000 in the other. It may be worth noting that I used my Vets Home Loan Guaranty on the first. I will contact my bank regarding refinancing those properties.

Credit score
Just now, I pulled my Experian score which was 719

And thanks. Trying to think up the best goal for how to go after this. Makes the most sense to go after the credit cards first, of course...


What the state says they're worth doesn't mean anything. It's what they'll appraise for that would make all the difference if you're trying for a super-low rate. You might be able to do a streamline refinance, but the rate would be higher.

Frankly, I'd probably look at getting out of the rental game for now. You've got your hands full with the job and the other debt. One major repair on one of the rentals and you'd be wiped out.

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lotusgardener said:   Any equity in the two rental properties? Any possibility of refinancing on those properties?

How about your credit score?

From the looks of it, your best best is to refinance the properties and get as much cash out of them as you can (it's the only debt you have that's deductible). See if you can get another 0% card and transfer over as much of that CC debt as possible for another year.

With 100k income, you're looking at say ~70k after taxes which gives you about 6k monthly, after expenses about 4.5k. Just attack each loan systematically highest interest rate or lowest balance first, whichever makes you feel better.


On second look, the property with the remaining principal balance of $137,000 has a tax value of $120,000 meaning I have negative equity in it. Sorry about that

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b0mbrman said:   On second look, the property with the remaining principal balance of $137,000 has a tax value of $120,000 meaning I have negative equity in it. Sorry about that
Tax value <> Market value.

rated:
You could at least refi the rental that does have equity. Also check Zillow for another idea on the property values. The state assesment may not reflect market value. Zillow isn't super accurate either but between the two you will have a better estimate.

How about selling the rentals? You seem to be cash flow negative and underwater on one. If you sell em both you'd free up some equity to pay off your other debts.

rated:
Yea Refi the homes if you can. Hell you can probably get rates half that if credit and value are good.

Pay off thet 22% FIRST, geez 22%!!! let alone the 14% coming up. If you can't pay really fast see if your other CC has a 0% roll over or even regular rate. Be careful as some charge a % fee to move over. i.e. read the fine print and follow through.

Does your company have any student loan payback options? Ask your Boss and HR.

rated:
1.Sell the rentals - they are costing you money every month you do not have. Any positive cash you get post selling out towards credit cards.
2. Time for some austerity. 100K is great income and even after taxes you should take home pay about 5K.
3. Call each card or loan company and ask for a lower rate. You may get told no but you may get told yes and if so that will help a lot.
4. Time to pay off the credit cards and student loans. Pay minimum on each and everything extra at them off in the following order:
Bank of America: $5,000 at 22% ( should be able to pay off by march)
Citi: $17,000 at 14%
USAA: $16,000 at 8.9%
Grad PLUS: $58,000 at 7.9%
Stafford: $62,000 at 6.9%
5. See if you can consolidate your student loans into a lower rate loan
6. Can you get a bank loan at a lower rate that will allow you to consolidate several of the highest rates into something lower?
7. Every six months for the next few years you want to look at if there is any way that you can lower the rates on any of the loans or consolidate loans into a lower rate loan.

rated:
With $120k in student loans and $100k income you might qualify for income based repayment (IBR). Not sure how the rental income would impact that though.

rated:
Cleaned up some of the numbers in the first couple posts

xerty said:   CC's first, including if they've got a promo rate on them (or at least make sure you've got the cashflow to cover the full debt before the promo rate expires). When you get down to just mortgages and student loans, I think the laws regarding their tax deductions, your potential default on them, IBR or other forgiveness possibilities, and the like become more important than the small difference in nominal rates.

Going CCs first are what makes the most sense, given the high interest rates. I made this visual where interest rates are on the y-axis and balances are on the x-axis: http://tinypic.com/m/fwk2oj/2

I think I could comfortably knock out half of the pink. 3/4 may be possible, if not a bit too aggressive.

For the other two,

Mortgages:
Tax deductible: Always
Potential default: I likely will not, although I will go cash-flow negative and am almost certainly underwater on one of the properties
Deferment, forebearance possibilities: Not without being foreclosed upon, but I will look into reducing my payments through refinancing

Student loans
Tax deductible: Probably not; only available for those with AGIs below $60,000 (Relevant IRS pub: http://www.irs.gov/publications/p970/ch04.html )
Potential default: I don't believe it's legally possible to default on student loans (except through death). I should look into this.
Deferment, forebearance possibilities: I know that there are many ways to defer payments (but not interest). I will also look into this.

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b0mbrman said:   
Student loans
Tax deductible: Probably not; only available for those with AGIs below $60,000
Potential default: I don't believe it's legally possible to default on student loans (except through death). I should look into this.
Deferment, forebearance possibilities: I know that there are many ways to defer payments (but not interest). I will also look into this.


The benefit phases out with a MAGI of more than 60k and less than 75k:

irs.gov said: The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($120,000 and $150,000 if you file a joint return). You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($150,000 or more if you file a joint return). (http://www.irs.gov/publications/p970/ch04.html#en_US_2011_publin...

Depending on your pay rate and how it is structured you might be able to use it.

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BobM73 said:   lotusgardener said:   Any equity in the two rental properties? Any possibility of refinancing on those properties?

How about your credit score?

From the looks of it, your best best is to refinance the properties and get as much cash out of them as you can (it's the only debt you have that's deductible). See if you can get another 0% card and transfer over as much of that CC debt as possible for another year.

With 100k income, you're looking at say ~70k after taxes which gives you about 6k monthly, after expenses about 4.5k. Just attack each loan systematically highest interest rate or lowest balance first, whichever makes you feel better.


He can't cash-out refinance the rentals if he's not using the cash on the rentals.

You're cash-flow negative on the rentals. Can you straght refinance to a lower rate, sell and get out from under or raise rent to break even?

I am going to try to refinance, but why would I refinance if I'm going to sell after? (Or did I misread that?)

My problem with the rentals this past year was a lack of occupancy. In 2011, I had about $3000 more in net rent.

If you can put $3500 a month at the cards, you should get those paid off in a year. I'd pay those first.
$3500 would be difficult, particularly when the six-month post-graduation deferment period ends on my student loans (unless I can find another student loan deferral). I'm trying to decide if I'd be better off aiming at half or 3/4 of the credit card debt.

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woowoo2 said:   Veteran?
Look into a refi through Navy Federal.
They also have a 0% BT offer right now.


Veteran indeed. 11 years in the Army, FWIW.

And I just signed up for a member account there and will look into the refi. Thanks

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uutxs said:   b0mbrman said:   On second look, the property with the remaining principal balance of $137,000 has a tax value of $120,000 meaning I have negative equity in it. Sorry about that
Tax value <> Market value.


Of course, but I don't have much better to estimate by. There isn't a lot of selling of four-plexes happening there right now... which leads me to think the market value would be even lower

rated:
You can do a VA refi regardless of the LTV on the propery, and does not even require an appraisal. You would easily cut your rate by at least a couple of percent, probably more. Navy Federal definitely has the best VA rates from what I've seen - i'm currently in the middle of refinancing my VA loan with them to 15yr@2.625, with no points or origination fees. You might have an issue with it being an investment property though...




b0mbrman said:   woowoo2 said:   Veteran?
Look into a refi through Navy Federal.
They also have a 0% BT offer right now.


Veteran indeed. 11 years in the Army, FWIW.

And I just signed up for a member account there and will look into the refi. Thanks

rated:
If you're unable to find a 0% BT offer for your credit cards, you should look into Lending Club and/or Prosper, peer to peer lending sites. Depending on your credit, you could qualify for a 3 yr or 5 yr (your choice) loan with interest rates starting at 6%. There is also an origination fee... I think around 1%. I'm not a borrower but a lender on there and I really feel it's a win-win for everybody- you lower your interest rates and my money earns more interest than the bank pays me, though of course the best thing to do is pay it off entirely ASAP.

rated:
Isnt your title a misnomer as in your first paragraph you state

Credit cards: 100% of original
Student loans: No plan
Rental properties: Cash flow-negative an undetermined amount
Blog: Not started

You have no plan!!!

rated:
FWIW, if you want to be financially conservative you should be able to pay your loans, pay your living expenses, and pay your mortgages under your job income. Selling one property would allow you to do that. You should try to keep your living expenses within the remainder. Then you can use any income from your property to pay down your credit cards, develop emergency savings, etc. My strategy with paying down my student loans is to have a very small emergency savings pool until I've knocked out the debt. You probably want a bit more (include your mortgages in your emergency savings plan for expenses of 3 months, 6 months, whatever your comfort level). I'd pay off all high-interest debt (anything over 8% first). Then develop small emergency savings pool. After a small emergency savings pool, I'd knock out the rest of the lower-interest debt. Also, your mortgage interest rate is high. Did you not have a calculator when you bought the two houses?

Personally, I would ditch the 401k contributions until you pay off the credit card debt. It's nice that you're getting a match, but you are also accumulating additional debt at 22% interest...

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Marlin1975 said:   Yea Refi the homes if you can. Hell you can probably get rates half that if credit and value are good.

Pay off thet 22% FIRST, geez 22%!!! let alone the 14% coming up. If you can't pay really fast see if your other CC has a 0% roll over or even regular rate. Be careful as some charge a % fee to move over. i.e. read the fine print and follow through.

Does your company have any student loan payback options? Ask your Boss and HR.


No student loan payback help.

Their education help is that they'll pay for classes I take on a part-time basis while employed here... which could be useful

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bullcity said:   Personally, I would ditch the 401k contributions until you pay off the credit card debt. It's nice that you're getting a match, but you are also accumulating additional debt at 22% interest...I would borrow at 22% to get a 100% return all day long. I'd be cutting a lot of other things before I'd ditch the 401k contributions.

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SSG said:   You can do a VA refi regardless of the LTV on the propery, and does not even require an appraisal. You would easily cut your rate by at least a couple of percent, probably more. Navy Federal definitely has the best VA rates from what I've seen - i'm currently in the middle of refinancing my VA loan with them to 15yr@2.625, with no points or origination fees. You might have an issue with it being an investment property though...




b0mbrman said:   woowoo2 said:   Veteran?
Look into a refi through Navy Federal.
They also have a 0% BT offer right now.


Veteran indeed. 11 years in the Army, FWIW.

And I just signed up for a member account there and will look into the refi. Thanks


Yes. I called and was offered 30 years at 3.325% w/o points or origination fees for the VA loan. Waiting to hear what rate they'd refinance the other, if possible.

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sharky1985 said:   If you're unable to find a 0% BT offer for your credit cards, you should look into Lending Club and/or Prosper, peer to peer lending sites. Depending on your credit, you could qualify for a 3 yr or 5 yr (your choice) loan with interest rates starting at 6%. There is also an origination fee... I think around 1%. I'm not a borrower but a lender on there and I really feel it's a win-win for everybody- you lower your interest rates and my money earns more interest than the bank pays me, though of course the best thing to do is pay it off entirely ASAP.

I plan to be aggressive with it, but that could be a good stop gap.

Maybe the best goal would be to aim to get rid of the double-digit credit card debt... Knocking out $21k would be tough, but not impossible.

rated:
JaxFL said:   Isnt your title a misnomer as in your first paragraph you state

Credit cards: 100% of original
Student loans: No plan
Rental properties: Cash flow-negative an undetermined amount
Blog: Not started

You have no plan!!!


I guess the thread's purpose at this stage is to come up with a plan. But thanks; I changed the title

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b0mbrman said:   Student loans
Potential default: I don't believe it's legally possible to default on student loans (except through death). I should look into this.
What do you plan to look into, faking your own death?

rated:
bullcity said:   FWIW, if you want to be financially conservative you should be able to pay your loans, pay your living expenses, and pay your mortgages under your job income. Selling one property would allow you to do that. You should try to keep your living expenses within the remainder. Then you can use any income from your property to pay down your credit cards, develop emergency savings, etc. My strategy with paying down my student loans is to have a very small emergency savings pool until I've knocked out the debt. You probably want a bit more (include your mortgages in your emergency savings plan for expenses of 3 months, 6 months, whatever your comfort level). I'd pay off all high-interest debt (anything over 8% first). Then develop small emergency savings pool. After a small emergency savings pool, I'd knock out the rest of the lower-interest debt. Also, your mortgage interest rate is high. Did you not have a calculator when you bought the two houses?

Personally, I would ditch the 401k contributions until you pay off the credit card debt. It's nice that you're getting a match, but you are also accumulating additional debt at 22% interest...


Getting the properties appraised will give me a clear idea of what the best thing to do with them is. The one that I believe to have some equity in it may either have not enough to let me take a HEL and stay away from PMI; or may even be underwater itself

As for having a calculator...you're right... I will say, though, that 2012 was my worst year in terms of rent (which when full gets up to $4000 net of fees). Every year since 2004, I've come out cash-flow positive when you factor in the tax-deductible interest, property tax, insurance, and most of all -- depreciation expense... But to be even more honest with myself, yes, I did catch the irrational exuberance of watching as property values went up 10%, seemingly endlessly.

Let me do a PV calculation on the 401k match and get back to you on that.

rated:
Did you not receive any tuition assistance from your GI Bill?

rated:
bullcity said:   FWIW, if you want to be financially conservative you should be able to pay your loans, pay your living expenses, and pay your mortgages under your job income. Selling one property would allow you to do that. You should try to keep your living expenses within the remainder. Then you can use any income from your property to pay down your credit cards, develop emergency savings, etc. My strategy with paying down my student loans is to have a very small emergency savings pool until I've knocked out the debt. You probably want a bit more (include your mortgages in your emergency savings plan for expenses of 3 months, 6 months, whatever your comfort level). I'd pay off all high-interest debt (anything over 8% first). Then develop small emergency savings pool. After a small emergency savings pool, I'd knock out the rest of the lower-interest debt. Also, your mortgage interest rate is high. Did you not have a calculator when you bought the two houses?

Personally, I would ditch the 401k contributions until you pay off the credit card debt. It's nice that you're getting a match, but you are also accumulating additional debt at 22% interest...


Let's see. I'm 33 years from retirement, so:

$1000 to 401k match
$1000 to the matched 401k would get doubled immediately, then grow at 8-10% for 33 years.
$1000 x 2 x (1 + 9%)^33 =~ $34,000
Move some things around... e^(ln(34,000/1,000)/33)-1
So an effective interest rate of 11.3%

So you're right. I guess I really am better off paying off the credit card than saving for retirement -- even though it's matched. That's kinda shocking...

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TheDiggler said:   b0mbrman said:   Student loans
Potential default: I don't believe it's legally possible to default on student loans (except through death). I should look into this.
What do you plan to look into, faking your own death?

Ha ha ha

No, I want to look into if there are any other means toward forbearance, or any ways to defer.

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Joe328 said:   Did you not receive any tuition assistance from your GI Bill? Not a cent. I was an officer who did four active years.

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unless you can't afford to eat, I would not stop contributing to your 401k up to your match. Your 401k is protected from creditors and bankruptcy.

rated:
Lots of good advice here; I just wanted to stop in to say good for you for putting it all out there and taking steps to correct your mistakes. That's a huge step and you should feel good about yourself for being so honest and upfront. You've got a great attitude, too. Keep it up and for goodness' sake, learn from your mistakes and don't get into (unsecured) debt again! I'll be reading your updates with interest; if you get a chance, pm me with your site address when you start your blog. Good luck!

rated:
b0mbrman said:   bullcity said:   
Personally, I would ditch the 401k contributions until you pay off the credit card debt. It's nice that you're getting a match, but you are also accumulating additional debt at 22% interest...


Let's see. I'm 33 years from retirement, so:

$1000 to 401k match
$1000 to the matched 401k would get doubled immediately, then grow at 8-10% for 33 years.
$1000 x 2 x (1 + 9%)^33 =~ $34,000
Move some things around... e^(ln(34,000/1,000)/33)-1
So an effective interest rate of 11.3%

So you're right. I guess I really am better off paying off the credit card than saving for retirement -- even though it's matched. That's kinda shocking...



Maybe I am missing something here, but this logic doesn't make sense to me, calculating the effective interest rate of that $1000 over 33 years, and comparing that to the credit card interest rate. You won't be paying off that 22% credit card for 33 years, I hope. I think you should be looking at this based on which will leave you in a better position at the moment when the credit card is paid off.

Here's a very rough example, using the calculator at http://www.bankrate.com/calculators/credit-cards/credit-card-pay... :

Situation 1:
- Make payments for ~260 per month for 24 months, which pays off the card in 2 years.
- Pay a total of ~$6,240 including $1,240 in interest.
- Net effect on debt when card is paid off: (decreased by 5000)
- Net effect on 401(k) when card is paid off: zero (nothing added to it)
- Net total expenditures (for card and 401k) during repayment period: $6,240

Situation 2:
- Make payments for $177 per month until card is paid off, which will take 40 months. ($177 = the $260 payment in the prior example, reduced by $83 or 1,000/12).
- Pay a total of ~$7,080 including $2,080 in interest.
- Contribute $1,000 to 401(k) for each year. Matching contribution of $1000 per year.
- Net effect on debt when card is paid off: (decreased by 5000, same as above)
- Net effect on 401(k) when card is paid off: $6,000 increase (3 years 401k contributions and matches, rounding down from 40 months)
- Net total expenditures (for card and 401k) during repayment period (again rounding to 3 years for 401k): $10,080

Situation 2 sounds a lot better to me.
You have $6000 in your 401(k). Subtract out the $3,000 you've contributed yourself, and the $840 in additional interest paid on the card. To be fair, subtract out the $1000 match from year 3; since the card in scenario 1 would be paid off by then you could have contributed to your 401k that year. You're still ahead at this point by net $1,160.

The card interest is wiped out so it is no longer a factor to consider in evaluating your interest return for subsequent years.

rated:
maxfleischer said:   Lots of good advice here; I just wanted to stop in to say good for you for putting it all out there and taking steps to correct your mistakes. That's a huge step and you should feel good about yourself for being so honest and upfront. You've got a great attitude, too. Keep it up and for goodness' sake, learn from your mistakes and don't get into (unsecured) debt again! I'll be reading your updates with interest; if you get a chance, pm me with your site address when you start your blog. Good luck!

Thanks for the well wishes! I will keep you posted.

rated:
ithildin said:   b0mbrman said:   bullcity said:   
Personally, I would ditch the 401k contributions until you pay off the credit card debt. It's nice that you're getting a match, but you are also accumulating additional debt at 22% interest...


Let's see. I'm 33 years from retirement, so:

$1000 to 401k match
$1000 to the matched 401k would get doubled immediately, then grow at 8-10% for 33 years.
$1000 x 2 x (1 + 9%)^33 =~ $34,000
Move some things around... e^(ln(34,000/1,000)/33)-1
So an effective interest rate of 11.3%

So you're right. I guess I really am better off paying off the credit card than saving for retirement -- even though it's matched. That's kinda shocking...



Maybe I am missing something here, but this logic doesn't make sense to me, calculating the effective interest rate of that $1000 over 33 years, and comparing that to the credit card interest rate. You won't be paying off that 22% credit card for 33 years, I hope. I think you should be looking at this based on which will leave you in a better position at the moment when the credit card is paid off.

Here's a very rough example, using the calculator at http://www.bankrate.com/calculators/credit-cards/credit-card-pay... :

Situation 1:
- Make payments for ~260 per month for 24 months, which pays off the card in 2 years.
- Pay a total of ~$6,240 including $1,240 in interest.
- Net effect on debt when card is paid off: (decreased by 5000)
- Net effect on 401(k) when card is paid off: zero (nothing added to it)
- Net total expenditures (for card and 401k) during repayment period: $6,240

Situation 2:
- Make payments for $177 per month until card is paid off, which will take 40 months. ($177 = the $260 payment in the prior example, reduced by $83 or 1,000/12).
- Pay a total of ~$7,080 including $2,080 in interest.
- Contribute $1,000 to 401(k) for each year. Matching contribution of $1000 per year.
- Net effect on debt when card is paid off: (decreased by 5000, same as above)
- Net effect on 401(k) when card is paid off: $6,000 increase (3 years 401k contributions and matches, rounding down from 40 months)
- Net total expenditures (for card and 401k) during repayment period (again rounding to 3 years for 401k): $10,080

Situation 2 sounds a lot better to me.
You have $6000 in your 401(k). Subtract out the $3,000 you've contributed yourself, and the $840 in additional interest paid on the card. To be fair, subtract out the $1000 match from year 3; since the card in scenario 1 would be paid off by then you could have contributed to your 401k that year. You're still ahead at this point by net $1,160.

The card interest is wiped out so it is no longer a factor to consider in evaluating your interest return for subsequent years.


Looks like you're right. A few moves in Excel says the break-even point is about 7.5 years. I'll pay off my credit card debt by the end of 2014...so looks like I'm going to keep getting that employer match.

Skipping 237 Messages...
rated:
Time for a not great net worth update for December 2014:

Debt did nothing to stay at ($105,200)
Retirement savings went up by $2,500 to $55,800
----------
Net worth†went up by $2,500 to ($49,400)

The jump in net worth largely came from an HSA contribution made to take advantage of an employer match. Obviously, there's no way I'd turn that down, but it's capping off a year where I (perhaps mistakenly) focused too much on retirement savings and not enough on debt.

I'm still pushing hard this month, but this is a very big lesson that I'll take with me into 2015 -- paying off my debt offers both the biggest return and would offer me the greatest flexibility, and it's time I started treating it as such....

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