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 Post subject: The long road from enormous student debt to respectability
PostPosted: Tue Jun 15, 2010 11:18 am 

Joined: Thu Apr 29, 2010 12:11 pm
Posts: 18
This is the first marking post along my road to financial freedom. My debt situation is not good, I fluctuate between feeling like I can conquer it (albeit painfully) and feeling defeated. I've been reading these journals and reading the forums and blogs for a while, wondering if there is anyone in a similar situation.

Most of my debt is from an expensive education, which I (with the help of the government and various creditors) funded myself. I graduated with a very large debt load, including an astronomical amount of credit card debt. I ran out of funding in my final year of professional school and financed many of my school and living expenses with credit cards. In retrospect, the smart thing to do would have been to take a year off, save some money and finish my degree later. But that's not what I did.

Here is what my debt load looked like two years ago, after graduating:

Student line of credit #1: 40,000 @ 6% interest
Student line of credit #2: 15,550 @ 3.5% interest
Federal student loans: 28,600 @ 5% interest
Credit card 1: 9,900 @ 24%
Credit card 2: 5,500 @ 19.5%
Total debt: 99,500
Phew, under 6 figures... ;)

To add insult to injury, immediately after graduating and before I started my debt reduction plan, I leased a car. I realized shortly after that it was an unecessary expense and, given my situation, a foolish decision. However, I did it, a 48 month lease at $306 per month. Adding an extra $14,688 to my liabilities column.
For a total debt load of: 114,188.

Around a year and a half ago, I came to the much overdue realization that this situation was untenable. Although I had paid for a professional education, I did not go into an extremely high paying job. Instead, I landed my dream job working internationally. While that is great in itself, the salary was not going to be enough to keep up with my ridiculous debt load.

I transferred the lease and now I have no car payment or insurance payment. I bike to work.

I implemented a debt snowball and started paying down my highest interest debts.

This is my current situation:
Student line of credit #1: 37,680 @ 6% interest
Student line of credit #2: 14,537 @ 3.5% interest
Federal student loans: 23,256 @ 5% interest
Credit card: 7,421 @ 19.5%
Total debt: 82,894


What do I plan to do about it?

1. Continue with my debt snowball.
2. Track my expenses and implement a budget.
3. In spite of the debt, start saving.


This is a rough monthly budget

Income: 3500

minimum debt payments
1st l.o.c.: 442.11
2nd l.o.c.: 151.11
federal student loan: 330
credit card: 150

rent: 700
phone: 50
electric: 35
other: 800
[I know this is bad to have one big, catch-all "other" expenses category at this point... I'm working on it]

savings
e-fund: 150
savings: 150

remainder:540


Issues (advice welcome):


1. My budget at this point is basically non-existent. I set aside enough money each month to pay rent, make the minimum payments on my student loans, and then put whatever is left at the end of the month toward my highest interest debt, the credit card. But given that I have no budget, it is easy to overspend. I am working on this, advice is appreciated.

2. The enormity of it all! Although things have improved, I am still staring at a mountain of debt and hundreds of dollars in interest per month. If I make the minimum payments, it will take me a decade to get out of debt. If I pay more, it is difficult to save for things like a wedding, a house, a car.



Sorry for the novel, if anyone read this far thank you and I will endeavor to keep this page updated.


Last edited by GSand on Sun Aug 25, 2013 7:53 pm, edited 1 time in total.

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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Tue Jun 15, 2010 12:52 pm 

Joined: Wed Oct 07, 2009 4:16 pm
Posts: 959
Hi!Welcome!

Your budget is $3500 a month. Your Loans are $1073.22 alone. I see rent, electric and phone but where exactly does the $800 go. Can you cut back and add another 50 towards the smallest debt since you want to follow the debt snowball plan? Have you considered a part time job? Your total debt is a mortgage, it is possible for you to get rid of it. You must change the path you learned from your parents. Go into your bank account and see where you are spending frivolously, you'd be surprised! You say it is easy to overspend, do you know exactly what your overspending on? If you are about to get married, I suggest you speak to your partner and get her on board. You need to create a debt attack strategy, and it would be best for her to be aware.

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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Tue Jun 15, 2010 2:27 pm 

Joined: Wed May 12, 2010 10:01 am
Posts: 16
We too had an 'other' column when we first started budgeting. Other was pretty much food, fuel, entertainment, misc bills, dogs, etc...

Not until we starting recording all our transactions did we truly understand where our money was going and how much we were really wasting. We have never hurt for money, but we really wanted to get serious about our finances and cut out the 'fat'.

We got a CC and put all expenses on it each month and pay it off in full. (I would not recommend this at all if you CANNOT pay it if FULL each month). Every week, I download the transactions and dump them into a pivot table which loads our budget vs. actuals.

The first time we did this, we found we were spending over $800 a month on food (eating out and the grocery store). We were disgusted! We set a goal of $100 eating out and $250/mo for groceries and have been able to get it the last two months.

Other areas we found some extra money - reduce cable channels, call all of your account holders (phone, insurance, etc) and see if you have the best deal, & installed a programmable thermostat!

Bottom Line:

1. Keep communicating with your partner - as long as you both understand the situation and are open about it, you will much better off!
2. Save everywhere you can! Put all of that into your debt.
3. It took you a while to get where you are at. Don't get discouraged that it will take you a while to dig back out, but if you spent anytime in these forums, you know that it can be done!
4. TRACK EVERYTHING you spend! This will help with all of the above! There are several tips on this site as well as others on ways to do that.

Those are the major things that have helped us so far!


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Tue Jun 15, 2010 2:38 pm 

Joined: Thu Apr 29, 2010 12:11 pm
Posts: 18
Thanks for the reply, fantasma. You made many good points. I will try to develop a more detailed budget tonight. And I will start tracking my expenses today, I'm sure there is plenty of money being spent unecessarily.

In the meantime, in my post above, I have:

monthly income = 3500
savings = 300
debt repayment = 1075
household expenses including rent = 785
food, transportation, all other expenses = 800

This leaves $540 per month for additional debt repayment. For a total of $1615 per month which I am allocating toward debt (46% of my net income). Another way I could look at it is that my after tax, after student loan payment income is $2425 per month. And from that figure, I am devoting about 12% to savings and 22% toward accelerated debt repayment.

That is my "debt attack strategy." Is it unrealistic? Not enough? Do I need to cut back spending more? Increase my income? Just try to be more patient? All of the above? These are all reasonable points and I am certainly willing to make sacrifices. What are your views?


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Tue Jun 15, 2010 2:43 pm 

Joined: Thu Apr 29, 2010 12:11 pm
Posts: 18
Thanks, Freeby. I see the value of that kind of dilligence in expense tracking. I'll avoid using a credit card given the circumstances, but I will spend the next month tracking every expense. I'm sure that the majority of my spending is going to be food related as well. We love to eat. Also, my partner and most of our friends have quite a bit more disposable income than I do and everyone is really generous with their spending. To a fault, I believe, and it is easy to get roped in to, say, picking up a tab at a restaurant or buying a couple of bottles of nice wine for the weekend. Because everyone else is doing the same thing. I realize I need to work harder to avoid this and maybe be more generous with my time instead... and find less expensive activities.

I appreciate the encouragement as well, it did take years to get here and I know it isn't going to go away over night. Regardless, it is easy to be discouraged. Thanks again.


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Wed Jun 16, 2010 3:43 am 

Joined: Wed Oct 07, 2009 4:16 pm
Posts: 959
GSand wrote:
Thanks for the reply, fantasma. You made many good points. I will try to develop a more detailed budget tonight. And I will start tracking my expenses today, I'm sure there is plenty of money being spent unecessarily.

In the meantime, in my post above, I have:

monthly income = 3500
savings = 300
debt repayment = 1075
household expenses including rent = 785
food, transportation, all other expenses = 800

This leaves $540 per month for additional debt repayment. For a total of $1615 per month which I am allocating toward debt (46% of my net income). Another way I could look at it is that my after tax, after student loan payment income is $2425 per month. And from that figure, I am devoting about 12% to savings and 22% toward accelerated debt repayment.

That is my "debt attack strategy." Is it unrealistic? Not enough? Do I need to cut back spending more? Increase my income? Just try to be more patient? All of the above? These are all reasonable points and I am certainly willing to make sacrifices. What are your views?


If it is possible to increase your income. GO FOR IT! Patience is crucial, even when you feel like your running in place, don't stop! Keep going. Lets take a look at all your numbers before any advise can be give on whether your strategy is realistic or not. Don't dwell, if you veer off of your path, just get back on track. Crunch the numbers, and make sure you give yourself some leeway. Don't go on a "starving binge" of sorts, its not for everybody.

$540 extra is alot, you can make great progress with that. :clap: :!: If possible look for more ways to trim the fat.

Savings, I think you should set aside about 2000 just in case! While your making all of your payments. Do you have alot of stuff? Sell them, you probably don't need them. The strategy I would use is to concentrate on saving at least 1000.00 first. Then split the extra cash you have between saving and debt snowball until you reach about 2000.00. After that actively seek to stomp on your debt while saving an amount your comfortable with say 100.00 a month for example.

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Be what you want to attract.


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Wed Jun 16, 2010 9:26 am 

Joined: Thu Apr 02, 2009 7:22 pm
Posts: 14
How old are you? Do you have anything saved for retirement? Are you currently contributing to a 401k and/or IRA? Does your employer match any money contributed to your 401k?

As to budgeting, you certainly need to spend a month or two tracking every penny spent, as you plan to do. Also, go through the last year or so of bank/CC statements to help get an idea where your money is going. Don't forget about irregular expenses such as car maintenance. To give you an idea, I have the following irregular expenses in my budget - car maintenance, car registration, life insurance, gifts, cat care (vet expenses plus food and litter), and medical (copays, prescriptions, etc). You should be saving for these types of things every month so that your budget is not completely blown when they inevitably occur. Once you have a more complete budget together, post it and others can help you pick through it. Be sure to include some fun money or you will just end up going on a spending spree and derail progress.

Don't get too discouraged. You have managed to pay off ~$17,000 in 2 years as well as get rid of the car lease, so you are making progress.

What kind of professional degree did you obtain? Are you able and willing to look for other jobs which might pay more? That is one way to accelerate progress. Other ideas include selling stuff and getting a second job. A second job has the added benefit of occupying time so that you aren't spending money!


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Wed Jun 16, 2010 3:50 pm 

Joined: Sun Mar 16, 2008 6:53 pm
Posts: 76
I wanted to talk a little bit about your three points at the bottom of your original post. You already know that you should set up a budget and how it will help you. But what you're lacking is any sort of SMART goals for tackling your existing debt load. Without them, you're staring at a mountain that doesn't seem to want to budge.

Right now you have your $800 "other" category, and over the next couple of weeks you should really figure out how to break that down better... but that's not the part I'm really concerned with.

I think that instead of viewing your overflow as "extra" debt payments, perhaps you should look at your debt in terms of "how much do I need to pay towards my debt to have it paid off by ______." The problem with having your left over money as your extra debt money is that it's very easy to dip into for that extra bottle of wine. "Sure it cost $100, but I still put $440 towards debt, so it's fine!"

Here's where a goal comes in, and wouldn't you know it, the math in your case works out beautifully. Take your credit card (7,421 @ 19.5%) for example. If you pay just the minimum, it will take 8.5 years to pay off. Nobody likes that.

However, let's say you commit right now that you want it paid off in one year. In order to knock this credit card out in 12 payments, you would need to send ~686/mo... which is almost EXACTLY $150 (min) plus $540 (extra). By earmarking the money for debt payment up front, you'll force yourself to keep your "fun" budget as a sub-category of that $800 "other" money, and you'll know exactly why you're doing it.

As for your relationship, you've said she's been understanding and supportive, so tell her that you're making a plan. Ask her advice- I'm sure she'll feel better if she knows you're taking it seriously, and that you're including her. It's inevitable that your future planning is going to have to take into account your debt, so let her know that you're doing your best to take care of it as much as you can now.


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Thu Jun 17, 2010 12:49 pm 

Joined: Thu Apr 29, 2010 12:11 pm
Posts: 18
Okay, I've attempted to draft a budget and over the next month of tracking my expenses, I hope to get an idea of how realistic this is. As this is my first real attempt at this kind of thing, I'm sure my ideas about some of my expenses are incredibly naive, feel free to point it out! I used google spreadsheets.

Income: 3500

Household Expenses:
rent: 700
electric: 35
phone: 50

Daily living
groceries: 150
personal supplies: 20
clothing: 50
dining out: 100
laundry/dry cleaning: 20

Entertainment:
rentals: 10
movies: 20
concerts/plays: 25
books: 20
sports: 50 (I love sports, I like the free ones too but costs add up over the year)
outdoor rec: 25 (races, hiking and biking supplies)

Other:
transportation: 50
charitable donation: 30

Savings:
e-fund: 150
other: 150 (can use this account for intermittent expenses)
vacation: 150

Debts:
federal student loan: 320
line of credit #1: 450
line of credit #2: 150
credit card (min.): 150

Total expenses: 2930
Net: 630

Through this exercise, my $800 "other" category has become 720 (including 150 set aside for vacation)

In terms of my savings, I have automatic payroll deductions for RRSP and a defined-benefit pension plan. Until I am out of debt, I think I'm okay with that as a baseline for retirement savings. In the meantime, I will slowly build my emergency fund and put a little money away for intermittent expenses and an annual vacation.

I think the hardest thing to control will be my food costs. I eat lots of fresh fish, fruit and produce, I like buying coffee, and going out with friends once or twice per month. Some of this will have to give. I'll track these expenses and see if they are realistic or if something needs to be adjusted.


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Thu Jun 17, 2010 1:03 pm 

Joined: Thu Apr 29, 2010 12:11 pm
Posts: 18
mpacuk---thank you for your comments and advice. You're right that my goals are foggy. Get out of debt... but how? In terms of using this "extra" income for debt repayment, my goal is to apply all of the "net" end of month balance to credit card payments until I have a zero balance. At that rate, it will take 11 months to pay off. So rather than looking at it as a $150 minimum payment and $X "extra", I'll look at it as a $780 payment every month, with a clear and very positive future outcome. That's my goal, 11 months to a $0 CC balance. Realistically, I don't ever just pay the minimum but you're bang on about the kind of rationalizing I do for extra expenses.


skydivingchic--thank you as well. I think daily about leaving my job (working for an international organization, which I love) to go work in the private sector. Many of my classmates are doing that, making 1.5-2X the money I am. Right now I'm prioritizing liking my career more over repaying my debt faster, but it is really a conundrum. What is more burdensome, work stress or money stress? No real answer to that, I'm trying to figure it out for myself.


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Thu Jun 17, 2010 1:41 pm 

Joined: Mon Feb 04, 2008 7:35 am
Posts: 1140
Location: Maryland
I'm having a lot of trouble posting, so hopefully this will go through.

I know some people are big on charitable contributions, but I would start with charity at home and save your $30/month.
Another thing I don't understand is money for clothing. I probably buy clothes once a year. I don't change sizes, and I don't wear the trendiest fashions, but basics. Do you really buy clothes that often to buy one thing a month? That seems crazy to me, but I'm not a shopper.
Your activities can be cut back. Do you really need to go to the movies, a play, a sporting event all in the same month? You can use the library for your books.

It's fun to think about all the things you would like to do, but when you are in debt, you already had your fun, so you have to cut back until you're back in the red.
Good luck, and keep us updated. :)


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Thu Jun 17, 2010 2:13 pm 

Joined: Thu Apr 29, 2010 12:11 pm
Posts: 18
Thanks, peachy.

I should clarify, the "sports" line in my budget isn't so much the cost of going to sporting events, it is costs associated with playing sports. For me that includes mainly baseball, snowboarding, golf, tennis, squash and climbing. Some of these have low or no costs, some I don't do often because they're expensive. I try to play for free as often as possible. I would play (and pay) a lot more if I could afford to! I'm also a runner and that has some costs, but those are incorporated in my "outdoor activities" and "clothing" budgets.

I suppose I could have put this all under a heading like "socializing" but then you might have all thought I was talking about something less wholesome...


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 Post subject: Re: The long road from enormous student debt to respectability
PostPosted: Fri Jun 18, 2010 7:43 am 

Joined: Sun Mar 16, 2008 6:53 pm
Posts: 76
Quote:
Realistically, I don't ever just pay the minimum but you're bang on about the kind of rationalizing I do for extra expenses.


I only know because it's what I used to do all the time. "At the end of the month I'll sweep the leftover $500 at my car loan!"... and then the end of the month would roll around and it would only be $200 somehow. If I pay it up front, then I know I can't dip into it later.


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 Post subject: Re: The long road from enormous student debt to respectabili
PostPosted: Sun Aug 25, 2013 9:16 pm 

Joined: Thu Apr 29, 2010 12:11 pm
Posts: 18
Three years later, I'm back for an update!

It has been a challenging few years and a lot of things have changed (married, baby, new job) but things are looking much better now.

My last check-in (June 2010):
Student line of credit #1: 37,680 @ 6% interest
Student line of credit #2: 14,537 @ 3.5% interest
Federal student loans: 23,256 @ 5% interest
Credit card: 7,421 @ 19.5%
Total debt: 82,894

Current:
LOC #1: 0
LOC #2: 9860 @ 4.0% interest
Federal student loans: 0
Credit card: 0
Total debt: 9,860

I paid off my credit card debt first. Next I tackled the $35,000+ line of credit with the 6% interest rate. Then I paid off the federal student loans.

I tried to follow the debt snowball for a while, but that didn't really work for me. I found it very frustrating, every month, transferring virtually every cent out of my bank account towards one of my debts. That just didn't give me a good feeling. So instead, every month I put extra money (as much as I could after paying the minimums plus a bit here and there) into a debt repayment account. When that account reached 5-10K, I paid down a large chunk of debt all at once. I got a new job and found that I was able to save a lot more money than I thought possible.

I know this means I paid more interest over time, but psychologically I felt much better about it. Instead of only seeing a bunch of numbers slowly tick down, I had an account where the number was actually going up. Instead of having a goal of paying as much as possible every month by emptying my account into my highest interest loans, my goal became to end the month with as much money in my "debt reduction" account as possible.

And then, when I wanted to repay some debt, I did it in a big chunk, so that it was really noticeable. Taking my largest line of credit from 27K to under 20 all at once really felt like an accomplishment. And then when it went under 10K, I was extra motivated to get rid of it completely. This approach might not make much sense financially, and is probably not advisable for someone with better self-discipline, but so far it has worked for me.

Anyway, it has been a long journey. But... Almost there!


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 Post subject: Re: The long road from enormous student debt to respectabili
PostPosted: Sun Aug 25, 2013 9:54 pm 

Joined: Tue Jun 30, 2009 9:44 pm
Posts: 246
Location: Atlanta, Georgia
Wow, your progress over the last three years is incredible! Your method of saving first into a debt repayment account and then using it to wipe out one chunk of debt of time is an interesting idea. It's great that you figured out the most meaningful way of tackling this for you. Way to go! :clap:


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