I am getting a small raise--save or pay off debt?

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TheClumsyNinja
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I am getting a small raise--save or pay off debt?

Postby TheClumsyNinja » Mon Jul 14, 2008 8:46 pm

Some background first: I work for a ministry and make about $15,000 a year. I'm able to pay all my bills and my roof doesn't leak, so I guess I live in relative poverty. I have avoided credit card debt. My only major debt is a student loan. My current balance is about $4500 (payoff amount would be higher, obviously). I have always been pretty good about saving money and I recently opened an ING savings account with over $5,000, my goals being to save (1) for a used car and (2) for an overseas ministry trip next summer.

I am getting a raise--about $75 a month. That is a relatively tiny amount but it feels significant to me. My question is, what should I do with this amount? I see a few options here. First, I could save it, possibly splitting the amount between my ING sub-accounts for the car or the trip. Second, I could apply it to the student loan. Throwing $75 more a month at my debt would be an enormous mental boost because I might be able to pay that loan off in 4 years instead of 8-10. There is actually a third option--I could pay off the loan right now with my savings--but that would leave me with almost no money for the car or trip.

My inclination is to save the money. I might get a "real" job in the next few years and be able to pay off the remaining loan quickly; better to use the money now. But I'd really like to hear what you guys think. Is it wise to stay in debt while saving for something else?

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Postby Cleverbeans » Tue Jul 15, 2008 6:37 am

How much is your monthly student loan payment now? And why are you looking for a used car, to replace the one you have or because you don't have one at all?

I ask this because if you currently don't have a car, the extra expense of having one might be something to wait on until you've got the debt paid off. If that's the case, you can use the money you've been saving for that to pay off your debt and free up the cash you make for your monthly payment for savings. The same could be true for your trip, although that may take more time then you have, so we should consider it.

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Postby Vile Merchant » Tue Jul 15, 2008 9:35 am

If you really want a raise stop working for those bloodsuckers and get a job flipping burgers IMO.

TheClumsyNinja
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Postby TheClumsyNinja » Tue Jul 15, 2008 9:41 am

My monthly loan payment is about $60. I still have two years of economic hardship deferment available; when I go on my trip I won't have any income and could defer my loan for a while.

I do have a car right now, a '95 Oldsmobile. Realistically I could drive it for another few years. But I would really like to find a used Corolla for its better gas mileage, smaller size and reliability. (I have friends who have Toyotas and their cars are never in the shop, whereas mine is in several times a year.) Probably the best thing would be to just drive my Olds into the ground, but I worry about how many other repairs I would need to make before the transmission finally gives out or something. You know? Like, if my car dies two or three years from now and I've sunk about $1000 into repairs--which is about the value of the car-- would I have been better off just getting another car?

I have also been considering buying a 49cc scooter and storing my car to cut down on insurance and gas costs. That would definitely increase my savings.

P.S. I don't want to leave my job right now. I work as an editor for the ministry's publishing house. It is very hard to break into the editing field; most publishing houses require 3-5 years' experience. I may not make much money in my current job, but I'm being paid in experience. In one or two years I'll have the experience needed to take a higher-paying job in my field. I also occasionally do freelance editing to supplement my income and the money I make that way goes straight to savings. No burger-flipping for me!

Giskard
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Postby Giskard » Tue Jul 15, 2008 10:02 am

What rate are you paying on your loan? Plus, if your work is really close you can buy a Bike and get rid of the car all together, plus your health might improve (if that is a concern for you).


-Giskard

TheClumsyNinja
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Postby TheClumsyNinja » Tue Jul 15, 2008 10:28 am

I'm paying 4.210% interest on my loans. I'm thinking about consolidating but I hear the interest rate might be reduced even further next year, so maybe I will wait.

My workplace is close--probably ten minutes by bike--but I have other activities on its campus that go into the late evening, which means that I'd be biking home in the dark about 10pm several nights a week. I don't live in a safe area and am not comfortable doing that even though I'd be happy to get some cardio every day. Thus the scooter idea.

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Re: I am getting a small raise--save or pay off debt?

Postby marsman57 » Tue Jul 15, 2008 12:13 pm

TheClumsyNinja wrote:I'm able to pay all my bills and my roof doesn't leak, so I guess I live in relative poverty.


I hope you don't really think that, especially if you have been on a mission trip before.

Vile Merchant wrote:If you really want a raise stop working for those bloodsuckers and get a job flipping burgers IMO.


There is more to a job than money.

TheClumsyNinja
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Re: I am getting a small raise--save or pay off debt?

Postby TheClumsyNinja » Tue Jul 15, 2008 12:19 pm

TheClumsyNinja wrote:I'm able to pay all my bills and my roof doesn't leak, so I guess I live in relative poverty.


marsman57 wrote:I hope you don't really think that, especially if you have been on a mission trip before.


No, I do not. Perhaps I should have said "moderate poverty compared to most Americans." I am well aware that I am rich compared to most of the people in the world. I don't take my lifestyle for granted; I do want to steward what money I have--thus my original question. Do you have any suggestions for me on that topic?

marsman57
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Postby marsman57 » Tue Jul 15, 2008 12:32 pm

Keep the current savings for the car/trip, defer future extra money toward the student loan.

Actually, with the student loan rate that low, you could just keep saving up to your ING account without losing very much money, but it may be psychologically helpful to pay down the loan instead.

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Re: I am getting a small raise--save or pay off debt?

Postby Murky » Wed Jul 16, 2008 7:55 am

TheClumsyNinja wrote:Some background first: I work for a ministry and make about $15,000 a year. I'm able to pay all my bills and my roof doesn't leak, so I guess I live in relative poverty. I have avoided credit card debt. My only major debt is a student loan. My current balance is about $4500 (payoff amount would be higher, obviously). I have always been pretty good about saving money and I recently opened an ING savings account with over $5,000, my goals being to save (1) for a used car and (2) for an overseas ministry trip next summer.

I am getting a raise--about $75 a month. That is a relatively tiny amount but it feels significant to me. My question is, what should I do with this amount? I see a few options here. First, I could save it, possibly splitting the amount between my ING sub-accounts for the car or the trip. Second, I could apply it to the student loan. Throwing $75 more a month at my debt would be an enormous mental boost because I might be able to pay that loan off in 4 years instead of 8-10. There is actually a third option--I could pay off the loan right now with my savings--but that would leave me with almost no money for the car or trip.

My inclination is to save the money. I might get a "real" job in the next few years and be able to pay off the remaining loan quickly; better to use the money now. But I'd really like to hear what you guys think. Is it wise to stay in debt while saving for something else?


I would look into getting a second source of income. Working a second job part-time can net you another $5,000-10,000 per year.

anomar
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Postby anomar » Wed Jul 16, 2008 11:00 am

I agree with murky. Even something as small as the income revenue of a healthily-trafficked blog would be a nice boon to your overall net worth, it sounds like.

I would not sink the money to accelerating your student loan payoff. I think that since the payment is stable, it might be possible for you to psychologically re-categorize it as not an immediate thing, but a reminder of your education. I would focus on the car & trip.

Good luck!

TheClumsyNinja
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Postby TheClumsyNinja » Thu Jul 17, 2008 1:25 pm

Thanks for your answers, everyone. I think I'm going to save the money for now.

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Greenewashed
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Postby Greenewashed » Thu Jul 17, 2008 5:50 pm

As a fellow editor, I totally sympathize and agree with your decision to hold on to your current job. I would also save the money. You have a lot of goals and the liquidity will help.

The scooter is a good idea, if the weather where you live permits. If you have harsh winters, you'll have to put the scooter in storage for several months out of the year.

consultantjournal
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Postby consultantjournal » Thu Jul 17, 2008 6:15 pm

Have you considered freelancing aka consulting? When I started out, I was able to get $35 an hour -- and that was in the mid 90s. Even 10+ years ago, when I was still very wet behind the ears, I was getting $65 an hour. By working a few extra hours a month, I was able to get into a very comfortable position, in terms of having savings, emergency fund, paid off car, paid off insurance, home downpayment, trips, etc.
Andrea Coutu
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JPolito830
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Postby JPolito830 » Fri Jul 18, 2008 6:32 am

You should do some calculations and see what will pay off for you more...if your interest rates are higher than your savings rates, I would pay the debt off.


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