Hi Money Minder,
I’ve got a total debt of $51.5K hanging over my head right now. The biggest chunk is the $30K I owe my mom, but luckily she’s not charging me any interest. I’ve parked some of my cash in a HYSA with a lovely 5.1% APR to make the most of it. So far, I’ve managed to pay back $8,033 to my mom, and there’s $6,750.53 sitting in my account (including $30 in interest). I’ve also made a separate payment of $1,282.53.
Every paycheck, I’m handing over $1,111 twice a month to my mom to chip away at that debt. It’s working out to a total of $2,222 every month and it’s earning 5.1% interest. On top of that, I’ve got a pesky car loan of $21,118.33 with a hefty 9.24% interest rate. I’ve been paying $1,200 monthly, but I know I could stretch myself a bit to pay an extra $600-$1,200 each month.
Then there’s the student loan sitting at $1,399.26 with a sweet 3.15% interest rate. I’m only shelling out $50 monthly because my company matches it with another $50, which is a great deal. It’s low interest, boosts my credit score, and my company’s basically chipping in while I focus on the other debts.
I’ve got $1,500 coming in every paycheck, which adds up to $3,000 monthly. My essential living expenses are around $700 monthly right now. I’m also thinking about taking out a 1-year, $10K loan against my 401K. This could help lower the principal (and therefore the interest) on my other debts. Plus, paying off the car loan earlier means I can keep the interest (currently at 10.5%) for myself instead.
Looking forward to your advice, Money Minder!
Cheers,
Debt-Free Dreamer
Response from THE MONEY MINDER:
Hello There,
I can see that you are ambitiously tackling your debt situation, and it’s impressive to see the progress you’ve already made. It’s clear you have a comprehensive plan in place, but it’s important to ensure that your approach is sustainable in the long term. Given that you have identified your recurring expenses and have a steady income, it might be beneficial to reassess your budget and prioritize paying off the debt with the highest interest rate first – which seems to be your car loan at 9.24%.
While your plan to take a loan against your 401K to pay off part of your debt may reduce the overall interest you pay in the long run, it’s essential to weigh the benefits against the potential risks. Consider the impact on your retirement savings and any associated penalties or restrictions that may come with taking out the loan. It’s crucial to ensure that you are not jeopardizing your future financial well-being for immediate debt relief.
Additionally, with your $3,000 per month income and $700 in recurring expenses, finding a balance between aggressively paying off debt and maintaining a comfortable lifestyle is key. You might want to consider allocating a portion of your income towards building an emergency fund to prevent future reliance on credit cards or loans in case of unexpected expenses.
Remember, financial stability is a marathon, not a sprint. By consistently sticking to your debt repayment plan and making informed decisions about your financial priorities, you are well on your way to achieving your goals. All the best from THE MONEY MINDER.
