Advice on saving, paying debt, investing or hybrid of all three

Submitted by Ok-Law-4866 t3_yibuvg in personalfinance

Good morning everyone. I have recently started to get into personal finance, following Dave Ramsey, Money Guys, and Ramit Sethi.

Here’s my situation

I’m 25, in the military, and here are my MONTHLY numbers

Net Income: 7147.41

TSP(5% base pay for match): $262

IRA: $100

Needs: $4238

Needs includes:

USAA Loan: $10,513.18 @ 2.99% APR, 456.34/month

Car Loan: $41,297.05 @ 6.94% APR, 700/month

Chase Card: $5760.70 @ 4% APR, 75/month

Apple Card: $4962.11 @ 4% APR, 65/ month

With an unallocated amount of $2694 i feel like I’m kind of at a analysis paralysis.

A lot of personal finance folks say to pay off credit card debts because of the 15%+ interest rates but for military we have the SCRA act that can Cap credit cards APR, acquired before entering the military, at 4%.

So do i stop contributing to retirement and save a 3-6 month emergency fund first? Do i save $1k and then start tackling the debt also without paying to retirement? Do i keep my 5% with TSP with the match and stop contributing to IRA ? Should i invest, save, and pay debt at the same time? By investing 10%, saving 10%, and add a little more to pay down my debt?

Your inputs would be greatly appreciated!

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cholley_doo2 t1_iuhv08a wrote

sell your car, no one should be @ 7% on a car loan - buy something in cash .

clean up your loans and credit cards so you can stop paying interest and build savings and wealth.

TL:DR 60k in debt with no assets

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Ok-Law-4866 OP t1_iuhwcnb wrote

I should also mention i own a home too. That was apart of my needs category i just didn’t make a separate line item. But i appreciate your feed back, however again do i just go gun ho on the debt and build an Efund Later and stop the investments?

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SpiritualCatch6757 t1_iui2ot0 wrote

  1. Sell the car.
  2. It bears repeating, sell the car.
  3. Say a third time because you've been ignoring it from other replies on it. You cannot afford the car at your salary even if you had zero debt. Buy a used vehicle for cash, $3000 - $4000
  4. Invest 5% on TSP to get the match
  5. Pay off debt, however, you like. Highest interest first or debt snowball.
  6. You should be able to pay off your debt if you go rice and beans gung-ho in ~6 months.

Good luck, OP. Rich people drive paid off Toyotas and Hondas. Poor people lease BMWs and Mercedes.

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haanalisk t1_iui5us1 wrote

Tbf some rich people also drive bimmers and benzes. Some people just like a nice car. Some of those rich people by used ones that have lost most of their initial insane value. Some lease them and have them as company cars.

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Knipfty t1_iui9wyh wrote

This pretty much nails it.

Dave Ramsey would say to stop your retirement savings while you are in debt. I tend to agree but many people argue over it. Either way.

And it does bare repeating, that is way too much car for you. So please sell it.

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93195 t1_iuhv39t wrote

Contributing at least the 5% minimum to get the TSP match is a no-brainer, as there is nothing out there that beats immediately doubling your money. So keep doing at least that.

$100 to your IRA really isn’t enough to matter either way, but it’s a good habit to maintain, so keep doing it. Increase it as you get year end raises, time in service raises and promotions.

While the interest rates on your debt aren’t terrible, it’s still over $60K in consumer debt. Ideally that number should be zero. That much debt is going to cause problems when you want to buy a house later. Work on getting rid of it.

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Ok-Law-4866 OP t1_iuhvivp wrote

So no savings just pay off the debt is that I’m hearing?

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93195 t1_iuhvnac wrote

I won’t say “no” savings. I will say the debt should be a priority.

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potent_dotage t1_iuiqop7 wrote

The most important purpose of (non-retirement) savings is to tide you over if you lose your income. I am not and have never been in the military, but my sense of it is you don't really need to worry about job security.

The second important purpose is to avoid needing to go into debt for unexpected expenses. But if you're already in debt and can just borrow at 4% or less again, there's no reason to hold back paying off higher interest debt.

So if those things hold I agree with this answer: maintain the match and small Roth IRA contribution, otherwise focus on the debt, specifically the car debt. As others have said you might sell it, but if you're underwater, you'll probably have to focus it down first. At that point you can revisit the decision to sell or not.

I've never spent that much on a car but I'd be thinking about how my situation would be strictly better if I sold it and then took out another loan on, say, a new Corolla. Used car prices are still insane so currently that might be a better idea long term than trying to buy used.

Alternatively, if you don't drive a lot, you might follow the other advice and sell it to buy a high mileage used car to use until the used car market returns to its previous state. You can occasionally find some deals on decent Toyota or Honda cars with 200k+ miles; if they are mostly highway miles and the car is well-taken care of, they'll still have a good bit of life left in them. As long as the engine and transmission are good, it's usually not too expensive to keep them on the road (certainly less than your current car payment).

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Ok-Law-4866 OP t1_iuis0xc wrote

Thank you for this detailed answer. You also explained why nobody mentioned anything about saving up a small e fund and I appreciate you

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twincredible t1_iuhzw22 wrote

Sell the car, buy one with cash. Use the difference to clear your debt.

Where did you buy the car? Other servicemen have posted here about insane car prices and rates because there are predatory car dealerships located near bases. They trick young people, with zero credit or bad credit, into overpaying for flashy cars. If that’s the case, limit your car selling/buying to far from your base or sell it online (ie carvana, private sale, etc).

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idleminer100 t1_iuhtalu wrote

The flowchart in the wiki would be a wonderful place to start for you.

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[deleted] t1_iui2hop wrote

I assume from the numbers that your car loan rate is because of your credit score, which is in part due to your credit card debt. That debt, even if at 4%, is probably creating trouble elsewhere (like the car loan). That 4% might be capped, but you don't want decisions about staying in or being a civilian again to be about your interest rates. Clear the debt, refinance the car when you're able, and you'll be in much better shape by 30.

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