What should i pay off first with this money?

Submitted by YesImClueless t3_z92dmq in personalfinance

Hi there!

I'm 25F making 64k yearly, I'm currently in the position to either pay off my car entirely or pay off my private student loans + my private loan. My dad has given me $12,600 to go ahead and pay off my car loan, but he said that if i needed to pay any other debt first i could do so. I plan to pay him back the $12,600 in the near future, but he lent me the money with no deadline so that i could avoid paying as much interest as i currently do. Either decision i make, i'm going to move forward with making the designated "payments" into my savings accounts so that once the money is fully collected again, i can hand it back to my dad. I have no credit card debt btw, its just these three debts.

I'm torn because at the moment i don't really have a savings and would love to build one up as soon as possible with the recession going on and all!

My car loan is $12,600 with an interest rate of 10.9% (it's super high, i know!) I've tried to refinance but it seems like my car being over 10 years limits that for me. Its a monthly payment of $257 set to be completely paid off in 5 years with the minimum payment.

My private student loan is $6,000 with an interest rate of 7.74% and a monthly payment of $74. It's set to be completely paid off within 10 years unless I find a way to make extra payments. I've been paying this off since 2019 and the amount has stayed roughly the same somehow.

My personal loan is $6,900 with an interest rate of 9.31% and a monthly payment of $160.98. It's set to be completely paid off within 4 years and 5 months.

I planned to refinance my private loan further, but it'll be roughly 6 months before i'm able to do so again since i recently had refinanced from 11-7.74.

What do you guys suggest I do?

I'm currently searching for a higher paying job and in January/February will be moving into a cheaper apartment, so at the moment i'm finding ways to reduce costs and increase income in order to pay these all off sooner than the set dates!

EDIT: Just want to say THANK YOU guys so much in advance for all your help! I appreciate it so so much!

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MikeWPhilly t1_iyeqsh2 wrote

It doesn’t really matter which one you do. I’d pay the car loan off first. Then put the full payment of that to the $6900. That will be paid off in no time. Then put both payments toward 6000. You should be able to pay for all 3 very quick then put all 3 payments to pay back your dad. Which would be essentially 2 years for him. About 2 years to pay off your 3 loans on your own unless you can pay extra over the the payments.

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mistermephist0 t1_iyernt2 wrote

Make sure to get your dad a nice gift while you are at it lol. Good of him to do that for you

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YesImClueless OP t1_iyf03l7 wrote

He insisted on helping me, and I'm ultimately so incredibly grateful. I've never gotten help like this so I'm anxious about making the smartest choice! All he asked for this year since giving me the money was to buy a plane ticket to see him, I plan to surprise him soon.

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YesImClueless OP t1_iyf2ndu wrote

Thank you so much! This is really great advice. I get so overwhelmed sometimes that I find it hard to figure out where to start. With this plan I'd be able to pay my dad back by the end of the third year or so if not earlier. Once I'm able to find a way to increase my income or reduce it, i can manage throwing more money in as it comes.

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Liquidretro t1_iyeqsqf wrote

Highest to lowest interest rates. It doesn't have to be more complicated than that.

You should add in to your book of debt, the loan from Dad since you intend to pay it back.

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Do you have a budget?

Do you know where all your money is going now?

You mentioned $492 in monthly debt payments, which isn't crazy for someone making $64k a year at your age, leading me to believe there is more to this story. Increasing income is going to be big for you here. Better job, second job, overtime, etc it all needs to be on the table.

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YesImClueless OP t1_iyez06z wrote

I do budget every month yes! But it feels like there's more money going to where it really shouldn't. I live in the East Bay so unfortunately most of my money goes to rent, which is increasing again in January after increasing last year as well, it's why im planning to move :( Its a whopping 2350 coming soon(no utilities) and that's very above my means which isn't cool. I currently live with a partner who hasn't been contributing much and adding to my costs this past year, and we are planning to separate for personal reasons. Ideally, my goal is to move as far away from the city as possible!

My bills roughly at the moment:

Rent- $2350 including utilities here

Phone - $60

Electricity - $65

Internet - $70

Gym - $50.99

Car Insurance - $108

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Car Loan - $257

Personal - $160.98

Private - $75

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Groceries - $400

Gas - $120 a month now

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Dog

Tracking Collar - $17.60

Flea and Tick+Heartworm - $20

Savings - $50

Food - $90

That's roughly $3,895 in expenses monthly. It's horrible. I take home $4160 a month. With partner contributing since January $500. That leaves me with $765 monthly to put down on debt. I leave myself roughly $300 a month to play with. I've been rather strict in order to get my car loan down further and that's when my dad offered to help me out!

I believe with a roommate or living in a studio apartment i should be able to reduce costs somewhat, as well as groceries. Alone i spend around $150 a month for myself!

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Liquidretro t1_iyf4ucj wrote

East bay? San Fransico?

That's good news, and helpful for sure in this process.

Rent of 56.5% of your take home pay does seem to be the major factor here as far as spending goes. It sounds like you have a plan for that, and it sounds like roommates or living at home should be what you are looking for.

You should be pushing for your partner to pull their own weight if at all possible, as it's hurting you. No idea what they are going through but 10+ months is a long time for a lot of things especially if it was unemployment earlier in the year.

Assuming you are splitting your utilities internet bill $70 a month seems high.

$90 a month for dog food is high. You can buy 50lbs of name brand kibble from Sams Club for $60 or 38lbs of BlueBuffalo for $60. So probably worth shopping around a bit.

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YesImClueless OP t1_iyf7hbr wrote

Yes!! Right across from San Francisco. Unfortunately my work was in the city, then we moved into a hybrid schedule, and now we're fully remote. I'm not sure how i did it before when i was commuting to work more frequently. it's almost a blur.

56.5% towards rent is just unfathomable :( I can't believe I do that every month. If my partner was pulling more weight in, I would probably have been able to have way more wiggle room.

I'll have to check my internet bill, I could potentially be paying for more than I need? I'll see if i can check my usage for the month. I've been spending a few days at a quiet work space here so I shouldn't really need the best thing out there.

I don't have a Sam's club nearby but i do have a Costco. $60 sounds amazing!! That would actually last my dog a few months. I'm also going to have to check that out.

Every little bit helps so i appreciate your feedback so much!

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Liquidretro t1_iyf9cqk wrote

Ya an expensive area. Since you are remote moving not just to apartments but to a less expensive area would help you out substantially.

Ya I'm a Costco fan too, but Sams just has a lot better website to actually see what things cost vs Costco's that doesn't list everything, doesn't tell you what's in the store, or what things that are in store might cost without adding on instacart fees.

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flamingo105 t1_iyeqmh8 wrote

it will all be in the wiki but yes, pay off that car loan with the money you've been given. It's the largest debt and highest interest. Use that $257 payment to build an e-fund of 1k-2k depending on your monthly bills. After that I would put the $257+ 161 to your personal loan, you should be able to knock it out it a 18 months or so. Continue to snowball and throw an extra bonuses or gifts at your current payoff target.

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YesImClueless OP t1_iyf2xov wrote

Thank you so much! I found the flowchart from the wiki earlier this morning and ended up working myself up by trying to figure out which method of paying down debt I should follow :( from everyone's comments it sounds like going by interest rate will be my best bet!!

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ambrosiani t1_iyes46m wrote

Imo, you should:

  1. Savings account immediately - every paycheck and keep it going after you payback your dad. Calculate all of your monthly expenses and put a specific percentage into your savings account each month. I'd honestly suggest two savings accounts atm, one for paying him back and the other for a legit savings/emergency fund or whatever, but if it's too complicated, keep the one

  2. Go for the car payment first, entirely

  3. After that, your personal loan with higher interest rates

I'll be real, I don't know shit about refinancing loans as I've still got things to learn -- but. You're 25, you make 64k a year, there's a lot to work with here with this information alone. When making your monthly (or biweekly, depending on how often you get paid) transfers into savings, make a list of all of your bills and how much money you'll have left over. How much do you want to use for disposable income/yourself? What left of that do you want to put into your personal loan payment?

Your loans won't decrease by much if you're only doing the very minimum payments -- hence what you're seeing with your private loan. I'd recommend waiting on that one until you have some extra money and less loans to worry about.

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mountainman77777 t1_iyfen4v wrote

It’s pretty basic advice but the snowball method Dave Ramsey advocates for just works. It’s extremely difficult if not impossible to have multiple financial priorities simultaneously on a finite income. You have to pick one thing and attack it until it’s gone. Then roll on to the next one and repeat. Since your car loan is the highest interest it makes sense to start with that.

I understand your desire to build savings but you’d be amazed at how much easier it becomes to savw when you don’t have all kinds of loan payments to make. Remember that spending less is the same as making more so your move to a cheaper apartment (however undesirable that may be) is a smart move. Remember that these sacrifices are temporary, but you’ll never get ahead if you refuse to make them. I can’t tell you how many women your age I’ve seen just living paycheck to paycheck into their 30s because of this so you’re well ahead of your peers in that sense.

It’ll be hard but your on the right path. Be patient with yourself and stay the course. You’ll get it done

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