(Closed) How do you budget while paying off debt?

posted 6 years ago in Money
Post # 2
Member
266 posts
Helper bee

I am a big fan of Gail Vaz Oxlade, she has some amazing books as well as a very helpful website where you can find the answer to most if not all of your questions. 

I also went to law school (in Canada) and ended up with alot of student loans.  What Gail suggests and what I’ve been doing is allocate about 15% of my income towards my debt, and thankfully I will be debt free by the end of 2015.

About 10% should go into retirement savings, and you’re very smart to be thinking about emergency savings, you’ll need it, I just hit the $5000 mark on my emergency savings and I am very proud of myself.  I’ve only been doing her plan for 16 months and its worked for me.

It looks like you and your husband will have a pretty healthy income.  Maybe come up with a number for your emergency savings that you’re comfortable with and try to put away 10% of your income towards that.  Once you have your emergency savings you can put that same money away towards a down payment.  It might take a bit of time but you can have everything you want, just not at the same time. That’s what I’ve learned!

Good luck.  

Post # 3
Member
384 posts
Helper bee

My soon to be Father-In-Law is a financial advisor and he suggested I save between 6-8k for emergency savings and once i did that he suggested I put the rest towards my student loan, but only once I had the emergency money saved.

 

I totally feel your pain I came out of school in 2012 with 45k school debt, and now I’m proud to say I’m at 16k…. I’m also a teacher and I have another job which helps but once I’m done with my debt it will feel like I’ve won the lottery with all my extra money!!!

Post # 4
Member
4499 posts
Honey bee
  • Wedding: September 2010

I had over $100,000 in student loans when I graduated 5 years ago. It’s all been repaid now. Here’s what I did: 

I made a list of all my monthly non-negotiable expenses (rent, car/public transportation, utility bills, groceries, and any other must-haves). I subtracted this from my monthly income. The remainder I divided into 3 parts: 1) emergency savings; 2) pocket money; 3) student loan pay-off. 

For #1, I calculated how much I’d need to live for 6-8 months. This was my emergency fund. I set aside an amount to contribute toward this fund every month so that I’d have this amount saved within a year. Once I reached my target amount, I stopped adding to this fund and put the money I’d been putting in this fund each month toward my student loan payments. 

For #2, I calculated how much extra spending money I’d need/want each month for incidentals like coffee dates, clothing purchases, books, whatever. I kept this pretty low while aggressively paying down my loans, but it’s still important to have some extra money in your monthly allowance so that you can go out with friends & live your normal life. 

For #3, I took ALL the money that was left over from my monthly paycheck after subtracting my non-negotiable expenses and the amounts in #s 1 and 2 and put it toward my student loans. I then approached my student loans using the “debt snowball” approach (I highly recommend — google it if you haven’t heard of it). Basically, you list all your loans from highest interest to lowest interest. You target the loan with the highest interest first, directing all your extra money toward that one loan. So I’d pay the minimum on all of my loans each month, and then whatever money I had leftover, I would put toward the one at the top of the list. When that loan was paid off, I’d target the loan with the next highest interest. It’s a “snowball” because, as you start knocking off loans, you have more and more extra money to put toward the loan you’re targeting. 

This worked for me, and I’m now student loan free! I had to be really disciplined while doing this, but I kind of enjoyed it — it was like my own personal challenge, and I loved seeing my loan balances dwindling and eventually getting to knock out loans altogether. It was the best feeling. Good luck to you. (I kept track of everything on Excel, but people use different tools to record their progress — just keep a record somewhere). 

Post # 5
Member
9128 posts
Buzzing Beekeeper

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annb9:  I think stillme’s advice is spot on. I noticed you live in Boston (me too!) and was wondering if you’d consider cheaper housing? If it’s just the two of you there are options that are cheaper than you’re currently budgeting for, although I will give you that not all of them are the nicest. Even a year or two in a budget apartment will be a big help in killing that debt and saving up for a place to buy down the road. Or move to one of the closer suburbs? Even the ones that are expensive to buy in often have more reasonable rents than the nicer Boston proper areas.

I totally get that it’s not the route for everyone, but it definitely helped us save money and we’ve since upgraded from a gross apartment with a deadbeat landlord to our own beautiful home!

Post # 6
Member
11517 posts
Sugar Beekeeper
  • Wedding: May 2014

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annb9:  DH graduated owing 60k, his parents paid 10k.  I graduated owing a little less than 20k – our combined student loans payments monthly are $675.  We also have a lot of stupid credit card debt from the wedding, school years when things were tough and just being stupid.

We determined that we need about $300 a week to live on comfortably which is about 20% of our take home pay – that covers food, gas, personal care, fun etc.  Everything else goes to bills and debt.  We could probably live on less but we spent 8 years living like poor students, we decided that enjoying life a little bit was important to us.

DH has an automatic payroll deduction of 5% to an RRSP that’s matched by his employer, we also put $100 in savings just in case and $100 in my RRSP just so there’s something going in.

His student loans will be done this year, so will our car – when that happens we’re taking half the car payment and putting in a savings account for maintenance (car is 5 years old and has 130,000 kms) and the rest will all go to debt.  We are hoping to pay off everything this year and then all that money will go in savings for a downpayment.  I want a house in 18 months (sooner if we can!)

Post # 7
Member
1729 posts
Bumble bee
  • Wedding: June 2013

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stillme:  That’s super impressive.

 

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annb9:  Regular debt and student loan debt are 2 very different things. Student loans don’t negatively impact your credit like credit card debt or car loans. Also, they have super low interest rates, especially if you consolidate. If you pay you student loans on time (when they start sending you bills after grad) this debt actually HELPS your credit. Don’t stress, it will all work out. I graduated 10 years ago with 50K and am down to like 15K left. 

Post # 9
Member
2346 posts
Buzzing bee
  • Wedding: November 1999

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stillme:  exactly what I did too.  I’m 40% down from 85k in about 3 yrs time.

Post # 10
Member
280 posts
Helper bee
  • Wedding: April 2016

I’m currently snowballing, and I get so excited to see how close I’m getting to paying off one loan completely! I never look at the total amount of debt I still have, I concentrate on the higest interest loan and funnel all my extra money into paying it off. 

Post # 11
Member
5867 posts
Bee Keeper
  • Wedding: April 2013

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annb9:  I think this is a really hard question.  Based on your projected incomes, you have taken on a pretty reasonable amount of debt, and if I were in your sutiaton I’d be anxious to pay it off ASAP.  But at the same time, you don’t want to wait forever to get married.  If I were you, I’d choose one of the two following options:

1) Have your wedding soon, but have a modest wedding that you can afford.  This is more “acceptable” since you are just starting out as grad students (or recent grad students) and will be a reasonable match with your means and people’s expectations.  Depending on how big your circle is, I’d set the budget at between $5-10k and make some decisions to keep the party modest (maybe make it a  small wedding, maybe do a bruch or a cocktail reception, etc).

2) If you want a splashy wedding, I’d wait until your can afford it.  That means paying off all your student debt asap (which I think you could do easily within about 3 years if you maintain your student lifestyle).  Once the debt is licked, pile all that money into your wedding fund and you’ll probably have enough to pay for a stylish wedding in 6 months or so.  

Good luck!

Post # 13
Member
1541 posts
Bumble bee
  • Wedding: August 2014

We have about $100k in debt thanks to my student debt from law school And some of it is from the wedding. We own our condo and have about $10,000 as an emergency fund. Our mortgage and condo fees etc are $2,700 per month. we take home around $12,000 per month from our jobs. We pay off 4,000 per month on our debt. Works for us! We are very fortunate to have high salaries. We don’t have a car but we do have a dog and he gets a walker every day so thats about $100 per week. 🙂

Post # 14
Member
5867 posts
Bee Keeper
  • Wedding: April 2013

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annb9:  Oh, in that case then I’d just knock that debt out as fast as possible.  Get it done before buying a house and all that.

Post # 15
Member
431 posts
Helper bee
  • Wedding: May 2016 - Winery

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annb9: Assuming he does well (and I’m confident he will), he’ll receive an offer for full-time employment after he graduates. When he graduates, he’ll be making 160K.

 

As a law school graduate, I’d be really careful about assuming: 1) he’ll get an offer following a summer position; and 2) that’s how much he’ll actually make.

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