- November 5, 2023
- Posted by: legaleseblogger
- Category: Related News
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### Background and Financial Situation
I am a 25-year-old female, currently working full time in an Engineering job, and living in a generational household, which means I don’t have to pay rent. Besides my phone bill, I don’t have any other bills to worry about. I apologize for any formatting issues as I am writing this on my mobile device.
Recently, I have been struck by the realization that I need to make positive changes in my life and rectify past mistakes. Overcoming my depression, I am determined to move forward and improve my financial situation. However, I need to assess the feasibility of my plan to ensure I am not being overly optimistic.
### Paying Off Debt Plan
My goal is to pay off both my student loan and credit card debt within a year, or maybe a little longer, around 14 months. Currently, I earn a pre-tax income of $49,920 annually, which translates to an hourly wage of $24. After taxes, I take home $36,972, or approximately $711 per week in my paycheck. Furthermore, I have the option to work overtime, earning 1.5 times my hourly rate.
To provide some context, my student loan consists of a principal amount of $29,500, with an additional $734 in accrued interest, resulting in a total debt of $30,234. On my credit card, I owe $5,452.04 in principal, and it incurs around $150 in monthly interest (assuming it is not an annual rate).
In order to execute my plan, I have devised the following strategy: I aim to have my credit card fully paid off by January 1, 2024. To achieve this, I will contribute $700 per week from November 3 to December 22. After this payment, I will be left with only $11 per week, necessitating at least 10 hours of overtime work in both November and December, solely to cover my phone bill. Subsequently, I intend to eliminate my student loan debt by January 1, 2025. This will require consistent weekly payments of $600 from January 5th to December 27th, 2025. Once the student loans are paid off, I will have $111 per week available and will no longer need to rely on overtime to cover my phone bill.
### Assessing the Plan
Let’s evaluate the potential pros and cons of my repayment plan:
#### Pros:
1. Debt Freedom and Fresh Start: By adhering to this plan, I can achieve a debt-free status in 2025 and commence a new chapter in my life.
2. Budgeting Skills: Maintaining a rigorous budget during the repayment process will develop strong financial discipline, making it easier for me to save money once my debts are fully paid.
3. Improved Credit Score: Consistently making payments and eliminating debt will positively impact my credit score, aiding in future financial endeavors.
#### Cons:
1. Restricted Ability to Move Out: The plan’s rigorous repayment schedule may impede my ability to move out and find a place of my own in the event that an opportunity arises.
2. Limited Down Payment Savings: Focusing solely on eliminating debt could hinder my capacity to save a substantial amount for a down payment on a future house.
3. Financial Dependence: Due to prioritizing debt repayment, I may need to rely on support from my parents, grandparents, or partner for food and other essentials.
4. Interruption of Education: If I fail to accumulate sufficient savings by fall 2024, I might have to pause pursuing my degree for another semester.
Considering the aforementioned pros and cons, it is crucial to determine the viability of this plan. While it promises to eliminate debt and impart discipline, there is a risk of exhaustion and limitations in terms of personal and financial growth. Assessing your situation holistically and considering all these factors will be essential in making an informed decision.
### How AI Legalese Decoder Can Help
AI Legalese Decoder can assist you in navigating the legal aspects of your debt and generating a comprehensive repayment plan. This innovative tool processes complex legal language, such as loan agreements and credit card terms, and translates them into simplified and easily understandable terms. With AI Legalese Decoder, you can gain a clearer understanding of the terms and conditions, enabling you to make more informed financial decisions.
By leveraging AI Legalese Decoder, you can identify any potential hidden fees, penalties, or legal obligations associated with your student loan and credit card debt. This knowledge will empower you to strategize your repayment plan effectively and uncover opportunities to minimize costs.
Additionally, AI Legalese Decoder can provide insights into debt management techniques, with personalized suggestions tailored to your unique financial situation. It can analyze your income, expenses, and repayment goals, ensuring your plan is realistic and achievable.
Ultimately, AI Legalese Decoder serves as an invaluable tool, helping you decipher the complexities of debt agreements and paving the way towards a successful repayment journey. Embracing this technology could provide you with valuable insights and bolster your confidence in executing your financial plan effectively.
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I like where your head is at. Paying off the cc and student loans asap will help you in the long run. My only suggestion for change would be to pay off the cc as you plan, then take what you were paying monthly on to your cc and put it in savings to start to build up an emergency fund/house savings. Then hammer the student loan to have it paid off in a year or two if you want to throw more at savings/enjoyment so you don’t get burnt out.
Pay off your CC debt according to your plan. The quicker, the better. Then build up an emergency fund so that you NEVER have CC debt again. Then maybe take two or three years to pay off the student loans — this would still be an aggressive pace but would leave you with more free cash flow to start your life. Hopefully with raises or a higher paying job, you can pay faster.
Earning on $49k in an engineering job is a little low. Have you checked on what others are making In similar jobs in your area? If you could bump your salary up to $65k, that extra cash would really accelerate your debt payoff.
It’s great that you are making goals and getting a handle on your finances. The good news is you’re young and still have lots of time to build and define your financial landscape. So many people are in a similar situation well into their 30s, 40s, and beyond.
**Credit Card:**
* Pay off the CC as soon as you can. They have very high interest rates, and compound interest daily.
* Equally important is to look at how your credit card balance got high, and come up with an air tight plan to solve that spending. If you don’t think you can keep yourself disciplined, cut up the card (but don’t close the account or reduce the limit). Right now your plan assumes you are putting $0 onto your credit card for the next 1+ year.
* Ideally in the future you never want to have a balance on your credit card roll over each month. Pay it off every month before the deadline.
* If you can do it responsibly, continue to put at least some minor spending (like $50 is all you need) per month onto it and pay it off before the deadline in order to get the most benefit from your CC towards your credit rating.
**Student Loan:**
* It sounds like you still have a great interest rate on your loan. What is the rate? Is it a government loan or a private loan (like from a bank)?
* You didn’t mention a monthly minimum payment on the loan, is there not one required yet?
* Look into how long you have until your interest rate goes up, and what the minimum monthly payment will be.
* Having an interest rate that close to 0% actually presents you an opportunity to use your cash in other ways to grow it much faster than you are accruing interest on your loan. This would be a bit more of a financially savvy approach, and will depend somewhat on the above points/questions. Some people might suggest to just pay it off so you don’t have to think about it anymore, but even if you put your intended $600/week into a high interest savings account you will be growing it faster than you will be losing money to interest on the loan (many banks do promotional HYSA rates as high as 6% when you become a new customer with them and open an account). This isn’t a one size fits all suggestion though.
* The loan plays a part in your debt to income ratio once you are required to pay monthly payments, and will play a part in qualifying for future lending like a mortgage.
**In General:**
* Is it realistic to put 100% of your income towards your credit card? What about going out with friends, for example? Will you be really unhappy if you have to turn down social engagements as a result? Paying it down fast is of course great, but if paying it off a week or two earlier means you have to sit around and do nothing for the next two months, it’s something to consider for your mental health.
* See if your employer offers any sort of savings contribution matching to employees (401k). This is free money and may be a smarter place to put some of your cash flow right now while your loan interest is so low.
* An emergency fund is usually a good place to start saving some cash (this can be in a HYSA), and typically would reflect your expenses for 3-6 months. Luckily you don’t have any financial responsibilities while you’re at home, so you may not need to save into this as aggressively just yet, but you will want this savings in place by the time you do move out.
* Put a savings/investment plan in place for after you have paid things off that you can shift to right after so you don’t get used to a big surge in cash flow.
* Buying a house is a great goal to set, but unless you have a lot of help from outside sources (like family you mentioned), you might be a little premature. You need to have a well rounded foundation to your financial landscape before you take the home ownership plunge. This means things like an emergency fund if you lose your job to cover all your expenses including mortgage payment, a fluctuating mortgage rate that can go up if you choose a variable rate (some people right now have had their mortgage payments double as a result of rates going up, for example), property taxes, property repair and maintenance costs, strata/HOA costs, etc. Getting to that point should be part of your savings plan.
* Great job making a clearly defined plan; that’s what allows you to hold yourself accountable throughout the process.