08YellowCR

Hi guys im 24 years old and a marine thats been in 5 years now but going to get out at my 8 year mark to go finish my degree and get into a job i really like to do instead of doing what pays the bills if you know what i mean.Ok i save right now $250 a month. I put the rest of my free money $400 toward my CR and credit card bill. I aslo give myself $350 a month of just spending money. Now should i put that extra $400 toward savings due to me geting out in about 3 years or pay down my debt. I have a litttle saved as of now i borke down my debt and saving below. All of my savings is not in one account i have a money market,IRA, and 2 CDs as of now.And should i not give myself $350 a month of spending money and put more of that in savings??? Thanks on any help with this would be great

S2000 CR-$34,000
Credit card-$2,400
Savings-$22,000

AssassinJN

Pay off your credit card first.

Then I would work on paying off your car, remember that in the end prepaying a loan is equivalent (to your future finances) to a savings account earning your loan's APR * (1 + your income tax %). So minimally take your car loans APR (lets say 6%) * (1 + your income tax %) (we'll go low with 20%) and you get 7.2%, for your savings to be the best thing for you, you would have to be earning this much interest on your accounts.

So in my opinion, pay off your car 2nd. Normally it's a hard to beat deal since your percentage is guaranteed, and the piece of mind knowing you own your car in this kind of roller coaster economy is worth a lot to most people.

Edit: Forgot to mention a few more things. Once you have enough in your savings account to cover 3-4 months of bills, reduce the amount you are saving to just $50-100 and put the rest towards paying off your loans/cards. Also $350 for spending a month is not unreasonable, but if you are able to reduce that comfortably then do so, and put any extra towards paying off your debt.

Also try looking towards lowering other bills you might have. One example would be car insurance, if your deductible isn't maxed yet, do so. Normally raising your deductible from $500 to $1000 will save you a couple hundred a year (just shy of $400 in my case), so if you can go 3 years or so without having an accident that you have to pay your deductible on, then you will win out on that. Just make sure you take into account the higher deductible and put some extra in your savings just in case.

Good luck, and thanks for your service.

magician

You got the math almost right: it's equivalent to earning the APR / (1 - tax rate).

If the APR were 6% and your marginal tax rate were 20%, the equivalent interest rate would be 6% / (100% - 20%) = 7.5%, not 7.2% as you calculated.

AssassinJN

Ah, ok I see. Thanks for the correction magician, I should really refresh my math skills once in a while, it has been a few years.

midnightsunset

Since you are a marine and do not have the fear of losing your job savings is not terribly important when you have the ability to leave the service debt free with assets. You are doing well and have the right mentality

08YellowCR

Thanks every one yea i figure $22,000 is a good start in case some thing wierd happens but i really don't have to worry about loosing my job i have 3 years left. So i will pay the CC off first than put the $400 extra every month toward the car and if i cut back on some other things a little bit more. That way when its time for me to get out i should have the car just about payed off and at least $22,000 in the bank still

Akim

pay off the debt, thats what i've always been taught. What I actually do is another story, lol

cthree

Always pay unsecured debt first.

mingster

but make sure to have enough for a rainy day.

magician

It never rains in California.