About a year ago I occured alot of debt. I’m now back on track, making pretty good money for my age.. I’m trying to figure out how much to pay each month towards my debts and how much to save? Here is a break down of my debt and the interest rates they have: $3200 at zero interest until March of 08. (I’m paying each month the amount that it would require to be paid off one month before the interest starts) 2200 in medical bills at zero interest (I pay the minium) 2400 to a apartment complex for breaking my lease early, I just received the notice and havn’t set up payment plans yet. I also have 2200 to a family member who says not to worrry about it to much until I’m caught up again. I know this may not be alot of debt to some people, but i’m only 23 and consider it WAY to much debt. I have around 1000- 2200 depending on my boneses each month to save or pay extra towards my bills. How much should I save and how much should I pay towards my bills? Any help would be great.
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Always pay off debt if you have the money. The interest rate they are charging is far more than what that money would earn in savings. If you have $1000 with 15% interest and you don’t pay it, next year you’ll owe $150 more. $1000 in an account with an interest rate of say 5%, next year you’ll only have $50 more. You’re now $100 more in debt because you decided to put it into savings instead of paying off the debt.
Jeff, the way I look at it (some people may disagree with me) is a sort of 90/10 rule. If you have major debt with major interest accruing, you need a virtual all-out assault on the debt. Commit 90% of what you have to eliminating it, saving 10% as your future “line of defense” from having to go into debt more. Then, as the debt is paid off, and your income increases due to less cash flow going to debt, you can start adjusting the mix less from debt retirement and more toward saving.
I’d start by eliminating the medical bills with the 90/10 idea (although they are at zero interest now, that could change if you default.) Actually more people get into bankruptcy due to medical bills than almost any other kind of debt, so get rid of it as soon as you can. Hopefully you can then have more cash flow to start working on the loan that starts accuring interest in March 08. Your goal is to have it paid off before that March ’08 deadline hits. But even if you don’t quite make it, you will have reduce the monthly payments by hitting it next and retire it before it really gets out of hand. Finally, if you truly have an understanding family member, pay them last.
It’s not the only way to do it, but it’s a thought…
I would recommend saving the amount it would cost you to live, everything included, for three months. That gives you money for an unexpected expense or if something happens at work or you get hurt and can’t work to where you can support yourself for three months. After you have saved up that much I would suggest putting all you can towards your debt because you will have emergency money and can pay off your debts faster and have the relief of not being so far in debt. I am 25 years old and I am $2000 in debt and I think that is a lot. Hope this helps.