Thoughts on Debt

I’ve been putting together a new budget for my new job and new salary and I can’t help but notice how long it is going to take me to pay off my debt. At my current position I get 10% of my salary to retirement with a 0% matching contribution on my part. This has been nice and in the past 2 years I’ve gotten about $10,000 in retirement benefits.

At my new position I will be given 3% retirement without a contribution, but they’ll match up to 6%. And since I’m not one to throw away free money I will make sure that I put in my 6% to get my matching.

I also know that my car is pushing 8 years now and realistically I need to start saving up money now for repairs and eventually a replacement car. I’m looking for my car to last another 5 years, but there will definitely be repairs that need to be done to make that happen.

The moral of the story is that this debt is holding me back significantly.

With the budget that I’m looking at, I’ll be paying $750/month towards my credit card debt. This will be another year and 8 months to get this debt gone. This is just unacceptable. 100% unacceptable.

For those of you who follow my net worth, I have about $7,000 in investments that aren’t retirement. Around $1,300 in stocks and $5,900 in mutual funds. One reason I haven’t sold these investments is because I got them as insurance benefits from my mom and my brother passing away. In some way I feel that when these are gone, so will some part of them will be too.

However, this is money that I could use to pay down my debt. The $7,000 in these investments would reduce my credit card balance from $11,000 to $4,000. Then paying $750/month it will only take 6 months to get rid of the debt.

I have a few fears about this:

  1. I’m afraid of these stocks and mutual funds being gone because they serve as a mental safety net
  2. I’m scared of losing the memory of my relatives that exist in these funds
  3. I’m concerned that now isn’t the best time to sell my investments as the market isn’t strong
  4. I’m frightened about taking this money out to pay down my debt and then racking up more debt in the future and being stuck with debt and no “safety net” of these mutual funds and stocks – though – based on how much I’ve grown financially in the past 2 years, this seems unlikely

However, the benefits of being able to be gone with this debt, start building an adequate savings, know that I’ll be able to pay for a new car outright when I need to, to get an emergency fund to an acceptable level and be able to start saving for IRAs would be nice. All of these are things I can’t do as long as this debt lingers on.

Another idea is to pay down my debt until these funds equal my debt and then use it to pay it off. This may not be the best in terms of interest, but it could give the market time to rebound and in 6 months from now I’ll have the debt paid down to ~$8,000 using my current budget.

We’ll see… these are the thoughts I’m mulling over right now… It is a scary idea, but the freedom in my budget by getting rid of my credit card debt is exceptionally tempting. I hate this debt. I hate it so much.

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9 Responses to Thoughts on Debt

  1. eemusings says:

    Are you currently ahead on those investments? If not, yeah, I’d wait until they equalled your remaining debt and hope that allowed enough time for the market to rebound.

    I can understand how they seem like a last tangible link to your family. But the real links to them are in your head and heart (gawd, how corny) – and I’m sure they would want you to put that money to best use – your financial freedom.

  2. Stocks and mutual funds are reasonably liquid assets. Perhaps you could consider them your emergency fund and put your EF money (and the savings that are currently going into it) toward your debt. This would shave a few months off without having to touch those assets.

    If I needed the money, I’d definitely sell the stocks and mfs. There have been worse times to sell this year. But I also understand being sentimentally attached to certain classes of liquid assets. Wouldn’t it be nice, at retirement, to take that money out and make a big payment on something you could enjoy for the rest of your life? Or use it to fund your child’s education? Paying down debt with “special” money can seem unbearably prosaic.

    The good news is that you’ve gotten your life on track such that there are no bad decisions here. Kudos to you!

  3. LBC Teacher says:

    I am the last person who should give stock/mutual fund advice…but if it were me, I would pay off the debt. That puts you SO much closer to your goals, and like you said, you can then build emergency and car funds to stop yourself from having to go into debt in the future.

    And, your mom and your brother are always with you. It’s the memories, pictures, and influence they have on you that carrie them on…not money. ❤

  4. I sounds like you are good with managing your money on a day-to-day basis, but you lack long term direction. Something to ask yourself is “What are my savings, debt, investment, retirement goals?” Once you identied and prioritized these then ask yourself “Which decision will move me closer to these goasl?”

    I have found Dave Ramsey’s 7 Baby Steps helpful for providing direction. All I did was write down each of the steps they identified what each one meant to me and started working down the list.

    Good luck to you!

    • SS4BC says:

      Oh I have long term direction, I know exactly what I want in 3-5 years. What I lack is exact knowledge of where I’ll be in 2-3 months. It makes things hard to plan when you don’t know where you’ll be working or living 8 weeks down the line. These things have thankfully started to come together in the past week – but it is still far from settled 100%. Moving for a new job is exciting, but brings along with it a lot of uncertainty.

  5. TeacHer says:

    I completely understand your emotional attachment to the stocks and mutual funds, but I would liquidate them in a heartbeat. You’re starting a new job in a new place – it would be wonderful to have a completely clean slate with no debt. I really think you’ll be happy you did it.

    BTW, I’ve been lurking but not commenting recently, so I haven’t yet said: congrats on the new position! I’m thrilled for you.

  6. Alice says:

    Hi… I recommend waiting until the debt is at the level that you can sell the stocks and pay it off in one swoop. That way your mom/bro’s legacy money can be the money that wipes out your credit card debt! What a great legacy for them to contribute to!

  7. jason Kay says:

    I would definately wait until you are at the stage you can just pay the debt off.

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