I'm trying to figure out the best way to start investing money and paying off my high debt amount I have.?

Question

I'm 23 years old, I'm trying to gain structure in my finically life. I'm learning the younger you start investing, the better chance to the road of success you will have. My debt adds up to around 13,000 dollars. This is just credit cards, medical bills, a small loan from a relative. My debts and interest rates are as the following: 6000 credit card with no interest untill April of 08. 2200 medical no interest at all making $50 month payment. 2400 to a apartment complex for moving out early, no interest making 100 payment a month. 2200 to a relative who says to take care of other debt then I can repay them. I'm paying the minium on everything except my credit card with 6000balance. I pay the most I can each month to it. How should I go about paying these debts off? Also, i'm curious to what the best way to start investing are with minimal amount to invest? My job offers 401k and match but I don't know what percent. Should I start with roth ira or what method? Thanks again

Answer 1

Let's break it down:

BILLS: Start off by paying as much as you can toward the one bill that has the highest interest rate, even if you're not presently being charged interest on it. After that bill is paid off, DO NOT reduce the amount of money you're throwing at the bills -- take that extra and put it toward the next bill. Looks like most of your bills have no interest, so pay off the one with the lowest balance first. When that bill is paid off, move on to the next bill with the lowest balance. As you pay the bills off, keep paying the same amount every month toward your bills until they're all paid off.

INVESTING: Find out about the 401(k) plan your job offers. Some companies match your contributions dollar-for-dollar up to a certain percent (6 percent is the highest I've seen) and other companies invest one dollar for every two dollars you contribute up to a certain percent, so once you figure that out set up an allotment from your pay to contribute only enough to have your company contribute the maximum. For example, if your company matches dollar-for-dollar up to 5 percent, have the company allot 5 percent of your income to the 401(k). If you have any money left over that you can invest, put it into a Roth IRA. There are advantages to both, but the biggest advantage to the 401(k) is the fact that employers match funds, so you get more bang for your buck.

Answer 2

Getting your debt paid off has to be high priority. That April 08 time when the credit card will start charging interest will be here before you know it! You don't say HOW much you are paying on that each month, but that's your biggest problem if it starts charging interest - and unless you are paying around $850 a month on it, it won't be paid off by April.

It would be good to start having a small amount deducted from each check and put into a 401K, since otherwise you are giving away free money in the company match. As you get anything paid off, put the extra money into the 401K at least up to the amount of the emploiyer match, more if possible.

Answer 3

You have just over 6 months to put every last cent of your unspent cash into a high interest paying cash savings account. Continue paying the minimum amounts on your loans until then. Your aim should be to pay off the credit card loan in full by the end of March 2008. If you plan it well you should also be able to address your other loans but these are not a priority they don't appear to involve interest. You should therefore leverage your cash whilst you have these loans. Cash is always king - although you will often hear that you'd be better off 'investing' elsewhere. Pay no attention - find the cash saving account that pays the most and put as much of your cash in there as possible.

Answer 4

Start by investing in the 401k. Get into that right away. Put in as much as you need to in order to get the full company match. That's like printing money. It the company matches 50%, you have an investment with a guaranteed 50% return right there. And, since that investment is pre-tax dollars, you get more investment with less impact to your net pay.

A Roth IRA is not really a good investment for you at this time. I do recommend them, but pay off your debt first, and get some into a conventional retirement account first. As you approach retirement, that is the time to start looking at investing after tax dollars in a Roth IRA.

As to your debt. You are doing the right thing paying off the debts in the order of highest interest first. (Even though the credit card is currently 0%, that counts as the highest interest debt.) Get that paid down to a decent level before you start really socking money away in other investments.

Also, remember to pay yourself every pay day as well. Open up an ING Direct or an Emigrant Direct account, and have some money moved into it every payday. It is money you will not see in your checking account, and you will be less tempted to use on luxuries.

One more thing. Examine your spending. Over the next several months, write down every penny you spend, on what, and why (if not obvious). You do not have to change your spending habits, this is just to become aware of where you take home pay ends up. Then, cut the fat from your spending. When I did this, I was able to save myself over $280 a month on stuff I really did not need, and have not really missed since. Examples:
Dropped the cell phone service, and got a pre-pay one for emergencies. (Admit it, that was the excuse you used to get the cell in the first place...) Saved $59 a month. A year of prepay cell service is around $100
Stopped paying $4 a day for coffee (two cups). Is Starbucks really that good. Savings, $20/week
Bottled water. What a total rip off. Saved $20/week.
Brought lunch to work (Sometimes, I cheat on this one a lot) Savings, around $50-80/month.
Dropped the 'premium' cable TV channels. Saved $30-40/month.
Seriously, cut out the unnecessary bs in your budget, and you will have plenty of money to pay off your debt, but a house, a new car, invest in retirement savings, etc...

Best of luck

Answer 5

I coach people in this area. Here is the very general idea:
Get your spending in check (www.youneedabudget.com). You are NOT paying the most you can, not yet.
List your debt from highest interest to lowest (April 08 is really all at this point). Then sacrifice in a major way to eliminate the highest one first while still spending the same amount on debt each month (you'll owe less and less and be paying off more and more principle).
Investments: best idea ever= used finance books on Amazon, you must know the difference between horrible ideas and possible great ideas. you need to invest in yourself so you know what you are looking for (ROI, simple versus compound, ETF, points, rates, etc).

Be patient. You should be able to account for each penny every month.

Answer 6

I'd seriously look at how much your employer contributes to your 401(k) and contribute to their maximum...it's free money really. I wouldn't go with consolidating or managing companies for your credit cards...it shows up on your reports and can be construed negatively. i would pick your highest interest cards and pay those off aggressively and as each one is paid off apply that allocated money to your other cards and so on. If you're aggressive and diligent you can pay your cards off fast. Only close a few of the accounts because they help you with maintaining a good credit report. Your credit history is a complicated animal but age of credit, amount, payments and debt to income help in determining your score. Then once you are done and no longer have payments I would apply that money to other things such as your portfolio. real property, savings, bonds, stocks and so on. At that point you will already be used to not using the money for personal fun and stuff so you should be able to save for that rainy day.

Answer 7

You should try to pay off the $6000 credit card before interest hits in April. You are young, maybe consider a second job to get rid of all that debt. Also, you should pay off all debt with interest above 10% before investing because the debt will negate the gains of investing. If your employer matches contributions, try to invest as much as they will match in your 401k, because that's free money. Maybe start at 5% if you can swing it after the credit card is paid and up to 10% after other debts are paid.

Answer 8

Assuming you are extremely fortunate to find someone who will give you another mortgage.... It sounds like you are falling into the same trap that many thousands of people have done over the past few years. With banks offering great rates on home equity loans and refinancing mortgages, people have been rolling all their debt into these loans. They pay off old credit cards and other debts. Then they turn right around and run up the now-empty credit cards all over again. The end result is they file for bankruptcy. Last year thousands of people did just that. And I see this happening all the time from people asking me for advice on how to get out of their credit hole. You need to recognize that this is happening to you and correct your behaviour before you even consider another loan. Also note that credit cards are unsecured loans. 2nd mortgages are not, and if you default you will lose your home. You will not be able to refinance this unless you have some sort of equity left in your home, after your 1st and 2nd mortgage.

Answer 9

find out what the employer matches with the 401k and put in that %. Save an emergancy fund of a $1000.00. Pay off all Debt. Finish the emergancy fund with 3 to 6 months exspenses. then raise your 401k and start your investing

Answer 10

first you did not say anything about a rainy day fund -- that is a fund set a side just for bad times (job loss -- extend sickness etc) (not a night out when it rains) anyway keep paying like you are doing and put aside a little bit of money until you have 6 months of rainy day money earmark in a very liquid place -- 401k yes at least try to match what your employer puts in if he will invest 50% for every dollar up to 4% try to put in the whole 8% -- you will have to talk to your tax man about the roth ira or regular ira cause i do not have insight into your tax situation - overall sounds like you have your path mark out fairly well -- keep up the good work and good luck!!!