Managing Credit/Debt

My student loan payoff has stalled out the last few months. Due to the lack of income during my eight weeks off from my job I was unable to make any big payments on my student loan. I’ve made a couple of payments in the last couple of months, but they were just enough to cover the interest. Now that I’m back to work, I can finally start making progress on the loans again.

However, I’ve decided to hold off on making big payments towards the student loan for the rest of the year. The reason for that is I want to put as much money as possible in my retirement accounts. Doing that will reduce the amount of my taxable income. That should keep me from having to repay any of the advance premium tax credit I received and hopefully result in a large tax refund. Since tax is currently being withheld from my paychecks based on me making $48,000 a year, I’ll get most of that tax back if I manage to reduce my income to about $20,000.

Based on my calculations, I’ll be eligible for the company 401k starting the next pay period. Since I turn 50 next month I’m eligible to contribute 100% of my pay to the 401k. My allowed employee contribution would be $24,000. I can also put $6500 in an IRA. There is no way I’ll be able to max both of those out, but I’m going to put in as much as possible. I’ll also be eligible to open a Health Savings Account next month. Since I’ve already got more savings capacity than I can use I’m going to put off opening an HSA until next year.

In 2018 I’ll switch my 401k contribution percentage to 4%. Just enough to get the full company match. That will leave me plenty of money to use towards paying my student loan.

I’m considering not re-certifying my income based repayment plan which will result in my student loan switching to the standard 10-year repayment plan. I think my monthly payment on the 10-year plan would be about $1300 which is about the same amount as my paycheck. That would give me one paycheck for the student loan and one paycheck for everything else. That might motivate me to make more money and figure out a way to pay the loan off faster. I’m not sure if that is a good idea or not. What do you think?

 In order to speed up the process of paying off my student loan I have cashed out part of my Roth IRA. Last year, I considered using my Roth IRA to pay down my student loan, but decided against it since I wasn’t sure I would be able to continue paying large amounts towards my student loan. Now that I have a stable source of income I decided to go ahead and use some of the money from my Roth IRA to pay down my student loan.

I know some people will think it wasn’t a smart move, but I will share my reasoning in deciding to use the IRA proceeds to pay my student loan.  Since I took the money out of my Roth IRA I will not owe any tax or early distribution penalty on the money I took from my IRA. The amount I took out was less than the contributions I had made to the IRA.  Since a return of contributions from a Roth IRA is not taxable this distribution will not subject me to additional tax. The benefit of using the IRA distribution is that it will reduce my student loan balance enough that I will owe less monthly interest on my student loans. Since I’m paying 6.8% interest on my student loan I am effectively getting a 6.8% return on the IRA distribution.  I think that is a reasonable return.

Using retirement savings to pay a student loan can leave you short of money for retirement. I took out $9500 from my Roth IRA which I don’t think will have that big of an impact on my retirement. I’ll be turning 50 this year so it isn’t like the $9500 has decades to compound before I retire. Of course, it could also be argued that at my age with my meager retirement savings I need to be saving every dollar possible for retirement. That being said, I still  feel that having the student loan paid off sooner will be more beneficial to me than keeping the $9500 in the IRA.

I do have a plan to beef up my retirement savings this year as well.  Sometime around late August/early September I will become eligible to contribute to my employer 401k plan. My company allows me to contribute 100% of earnings to the 401k plan and that is what I plan to do. There is a limit of $24,000 that can be contributed to the 401k in a year.  That limit won’t be reached since I’ll be starting my contributions late in the year.  I’m guessing I’ll still get about $20,000 into my 401k though.  That will make up for the $9500 taken out of my Roth and then some. The 401k money will be pre-tax which will also save me some money on taxes this year.

The drawback to contributing that much to my 401k is that I won’t have enough money to make any payments on my student loan during that time period.  In 2018 I will reset my 401k percentage to one that is sustainable for that year which will allow me to continue making payments on my student loan.  What I can save in my 401k in 2018 will depend on whether I’m able to refinance my student loan and what my required monthly student loan payments will be.  For 2017 saving the maximum I’m able to in my 401k is what I think will be best for my finances in the long run even if it means it will take a little longer to pay off my student loan.  What do you think is the best move when deciding whether to save for retirement or pay off the student loan?

I have started on a new plan to pay off my student loan. Some of you may recall that I had a plan a couple of years ago to pay off my student loan. That plan started off strong. I got my student loan debt down to $122,000 from $138,000.  After that the plan fizzled out and my student loan debt climbed back up to a total of $132,000 earlier this month. It is depressing to see $10,000 get eaten up by interest. That money basically went up in smoke. Having a student loan accruing about $600 in interest every month really sucks.

That is why I’ve started on a new plan to pay off my student loan. My previous student loan payoff plan fizzled out due to a lack of income. This plan will be different because I now have a steady source of income. I might be counting my chickens before they hatch, but my seasonal job has offered me a long-term position. I should be signing the paperwork to make it official today. With this steady source of income I’ll be able to consistently make payments on my student loan.

Even with the new job the task of paying off $132,000 in student loan debt can seem overwhelming.  I’ve come up with my 132 plan to make the task seem a little less overwhelming. Rather than thinking of the humongous $132,000 of debt I have to pay off, I’m thinking of the debt as 132 $1000 payments. This amounts to the same thing, but it seems more achievable.

With the income from my current job I should be able to make 1.5 payments a month.  At that rate it would take me about 7 1/2 years to make 132 payments.  With interest my loan wouldn’t be paid off with 132 payments over 7.5 years. With interest included it would take a little over 10 years of payments to pay off my loan. However, I plan to make a big payment sometime this year and hopefully refinance the loan next year so the 7.5 years could be a reasonable estimate of how long it will take me to pay off the loan.

Even though I like my current job okay, it would be extremely difficult for me to stay there 7.5 years. In order to shorten the payback time frame I plan to make extra money in addition to my job income. Last year, I made about $10,000 from FBA and another $1000 from my blog. That would be an extra 11 payments a year which would help pay off the loan quite a bit faster. If I could figure out a way to make 10x as much money from FBA I could have the loan paid off in a couple of years. Of course, that is easier said then done.  The reality is that I’m making much less from FBA now that I’m working.  To start making significantly more from FBA in the reduced time I have available I need to start selling wholesale and/or private label products. I’m making it a goal to do at least one of those this year. I will keep you updated on those plans as they develop.

It would also be nice if I could start making more money from this blog. In my best year I made about $20,000 from this blog and some other blogs I own. It isn’t likely I will ever get my blog income back up to $20,000, but I do believe I can do a lot better than I am now. I need to start blogging more consistently and producing better posts to get more readers. And I need to start trying to make money from my blogging. I’ve been pretty lazy about optimizing my blog for display ads and affiliate income. If I could just get 26,4000 people to sign up for Qapital with my referral link I could have my debt paid off. Okay, maybe that is a bit of a longshot. I’d only need 1320 people to sign up for Personal Capital to get my student loan paid.  Okay, that isn’t realistic either, but I could make enough from these to make a couple extra payments a year.

For now, I’ll be concentrating on making money from my job. During the tax season overtime is available. If I were to work all of the available overtime I should be able to make an extra payment a month. Once I no longer have the option of working overtime I’ll concentrate more on ways to make money beside the job.

Although I will be happy when I finally have this debt paid off, it is also depressing to think that after paying all of this money I’ll just be at zero. There are some minor fringe benefits that go along with paying off the debt. I get a tax credit for $2500 of the student loan interest paid each year. Another plan I have to get some extra benefit from paying my student loan is to use the student loan payments to help meet minimum spend requirements on credit cards for signup bonus purposes. I should be able to cycle through 3 or 4 credit card bonuses each year. Also, while I’m paying off my student loan I should have my highest ever income years which will help increase my social security benefit a little bit. I’ll need it since I won’t be saving any money for retirement while I’m paying off the student loan. I’m sure there are some more positives to paying off the loan than I’m thinking of right now.

The 132 plan is off to a good start. I’m already down to 130 payments since the start of this month and I’ll make one more payment before the end of the month. Although, I’ve broken the debt down into 132 payments of $1000 I will also be sending in smaller payments between paydays to help decrease the debt a little faster. Every little bit will help.

If you have any suggestions on ways I can pay my student loan off faster I would love to hear them.

One of the ways I like to save money is by getting cash back from my credit cards. There are many different types of reward credit cards available. When deciding which credit card is best you need to choose which one is the best for you based on your needs. First, you need to know whether having a credit card will cause you to spend more than you would with cash. If having a credit card does cause you to spend more than you probably should not have one because even if you are getting rewards you are likely losing money compared to just using cash.

If you are able to use a credit card responsibly then you need to look at how you spend your money. If you do a lot of driving you might want a gas rewards credit card, if you fly a lot you might want to look at airmiles credit cards. Or you might just want to choose a general rewards credit card that rewards you with cash. Those are the ones I have and I chose them for their bonus cashback categories.

Of course you don’t have to choose just one rewards credit card. I have three credit cards that I use. My Chase Freedom card offers 5% cash back on select rotating categories and gives me 1% cash back on everything else. My Discover card I try to use only on their 5% cash back categories. I attach a post-it note to these cards to remind myself of the current 5% cash back categories. My Target card is used to get a 5% discount at Target. There are probably even better deals out there but I don’t want to chase every credit card deal that is offered. The system I have is pretty simple and it works for me so I don’t plan on making any big changes.