advice please

[Jonelle]

what should my next steps be to get myself in a good financial situation? here are my stats:

-i make about $1800 a month after taxes
-i have a direct student loan of $12,000 (6.5% fixed, i pay the $125 minimum)
-i have a private student loan of $6,000 (3.5% variable, most of this loan was never used so rather than the $63 minimum, im paying it back in $500/month chunks to get rid of it)
-i have an emergency fund of $3000
-after all my monthly expenses i have about $400 left over to split between ING subaccounts (vacation fund, roth IRA contribution fund -going to open one in jan 2010-, down payment for a house fund, etc)

I am 23 yrs old and barely spend money on anything but necessities (i share a 2 bedroom apartment with three others to save on rent). any tips or advice on what i should tackle first or anything else i could do?

Thanks!

[Xin Lu]

I would say plunk the $500 a month you're paying for the second loan towards the loan with the higher interest because it would be cheaper to pay off the larger loan first. Besides that I think you're doing pretty good in savings. If your company has a 401k plan with matching you should definitely sign up for that too.

[bhkyra]

Hi Jonelle,

I'm in pretty much the same place as you, I would agree.. Paying off the higher interest debt is way better mathematically, but if the psychological benefit of paying off the other one first is good for you, do that.

Why wait until January to start your IRA?

If you're not already, you might consider continuing to contribute to your emergency fund, especially if you are worried about your job, or if you don't have health insurance, or if your deductible is > $3000 you'd probably be under water.

[Jonelle]

Originally Posted by Xin Lu

I would say plunk the $500 a month you're paying for the second loan towards the loan with the higher interest because it would be cheaper to pay off the larger loan first. Besides that I think you're doing pretty good in savings. If your company has a 401k plan with matching you should definitely sign up for that too.

i work at a start up company so there is no plan for a 401k for the employees yet. hoefully soon though!

[Wayne King]

I'd definitely consider paying off the higher rate loan 1st. Then, if it were me, I'd just save as much as possible for now. I wouldnt split up the savings into a bunch of sub-saving categories. That way you see the savings grow faster. The different purposes the savings can be determined later.

[FinanciallySMART]

Paying off the high interest loan should be first priority. So instead of paying the minimum pay as much as possible. After completing this loan then concentrate on the other one. To have a financial free situation one has to be Debt Free.

[Julie Rains]

My concern about paying off the now-lower interest loan is that the rate is variable and may rise soon, perhaps above the fixed rate loan. Also there may not be protections associated with the private loan -- that is, if you become unemployed, you could possibly defer the direct loan but not the private one. It depends on the terms of the loan(s) though.

[mbhunter]

Not sure your emergency fund is large enough. How far will $3,000 go if you lose your job tomorrow?

I'd throw a little bit less at your debt and build up your emergency fund some more. Right now the extra $433 you're throwing at that 3.5% debt only buys maybe $5 in reduction for your minimum payment (or maybe no reduction in all if that's the way your loan is set up). You can't get those extra payments back if you should need them in unemployment.

In better times I'd say pay down the debt but these aren't better times.