My wife and I are working our way out of debt; specifically, credit card (in lieu of student loans; I know this was a bad idea, don't remind me!) and personal (money loaned from her parents). Our current plan for the credit card debt is to get my credit card down to ~1/3 the limit, then pay hers off completely so that we are only at one bank; this may include getting a debt-consolidating credit card. As for the personal debt...we'll figure that out as we go. We also want to save for a house (northern California), get an emergency fund, have some multiple of monthly salary saved in case the worst should happen, etc.

Because of the nature of my job, I know with relative precision how much money I'm going to be making for the next 15 years or so, and I'm participating in my 401K almost to the max that my company will match.

Recently I've heard of/glanced at articles that talk about how much money a person should have saved up by various age milestones. We're way under even these broad guidelines.

Question: What can I learn to get out of debt AND save up specific amounts of money by a given time period without going to see a financial expert? I've heard lots of general (ofttimes very good) advice, just wondering if there are any specific suggestions for saving.

My bank offers free financial consulting, but I'm concerned/convinced that the advice would be at least a little bit (read lot) skewed in their favor.

Edit: Additional information -

Credit score is 648.

My APR is 20.49%, hers is a bit less (don't have it in front of me).

My balance is $2600, hers is roughly $5000 (don't have it in front of me).

The goal of paying off hers completely is mainly to have only one bank, but also to get away from her bank (Wells Fargo; bad stuff in the news, etc.)

Before we got our tax refund, we were trying to never use my credit card with...some success. Now the hope is to practically never use either credit card, at least for the time being.

Total debt is roughly $10000; current monthly net pay is $2818, after contributing 4% to TSP (work matches 100% of my contributions up to 3% of my gross pay, then 50% from 3-5%).

My wife and I are both 30, two kids in diapers at home.

  • Knowing interest rates can really help someone give an answer that's tailored to your situation. Is there another benefit to consolidating your wife's debt in to your card apart from simply being at the same bank? Would that move yield an interest rate improvement? How bad is this debt in total relative to your annual income? How old are you? Are you still spending on a credit card that carries any of this debt? – quid May 30 '18 at 17:35
  • How much of the 2818 is left after your non-debt expenses? How much are the minimum payments on the 10K in debt? How's you and your wife's credit? – TTT May 30 '18 at 19:14
  • I have reworded your question slightly to remove the request for external resource recommendations, which are off-topic to ask for. – Ben Miller May 30 '18 at 19:33
  • Min on my card is $79, I think hers is $130. As for how much is left, I have that calculated somewhere, but it's at home. – John Doe May 30 '18 at 19:50
  • Comments are not for extended discussion; this conversation has been moved to chat. Including all the answers-in-comments. – Ganesh Sittampalam Jun 1 '18 at 21:51

A couple of positives about your post: You are paying attention and you are refusing to beat yourself up about past decisions. They are made, you have to live with the consequences, and you are now dealing with them like an adult. Pat yourself on the back for those two things.

The problem that I see is that you are trying to do too much at one time. Forget about buying a home for now. For an emergency fund $1,000-2,000 will do. That amount will solve about 90% of the problems you will encounter as a renter. I would scale back or even eliminate your 401k contributions. At your income level, I would stop contributions.

Then, if I were you, pay off your debts smallest to largest (balance). You need to make traction. I would also looking at what I could do to raise my household income. You are far below the national average for household income.

For people such as yourself there is no better resource than Dave Ramsey. He targets middle class households in debt.

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    +1 on the post but I would pay down the largest debt rate first rather than the largest balance. Paying down the smaller balances first and consolidating is a psychological win but reducing the debt fast by eliminating the highest debt rates is a financial win. – Bob Baerker May 31 '18 at 14:27
  • Does the fact that my 401k isn't a 401k at all but is the TSP make a difference? – John Doe May 31 '18 at 15:23
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    @JohnDoe well at least that's a solid raise each year, so something to look forward to. I'm hesitant to back Pete's suggestion to cut the TSP while it's being matched; on the one hand it's a free and instant 100% return and 4% isn't that much extra, on the other you won't be able to use it for 35 years and you need money now. Either way, I'd suggest paying down your card first (it's highest APR and lowest balance), and then using that for things that absolutely have to go on a card—paying it off in full every month—and then your wife's. – Kevin May 31 '18 at 16:52
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    Giving up 401(k) matching is terrible advice. The OP definitely should stop contributing anything that is not being matched, but my understanding of the question is that the OP is not making any such contributions. – Acccumulation May 31 '18 at 18:13
  • @JohnDoe no the TSP makes no difference. Stop the contributions and get out of debt. – Pete B. Jun 1 '18 at 10:41

Well, questions about resources are off-topic on this site, but here's some free advice that's completely worth the cost:

I would argue that any benchmarks about "saving X dollars by age Y" should be net of any debt (otherwise you could borrow $1M and be a millionaire overnight), so it makes no sense to save money (other than a small amount for emergencies) while you're getting rid of consumer debt.

My advice would be to focus on the debt first (including student loans and family loans), then focus on saving money. Whether focusing on highest interest rate or lowest balance is up to you; there's arguments both ways (one mathematical, one behavioral). Do whichever plan you're most excited about.

Any money saved while you have debt is costing you in interest. Long term, that's the best way to maximize your savings. You might consider stopping the 401(k) temporarily just to focus on the debt, but I fully realize that a 100% match is very hard to pass up. In the long run, though, it may not make a huge difference in retirement savings and might energize you to get the debt knocked out and change your spending habits.

I would steer clear of debt-consolidation unless you have ridiculously high interest rates (18%+) that you can't may off in less than a year. The fees and lack of flexibility may not be worth any interest savings.

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    @John Doe: No, as long as you have debt with interest > the return % you make on your savings you are always better off paying off the debt first! You know, compounded interest works on your debt too, but not in your favor! – Daniel May 30 '18 at 22:04
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    @JohnDoe no, because interest on your debt is gone forever. You will pay more in debt interest that you will earn interest in savings. So long as the debt interest is more, you're going on the wrong direction. After the debt is paid off, you're behind the curve and won't ever catch up. – D Stanley May 31 '18 at 1:55
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    @JohnDoe For a metaphor, Suppose you have a leak in a boat, but can bale water at a slower rate. You can divide your effort between baling water and plugging the leak. The sooner you plug the leak, the sooner you can get all of the water out of the boat. – D Stanley May 31 '18 at 2:00
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    @NPSF3000: The credit cards are a higher rate than the 401(k) match. The 100% is a return, not a rate of return. You can't directly compare a rate to a return. Because the 401(k) can't be collected for 35 years, the 100% match is effectively a 2% increase in APY each of those 35 years (Feel free to check the math, pow(2, 1 / 35) = 1.02). Average market growth of 8-10%, plus 2%, is still far below the credit card interest rate. – Ben Voigt Jun 1 '18 at 0:55
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    In an absolute worse case scenario, where they absolutely must chose between 401k or credit card (and have no means to do both), the best stratergy is to contribute to 401k match, cash out, and then pay CC. – NPSF3000 Jun 1 '18 at 1:06

You should contribute all the way to the max for your 401(k) match, but not anything more. You should look into borrowing directly from your 401(k) or seeing whether you can use your account as collateral (note that this is a little dangerous, as if you default, you will lose your savings, and have to pay an early withdrawal penalty). As a last resort, you should consider withdrawing your money as soon as your match vests. At 20%, the interest on your debt will only take six months (less with compounding) to exceed the 10% early withdrawal penalty, with the former being charged every year while the latter is simply a one-time amount. You should discuss your situation with an expert before messing with your 401(k), though.

You should be shopping around for loans. Bob Baerker suggested getting a credit card with a 0% interest rate and paying the minimum amount each month. If you don't have good credit, that might be difficult, but whatever you can get under 20% helps. Dilip Sarwate criticized this strategy on the basis of "Those expenses charged to the zero-percent card don't go away when the zero-percent sucker-bait rate expires: instead they create added debt with a large interest rate, leaving the OP much worse off than before." However, Bob Baerker specifically said to charge "everyday essential expenses". If you are charging expenses that you would otherwise be incurring, then you won't have "added" debt; any debt will be debt you would have had otherwise. And you won't have been paying interest for the initial period. You can use what you would have paid in interest and use it to pay down the principal, saving you even more interest.

Another thing you can do is get another credit card (or, once you have cleared the balance of one of your cards, use that) for new purchases. With how credit cards work, if you pay off the balance every month, you get an interest free loan from when you buy something to when your bill is due.

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