how i did it
I got a question from a guest to this blog via email, and I thought it was a great one so I’m posting the question and answer here, since you never know if it might be able to help someone.
Awesome Reader: How did you go about starting an emergency fund while having to pay student loans and having/trying to pay card debt?
Sistah Ant (henceforth also known as the Lady Ant the long-winded): Well, so far as my student loans go, I signed up for the graduate repayment plan. The monthly payments are the lowest that I could get them to be. The problem with that is that in the long run, you wind up paying more in interest. The good thing about it, though, is that with the Direct Loan program (I owe my student debt directly to the government) you can change your repayment plan whenever you’re ready. I don’t plan on being in the graduated plan forever, but I will keep it until I can afford to meet my other goals and pay more on my loans each month at the same time. Of course, I felt more comfortable making that decision because I consolidated my subsidized and unsubsidized loans at a really low interest rate. My consolidated loan, due to a low locked rate, a direct debit discount and a no-late-payments discount, has an interest rate of less than 3%. When I finished school, having lower student loan payments helped me to stay on top of things. Even now, I’m glad that I am not required to pay more on my student loans than I currently do, because if I did, I wouldn’t have been able to save and kill credit card debt at the rate that I have.
I finished school in 2004. I didn’t start making more than the minimum payments on my credit cards until late 2005, because I couldn’t afford to do so before that time. Even then, I didn’t pay MUCH more than the minimums, because I just couldn’t afford it. But the month I started paying them back, the credit card company made the interest rate higher, and it got harder to pay more than the minimums all over again. It took another year to really get to a point where I even tried to pay any more than the minimums.
I’m not saying that this is how it will work for you, but for me, I had to tackle one thing at a time. After I consolidated all of my credit card debt into one loan in October 2006, the first thing I did was to build an emergency fund. It was only $1,000, but it’s what I could afford to get together at that time. I put the emergency fund first because I figured that if I had it to rely upon, I wouldn’t have to drive up my credit card balances all over again if I found myself in a jam. Luckily for me, I didn’t have a jam! When I finished putting the $1,000 together, I committed myself to paying off the credit cards themselves. It took from about February 2007 to February 2008 to get it done. In fact, I started this blog not long after I started really trying to pay the debt back. Once that was done, I turned my attention to saving again. I am just now finishing the task of adding to my emergency fund to make it $5,000. But I found it to be mentally gratifying to make great progress on one task at a time, instead of small progress on everything at once.
So there you have it – I didn’t do it all at once, and I didn’t do anything at all until I could afford it. In retrospect, this didn’t have to take me four years, but I moved and changed jobs several times during this period, and I wasn’t as serious about money and goals as I could have been. So please don’t be discouraged by how long it took me to start getting it together. Your situation can and likely will be different!
