Repaying Debt and Saving - Difficult Situation
She seems to be paying an inordinate amount of money for car payments. $850/month is just too high. She may be able to get by on public transit, depending on where she lives, but if not, she needs to look at selling her car and picking up a cheap second-hand vehicle. Public transit would probably save her $750/month. Going to a cheaper car should still save her $300 - $400/month. Next, phone and cable. These are certainly nice, but they are rarely necessities. I do not have cable t.v., for example. I do have a cell phone, and I do have Internet (a requirement of my job), but no cable t.v. She may be able to save some money there. My guess is that she could save $125/month here, though I may be biased on how much it costs to heat a Canadian home in our cold, cold winters. And, of course, the college payment. $900 - $1000 a month? I understand that she is paying this so that your sister can attend college. That's very nice, but it certainly sounds like your mother cannot afford that. On the other hand, if this is repayment of college expenses already incurred, there may be no choice here. Rent, at $1625/month. I have no idea what that gets you in NJ, but perhaps she could rent out a room. It's not inconceivable that she could bring in $1000/month from doing so, though obviously that's going to very much depend on the real estate/rental market where you live. Alternatively, she could move out and move in with someone else and that should certainly get her share of the rent down to $800 - $1000/month or thereabouts, and most likely cut her utility bills, also. I've identified a number of places where she can save money. No doubt, the budget is tight, but I think she's spending on far more than just bare essentials. One thing that concerns me here is that she appears to have no emergency funds and very little for entertainment, other than cable t.v. If at all possible, she needs to cut her budget down so that she is not living paycheque to paycheque and has money to cover, for example, emergency car repairs. And I'd really like to see her have more than $50/month for expenses (which I'm guessing is entertainment). It may not be possible, of course, but I would most definitely say she should not be paying for your sister's college if this places her in such dire financial risk. Easier said than done, of course. Most certainly, I would not even consider cutting the health insurance, by the way. Another approach would be to look at how her expenses will go down when your sister is done school and perhaps cleared up other expenses. It may be worth borrowing from family and friends, knowing that in a year, her expenses will go down $500/month. That makes her budget manageable. Additionally, the debt repayment presumably will finish at some point. The point I'm trying to make is that, in a year, her budget will be just about manageable, and she may be able to get there with smaller trims in the immediate future. Just a thought, but have you considered approaching your sister about assuming the student loans or repaying your mother (even if it is a small amount/month) for financing her college education? If she is in her last year of college, in theory she should be earning at least some income within the next 2 years. Also, it doesn't seem like a lot to ask considering the sacrifices (both financial and otherwise) that a single mom probably made over the years. I'm sure your mom would be hesitant to ask as it seems like she prioritizes her children above herself by your description of the situation, but I bet if you could talk the sister into the mom would grudgingly accept it if she really is in such a tight financial situation. "Like everybody else I'm picking up on the school loans - you're mother isn't exactly earning a massive amount of money given her cost of living, why is she taking out student loans that benefit you and your sister? I'm not trying to be offensive but it's fairly obvious that she can't afford it. As a first step I think you should at least take over paying your own student loans (you sound like you're out of college already and if you have $8k to ""lend"" to your mother you probably have enough money to pay the student loans that benefited you, after all) or as someone else also recommended, assume your loans. As to your sister, maybe it's time for her to get (another) job to pay for the tuition so her mother doesn't have to go further into debt. Again, I'm not trying to be mean here but your mother is digging herself deeper and deeper into a hole because of the tuition. Something's gotta give, and delivering pizza or getting a paper round is a small sacrifice here. Next, the car - unless she has a managed to work herself out of some of this mess, I would consider getting a much cheaper car instead. This is provided that she isn't upside down on the loan. Personally I wouldn't trade in a vehicle with an upside down loan, if anything that's another bad financial decision. Assuming that she isn't upside down on the loan and has some equity in the car, I would seriously consider selling the car and using the equity to buy something small and cheap. That should also hopefully reduce the cost of gas and maybe insurance somewhat. I think these points are probably the quickest steps that can be taken towards recovering this situation. You already mentioned the longer term plans like downsizing the apartment, but TBH I'm not sure that this is really necessary. The big elephant in the room are the college costs and removing those from the equation would give her a serious amount of breathing room." I see one clear thing to help: She lives alone.  Why does she need a two bedroom place? Your mother has a problem that is typical for a woman with children.  She is trying to help her children have a good life, by sacrificing to get them to a point where they can live comfortably on their own.  Though she has a difficult situation now, much of the problems come from a very few choices by her and her children, and her situation can be fixed. Let me point out a few of the reasons why she has come to this point: My mother is a single mom... she is turning 50 this summer... she has about $60k in school loans from the college I attended... she has payments of $500/month ($10k) to my sisters college... she lives on her own in a 2 bedroom apartment... Mother's current 'income statement', Income Essentials (total $3131, 71%, too high, goal $2200) Lifestyle (total $150, low, she should have $500-900 to live her life) Financial (total $1350, 31%) Some observations and suggestions: Even though the $1625 rents seems high, your mom might enjoy her apartment and consider part of her rent ($300) a lifestyle choice (spending money for time), and the higher rent may make sense.  But the rent is high for her income. Your mom should be spending more on food, and budget $200/month. Your mom should be saving money for investments and retirement.  She should be putting 10% into savings ($440), plus any IRA/401K pretax savings. Your sister should be paying for her own college.  She should take her own student loans, so that her mother can save for retirement.  And since she only has $10K left, an alternative would be that you could loan her the money, and she could repay you when she graduates (you have money, as you loaned your mother $8K). You should be repaying the $500/month on the $60K student loan your mother took to help you get through college.  You have benefited from the education, and the increased opportunity the college education has given you.  Now is the time to accept responsibility and pay your debts.  You could at least agree to split the expense with her, and were you paying even $300/month (leaving $200 for her), that would still fix her budget. Your mom should get a car that is paid for and reduce her transportation expenses, until the $350/month debt is resolved.  She should resolve to spend no more than $300/month for a car, and with $100/month for insurance be under 10% for her vehicle. Since your mother lives in the US (NJ) she could avoid the $350/month debt payment though BK.  But since there are other solutions she could exercise to resolve her problems, this is probably not needed. You mom could consider sharing her apartment to share expenses.  Paying $1625 for an apartment for one person seems extravagant.  She might enjoy sharing her apartment with a room-mate. That is about it.  Once her children take responsibility for their lives, your mom will have a manageable budget, and less stress in her life. Mother's revised 'income statement', Income Essentials (total $2721, 62%, high, need to reduce by $500) Lifestyle (total $450, 10%, low) Financial (total $990, 23%) While you and your sister have these changes, Summary of changes: Some rent is lifestyle, reduced car loan by $200, sister pays her college $500, you pay your college $300, mom saves 10% of her income.  Once your sister graduates and starts to repay you for your help with her college, you can take over paying the remainder of your loans, saving your mom an additional $200/month. Given the listed expenses, this problem will not have a nice solutions. So lets quickly go through them and see when the most pressing ones can be dealt with: Solved within 1 year: 900 Solved within a few years: 1300: 900+400 You may be able to save a couple of hundred on the rest, but just take a minute to look at the above. Within 1 year she will be able to 'break even' and within a few years she will be able to live fairly comfortably.  She will eat through her funds in about 10 months, which should coincide with the end of the tuition costs. If you could just sponsor her a little bit, or just be there for her in case of unexpected expenses, she should make it till the end of the year after which things are looking up and she will have a healthy surplus each month.  Soon you and your sister can probably help her build up a nice buffer quickly, after which her worries should be over.
The rule that I know is six months of income, stored in readily accessible savings (e.g. a savings or money market account).   Others have argued that it should be six months of expenses, which is of course easier to achieve.  I would recommend against that, partially because it is easier to achieve.  The other issue is that people are more prone to underestimate their expenses than their income.  Finally, if you base it on your current expenses, then budget for savings and have money left over, you often increase your expenses.  Sometimes obviously (e.g. a new car) and sometimes not (e.g. more restaurants or clubs).  Income increases are rarer and easier to see.   Either way, you can make that six months shorter or longer.  Six months is both feasible and capable of handling difficult emergencies.  Six years wouldn't be feasible.  One month wouldn't get you through a major emergency.   Examples of emergencies:   Your savings can be in any of multiple forms.  For example, someone was talking about buying real estate and renting it.  That's a form of savings, but it can be difficult to do withdrawals.  Stocks and bonds are better, but what if your emergency happens when the market is down?  Part of how emergency funds operate is that they are readily accessible.   Another issue is that a main goal of savings is to cover retirement.  So people put them in tax privileged retirement accounts.  The downside of that is that the money is not then available for emergencies without paying penalties.  You get benefits from retirement accounts but that's in exchange for limitations.   It's much easier to spend money than to save it.  There are many options and the world makes it easy to do.  Emergency funds make people really think about that portion of savings.  And thinking about saving before spending helps avoid situations where you shortchange savings.   Let's pretend that retirement accounts don't exist (perhaps they don't in your country).  Your savings is some mix of stocks and bonds.  You have a mortgaged house.  You've budgeted enough into stocks and bonds to cover retirement.  Now you have a major emergency.   As I understand your proposal, you would then take that money out of the stocks and bonds for retirement.  But then you no longer have enough for retirement.  Going forward, you will have to scrimp to get back on track.   An emergency fund says that you should do that scrimping early.  Because if you're used to spending any level of money, cutting that is painful.  But if you've only ever spent a certain level, not increasing it is much easier.  The longer you delay optional expenses, the less important they seem.   Scrimping beforehand also helps avoid the situation where the emergency happens at the end of your career.  It's one thing to scrimp for fifteen years at fifty.  What's your plan if you would have an emergency at sixty-five?  Or later?  Then you're reducing your living standard at retirement.   Now, maybe you save more than necessary.  It's not unknown.  But it's not typical either.  It is far more common to encounter someone who isn't saving enough than too much. So my advice for your financial situation depends on your aims. Are you aiming to: -   Completely clear your debt -   Clear one card to free up more monthly income.  -   Clear some debt to allow further controlled spending -   Clear one card and focus on just using one, having 2nd as emergency. There are other things you may wish to do but you said to pay off some / all of 2 credit card bills. If you want to contact me I can plan this more precisely. Some seem the same but other factors can come into play as well. Differing rates of interest make the options clearer. My first advice would be to call the card companies and see if you can get better rates first. SCENARIO (some figures made up for visual) Credit Card Debts    8,000       8,000 Monthly payment       100           100 APR %                              10             10 Ignoring APR this will be 80 months to repay (otherwise 140 months using my example amounts above) £28,000 repaid over 11 years 8 months.  Your Suggestion As per your suggestion originally, paying off cards equally will allow smaller debt on both cards. Credit Card Debt      3,000      3,000 Monthly payment       100          100 APR %                              10            10 With a 0% APR this would be paid off in 2 years 6 months. Cards are available to get free balance transfers, need to look into this. With the 10% APR this would take 3 years 1 month. £10,000 lump and £7,400 repaid over 3 years 1 month (saving £10,600 and 8 years 7 months) AIM: To clear debt completely. My advice here is to use the £10,000 lump sum to pay off one credit card, the remaining £2,000 can then come off the other card. This will free up your outgoings (was 2 x £100) by £100. But then use this £100 to pay off the card, this will result in the following: Credit Card Debt      6,000 Monthly payment       200 APR %                              10 With a 0% APR this would be paid off in 2 years 6 months. Cards are available to get free balance transfers, need to look into this. With 10% APR this would take roughly 3 years 1 month. £10,000 lump and £7,400 repaid over 3 years 1 month (saving £10,600 and 8 years 7 months).   This option is the same as above, but you have the options on the odd tight month to reduce payments to £100.   This also will allow the 2nd card to be used interest free for an emergency purchase (to be paid off without any interest charge)   If rates are different, pay of the one with the higher APR AIM: Clear one card to free up more monthly income.  AIM: Clear one card and focus on just using one, having 2nd as emergency. Same as above, but don’t increase to £200, leave monthly payment at £100. Credit Card Debt      6,000 Monthly payment       100 APR %                              10 With a 0% APR this would be paid off in 5 years. With the 10% APR this would take 88 months (7 years 4 months) £10,000 lump and £8,800 repaid over 7 years and 4 months (saving £9,200 and 4 years 4 months).   This also allows for some extra spending (even racking back up the debt – although not advised) AIM: Clear some debt to allow further controlled spending As above apart from this will allow you to spend to get back up to full £16,000 debt. NOTE My figures are theoretical, paying off £500 (£250x2) a month instead of the £100 (10%APR) would take: Lump sum 10,000, remaining 6,000 – 14 months (£17,000 paid) Lump sum 5,000, remaining 2 x 5,500 – 26 months (£18,000 paid) Lump Sum 0, remaining 2 x 8,000 – 40 months (£20,000 paid) Now I have finished waffling, I hope you have an idea on what you are aiming to achieve and a better idea of what to do when you receive the income  Stephen. The chances are good that the interest you are going to pay on the debt is going to be higher than the interest you are going to receive on any type of short term investments. That would make the paying off of the debt worth more to you in the long run than saving your money. Note that without the particulars of your situation this is all just theory crafting so consult the details of you loan agreements. I cannot imagine that a credit provider did not discuss this with you before you put pen on paper. As long as you have a emergency fund, I'd stop 401k contributions immediately and use that money to fund school (as much as you can). Student loans are dangerous - they're very difficult to discharge in a bankruptcy, and eat into your savings for a long time. It may even be better to defer school for a year while the debt gets paid off and you can get an emergency fund built up. tl;dr: when everything is going great, it's not really a problem. It's when things change that it's a problem. Finally, home loans are extended over extremely long periods (i.e. 15 or 30 years), making any fluctuations in their value short-lived - even less reason to be obsessed over their current value relative to the loan. Your post is based on the assumption that you never move. In that case, you are correct - being underwater on a mortgage is not a problem. The market value of your house matters little, except if you sell it or it gets reassessed. The primary problem arises if you want to sell. There are a variety of reasons you might be required to move: In all of these scenarios it is a major problem if you cannot sell. Your options generally are: In the first option, you will destroy your credit. This may or may not be a problem. The second is a major inconvenience. The third is ideal, but often people in this situation have money related problems. Student loans can deferred if needed. Mortgages cannot. A car is more likely to be a lower payment as well as a lower amount underwater. Generally, the problem comes when people buy a mortgage assuming certain things - whether that's appreciation, income stability/growth, etc. When these change they run into these problems and that is exactly a moment where being underwater is a problem. This is pretty simple in theory, harder to do in practice. You will be surprised how quickly the debt will disappear.  Doing these things will work, I know from experience. "I'll assume you live in the US for the start of my answer - Do you maximize your retirement savings at work, at least getting your employer's match in full, if they do this. Do you have any other debt that's at a higher rate?  Is your emergency account funded to your satisfaction? If you lost your job and tenant on the same day, how long before you were in trouble?  The ""pay early"" question seems to hit an emotional nerve with most people. While I start with the above and then segue to ""would you be happy with a long term 5% return?"" there's one major point not to miss - money paid to either mortgage isn't liquid. The idea of owing out no money at all is great, but paying anything less than ""paid in full"" leaves you still owing that monthly payment. You can send $400K against your $500K mortgage, and still owe $3K per month until paid. And if you lose your job, you may not so easily refinance the remaining $100K to a lower payment so easily.  If your goal is to continue with real estate, you don't prepay, you save cash for the next deal. Don't know if that was your intent at some point.  Disclosure - my situation - Maxing out retirement accounts was my priority, then saving for college. Over the years, I had multiple refinances, each of which was a no-cost deal. The first refi saved with a lower rate. The second, was in early 2000s when back interest was so low I took a chunk of cash, paid principal down and went to a 20yr from the original 30. The kid starts college, and we target retirement in 6 years. I am paying the mortgage (now 2 years into a 10yr) to be done the month before the kid flies out. If I were younger, I'd be at the start of a new 30 yr at the recent 4.5% bottom. I think that a cost of near 3% after tax, and inflation soon to near/exceed 3% makes borrowing free, and I can invest conservatively in stocks that will have a dividend yield above this. Jane and I discussed the plan, and agree to retire mortgage free." I concur with the other answers about not mixing family and money: the one whose loans are paid off second will be taking the credit risk of the other not paying/being able to pay. There may also be tax implications. That said, if you do still want to do this, I think there's a fairly straightforward way to account for the payments. With your scenario, your brother should make you a personal loan at some interest rate inbetween 5% and 10%. That loan would be tracked independently of the actual student loans. Any money that your brother transfers to you to pay off your loans, add to that personal loan, and later on once your loans are paid off you start repaying the loan to him and he uses the proceeds for his own loans. The interest rate will determine how the benefit of paying off the 10% loans is shared: if the rate is set at 10% then your brother will get all the benefit, if 5% you will get all the benefit, and 7.5% would roughly share it out. This means that you can still manage your own student loans separately. Your brother can choose how little or much to commit to the snowball rather than his own loans (of course he should first make the minimum payments on his own loans). Anything he does loan you benefits you both if we ignore the credit and tax issues - he gets more than the 5% interest on his own loans, and you pay less than the 10% interest on your loans. You'll need to track the payments each way on this personal loan and apply interest to it every so often, I'd suggest monthly (beware that the monthly equivalent of 5% annual interest is not 5%/12, because of compounding).