Should She Get Settled?

Stephanie followed her passion. She took a $22,000 pay cut to move to Los Angeles, where she now makes $35,000 a year. Should she continue paying off debt or wait until she gets settled in L.A.?

QUESTION: Stephanie in Phoenix recently left a job to follow her passion. The passion doesn’t pay as much, so she took a $22,000 pay cut to move to Los Angeles, where she now makes $35,000 a year. She has $12,700 in student loan debt and $13,000 in cash. Should she continue paying off debt or wait until she gets settled in L.A.?

ANSWER: I wish you figured out your situation in Los Angeles before you decided to go. You could write a check today and be debt-free and only have $1,000 to make the transition, which is not enough. I think you’re right. I think you go to Los Angeles and get settled and get a budget that works, meaning you get an income going that covers your expenses plus enough to pay on life, and continue to clean this up.

If you can do that and do as little damage to the $13,000 as possible, then you have a real way to finish becoming debt-free as soon as you’re able to restart. In a sense, we’re pushing pause on your total money makeover, then you’ll push play on it later. In order to push play, you need to have enough money to pay your bills, and I’m not sure $35,000 is enough to do that in Los Angeles.

I don’t know how you’ll be living and what you’ll be doing exactly, but you can earn the $35,000 and get an extra job. When you’ve got your housing lined up and can pay your utilities and be able to live on what you’ve got coming in, then you can pay whatever amount on your debt. At that point, you’ve got something to talk about and can push play again.

But if you need some of the $13,000 to stay afloat until you get that extra job, then hang onto it. You need that money right now for transition. Not to pay a bunch of bills if you don’t get an extra job, but just to get over there and put deposits down and get utilities hooked up, get in with a roommate or whatever you’re going to do.

Once you get your second job lined up, then if you took $3,000 for odds and ends out of savings, you can take a big chunk out of the money that’s left and throw it at the debt, along with some extra income, to finish it off.

Definitely keep making the minimum payments on your student loan; that’s part of your bills. But paying extra on it right now just doesn’t work until you get this transition done.