what to pay off first??

[cricket2004]

Me-
Credit: Bad 640 FICO but slowly going up
Debt: Bad
$580 k mortgage @ 5.25% (little equity, interest only loan-can't refine until credit improves)
$6,500k student loans @4%
$8,500k car payment @9%
$11,500 credit card @ 3%
$19,000k IRS due this year

Income: Good
I earn $130k/year more or less. Plus earn an extra $2,800k/mo on rental income. What do I pay off first--the credit cards, then the IRS? How small a payment can I work out with the IRS while still paying down other debt?

Savings: Bad
$8,500 in money market and anemic retirement- $3k

[FrugalIII]

I think you have to pay IRS first. Then the car, then the credit cards. The things with the highest interest first.

[faithman1012005@yahoo.com]

I would pay of the IRS first and as quick as possible try to cut down on as much as you can through the month, less eating out etc... then tackle the smallest debt first and each time you pay one off snowball that payment plus your extra money to pay the next and so forth. There is a man by the name of Dave Ramsey who says this is the best way to tackle debt even if the interest rate is higher on another card and yet you're paying off the lower rate first. I used this method myself and it works great! Try searching for Dave Ramsey online and get any material you can from him, you won't regret it! I know I didn't. Hope this helps

[arthurb999]

Sell the car and buy something cheap for cash.

You said rental income... do you have a seperate rental property?

[cricket2004]

I'm fairly certain the car isn't worth what's owed on it. Not sure I could get anything cheaper than an 04 Toyota Corrola...but that's a good idea if I can.

I have done the "payoff the smallest balance first" tactic in the past and yes, it does work. That is the strategy I've taken up until owing the IRS so much. Now I'm not sure. $4k of the $19k is owed to state taxes then rest is due to the Feds. Yes, I have rental property at full capacity.

[arthurb999]

is it the property you are living in or could you sell it and make a buck?

[cricket2004]

It's tricky. It is the property I currently live in (it has separate apartments) however, I may move overseas for work for a year and could rent the entire place out until I return. The rental income would easily pay the mortgage.

It's not a great time to sell but my neighborhood has remained somewhat insulated. I think if I sold, I could break even MAYBE. I put 10% down ($58k) but I could lose some of that in closing costs if I sell. The flip side is to rent it out and just wait for the market to turn...

[Granite]

i agree with the others who said pay the IRS first. The penalties and interest are nuts, get them paid off, you have a great income. you can do it !

[fruitbowlk]

I think you should pay off the IRS. They can hurt you by freezing your account to get there money and CC companies can't do but so much.

[wincrasher]

Refi on you mortgage isn't going to help you. Your rate isn't terrible, so you saving won't be much.

You need to work on your income side. Raise the rent alittle if you can. Take the job and have a management company handle the rents.

Pay the IRS first. Their interest and penalties add up. Call them up and work out a payment plan - they'll work with you.

[LivingAlmostLarge]

IRS, they scare most people.

[swanson719]

IRS, Student loans, car, credit card. If the credit card adjusts from 3% anytime soon, pay that off first. You're not doing yourself any favors with a $160K a year income and this much debt while living in a $600K house. That's what they call house poor. You'd be better off to sell the place, break even, and buy something much cheaper, in the 200 to 250K range and put it on a 15 year mortgage. That will save you money in interest, and pay the principle down faster so if you resell it works out for you.

[lemarquis]

Get the G-man (IRS) off your back first. Then start with the highest interest debts.

[PetMom]

Definitely get the IRS paid.

They should be the first priority - they have so much more
power on levying bank accts., etc.

Then you can review your list and decide the order of payoff.

[chewie8himup]

Always pays IRS first! Best of luck to you.

[techguru]

Pay off the IRS then the Credit card debt. The others are all what are coined as "necessary debt," which in turn basically means it is debt that works for you--improves credit score, makes it easier to be approved for car loan and even a home loan.

[nmboone]

I know this isn't really advice, I just wanted to comment on how much money people can make yet be in so much debt! It's insane. I mean I'm in a lot of debt, but I just graduated from college. But if I made 130,000 a year I would seriously be rolling in dough! I would just save up for the bigger things I needed like cars and houses and just buy them outright! There would not be debt.

It reminds me of the stories in Money Magazine. They feature couples with ridiculous 6-figure incomes and then the couple says they can't retire. Umm, what???

I'm rambling a bit here, but I want to one day start a magazine about real people's money problems. Either that or a tv show. The people will have incomes like between nothing and 70,000 and will showcase their money problems and be given solutions. It would sell big time.

[ea1776]

Originally Posted by nmboone

I mean I'm in a lot of debt, but I just graduated from college. But if I made 130,000 a year I would seriously be rolling in dough! I would just save up for the bigger things I needed like cars and houses and just buy them outright! There would not be debt.

That is so much easier said than done. Remember, being in debt is rarely an income problem. It is almost always a behavioral/spending issue. Those issues span a wide margin of the socio-economic spectrum. People get raises and think "I wonder what I can buy now" when many times they should be thinking "now I can put away even more savings". I know, because I have learned the hard way.

[Inkstain82]

Originally Posted by nmboone

I know this isn't really advice, I just wanted to comment on how much money people can make yet be in so much debt! It's insane. I mean I'm in a lot of debt, but I just graduated from college. But if I made 130,000 a year I would seriously be rolling in dough! I would just save up for the bigger things I needed like cars and houses and just buy them outright! There would not be debt.

There are people who make a fraction of what you do, I bet, who wonder how you can possibly be in debt. And that's not even including people from poorer countries.

After you make enough to live on the very basic necessities, it's very, very hard not to just up your lifestyle with your paycheck.

[Runaway Finances]

I agree paying off the IRS is first. However, the real problem is your spending. You are spending significantly more than your income or you wouldn't have so much debt. Someone said you have to address the behavioral problems that got you in this mess. That problem is spending more than you earn. If you don't change the spending problems then you won't ever get out of debt.

I'm one who believes you should pay down the highest interest rate balance first, but you need a spending plan first. You need to figure out what your fixed expenses are, how much you can afford to spend on debt reduction and how much you can afford to spend on discretionary purchases. Until you do this, you will never solve the problem that got you to this point.

Personally, you are way over your head financially on the mortgage. Sell the house. Add up your operating costs including utilities, property taxes, home insurance, mortgage payment, utilities and maintenance. You will find that you could buy a house for half the price and cut everything in half. This would create cash flow to pay down your debt. In fact, you might be better off renting for awhile and buy a house when the debts are paid off. With housing prices down in many areas, this move would have been better a couple of years ago, but that's life.

You can go to our website (Runaway Finances) if you need help with developing a spending plan. It's a subscription service, but it makes it really easy if you don't know how to do it on your own.

Hope this helps. Feel free to ask questions. I try to follow up on the blogs I've posted messages to as I love helping people with their finances!