Strategy Questions

[Shewillbemine]

Hi Everyone,

What a splendid forum you have here. I look forward to learning more.

Base income: 98k plus supplementary of $3000 - $6000 annually
Credit Card Debt: $5000 @ 9% and $6000 @ 13%
Car Loan: $33,000 left (currently upside down especially since car prices dropped in the last 2 years)
401K and Roth IRA Savings: $40 - $45k and maxing out Roth IRA contributions
No other debts of any kind (school, house, etc)

Questions I've got. Ultimately, my goal is to purchase my first home in the next 1-2 years.

1. I'm thinking of taking my maxed out Roth contributions ($416 a month) and putting $300 of it into paying off credit card debt. Smart or dumb?

2. As I save more aggressively for a house down payment, I find myself unsure if I should be paying down the credit cards with all the savings money OR splitting it. Obviously, I'm trying to find the right balance especially since the housing market is very doable right now.

3. I'd like to get out of my current car loan because I want lower monthly payments to help with future mortgage payments. However, obviously I'm upside down. My idea is to sell/trade in the car, pay the upside down difference and purchase a lower priced vehicle. Why? So that my monthly income increases and my ability to purchase and pay for a home is realized faster. I know that spending money to sell something is basically silly, but I'm looking to add an additional $250 to my monthly income and I'd break even in about 10-12 months.

Any advice or thoughts you have on these things would be great. Thank you.

My challenge

[Seeker]

Originally Posted by Shewillbemine

Hi Everyone,

1. I'm thinking of taking my maxed out Roth contributions ($416 a month) and putting $300 of it into paying off credit card debt. Smart or dumb?

2. As I save more aggressively for a house down payment, I find myself unsure if I should be paying down the credit cards with all the savings money OR splitting it. Obviously, I'm trying to find the right balance especially since the housing market is very doable right now.

3. I'd like to get out of my current car loan because I want lower monthly payments to help with future mortgage payments. However, obviously I'm upside down. My idea is to sell/trade in the car, pay the upside down difference and purchase a lower priced vehicle. Why? So that my monthly income increases and my ability to purchase and pay for a home is realized faster. I know that spending money to sell something is basically silly, but I'm looking to add an additional $250 to my monthly income and I'd break even in about 10-12 months.

1) Taking out from 401k, Roth, IRA will cost in penalties. I wouldn't touch what is already there, but you could consider not putting any more in for awhile.

2) You don't state what you've saved outside of IRAs or Roth, etc. which makes a huge difference as well. How much saved for the house (not in Roth)?

I hope you are planning to use other accounts and not "retirement" monies to pay the DP for the house.

How much are you planning on putting down on a hause -- 20%? More? You owe a total of 44k as per above... the interest rates are important too.

I'd prioritize based on interest rates, amounts, and then proportionally hit them all to be in the best possible situation before finding a home.

3) Not sure of the calculation you break out in here, but getting a more reasonable priced auto would benefit you since you have goals that outweight this depreciating expense.

Spending money to sell something is a lot more wise then spending money later and not being able to get anything whatsoever.

Details of the above would help.

[Shewillbemine]

Thanks for the first response.

1. No, I am not thinking of taking out money from my retirement accounts. My question centered around cutting down from my maximum contributions (to the Roth IRA) and putting that towards my immediate debts.

2) I have about $20k for the down payment. In my state, that's about 5% for an average home.