Which would you pay off first?

[indycobra]

Hello All,
Lately ive been on a kick to pay off all of my debt and get into the investing side of things a little more. I have been listening to alot of Dave Ramsey and he is pretty much against debt on cars as well as everything else. My wife and I have basically three debts.

1) A $150k mortgage @ 6% interest which I dont see myself paying off anytime soon.

2) A 401k loan of $6,000 @ 6% interest (paying myself interest) I know it was stupid.

3) A car loan of $15,000 @ 4.79% interest

4) maybe I should start a roth IRA

I have about $6,000 I want to use to pay down debt/invest but im torn on what to do. I know Dave Ramsey would say sell the car but a divorce would be even more expensive What would you all do?

Thanks for the help.

[cptacek]

If you get a match on your 401k, I would make sure I at least get that. Then, I would pay off the 401k loan right away since it is the highest interest rate. Then, I would put money towards a Roth IRA. After that $10,000 ($5000 for you, $5000 for your wife) then tackle the car loan.

[Tree0164]

I would get rid of your 401k loan if that is 6,000 and you have $6k to send in.

[LuxLiving]

Do you have an emergency fund aside from the $6,000? If not, keep out a thousand for a mini-emergency fund and send $5,000 post haste to the 401-K loan.

[MomofFour]

I agree with the others that the money should go to the 401k loan. Then, remember to never borrow from your 401k again!

[indycobra]

Thanks for all the responces, I was predicting that would be the answer here.

I have an emergency fund as well has another sports car and coin collection that I can liquidate if need be.

This is kind of funny I thought you all would get a kick out of it. I went to our company accountant today to ask him about paying off my 401k loan. He laughed and asked me why I would want to do that. He said the market is terrible and that the 6% I was paying myself in interest was a better deal. This guy has 2 BMW's and a house worth 1.2 million. Either he knows something I dont or he is what they call "Big hat, No cattle" His assistant also told me that the funds I borrowed are still invested in my 401k and making money. How the H-E double hockey stick could that be

I think I will stick with internet advice

[noppenbd]

No offense, but your accountant sounds like a nitwit.

401k loans are terrible for several reasons:

1) If you lose your job, you have to pay the loan back pretty much immediately, meaning you might have to liquidate investments when you don't want to to pay back the loan.
2) The great "deal" of paying yourself interest is really a shell game. You are not making any additional money, you taking money out of your cash flow to put into your 401k which could be done simply by increasing contributions or putting the 6% into a different investment. Plus you are paying back the loan with after tax dollars. So you took money that was tax sheltered and are paying back with dollars that will be taxed. That doesn't sound like a great deal to me!

The accountant probably bought the BMWs with a 401k loan!

[indycobra]

pretty much what I thought.

Thanks for the input

[ea1776]

Originally Posted by indycobra

Thanks for all the responces, I was predicting that would be the answer here.

I have an emergency fund as well has another sports car and coin collection that I can liquidate if need be.

This is kind of funny I thought you all would get a kick out of it. I went to our company accountant today to ask him about paying off my 401k loan. He laughed and asked me why I would want to do that. He said the market is terrible and that the 6% I was paying myself in interest was a better deal. This guy has 2 BMW's and a house worth 1.2 million. Either he knows something I dont or he is what they call "Big hat, No cattle" His assistant also told me that the funds I borrowed are still invested in my 401k and making money. How the H-E double hockey stick could that be

I think I will stick with internet advice

That sounds like terrible advice. Pulling out your money when the market is down is a bad idea. Putting your money into solid mutual funds when they are cheap is a great idea.

[Campfrugal]

You should e-mail Dave Ramsey and see what he says about it. Just a thought.

[LuxLiving]

Dave would tell him to sell the vehicle!

[indycobra]

Dave would have a hay day with me. I did just sell my 2003 Mustang Cobra that I had around 45k invested to better my financial position. I think that is a great start. I only got 23.5k (yikes) out of it and with the money I made I unloaded a jeep grand cherokee that I leased for my wife and put down a nice down payment on honda accord for her (15k to go). She is pregnant and I dont want her and my baby rolling around in a beater.

This baby thing has really woke me up about money. I often wonder if I have enough saved at this point in my life. As you can see by my previous posts I really dont have anyone to ask financial questions to. I am 36 and my wife is 31. The only retirement we have is my 401k which is only about 55k and that doesnt seem like much to me. We both work with an annual household income of about 90k. How far am I behind the rest of the world?

Thanks for all the input you guys are great.

[maat55]

There are many worse off than you. Just the fact that you are beginning to prioritize more important goals, is a good thing. If you follow DR's advice, you will do just fine.

1000 EF
Payoff debts form smallest to largest with exception to the house.
Build an 3 to 6 month expenses EF
invest 15% into Roths and other
Save for college funds
Pay extra on house.

If you do these things, you won't be sorry.

[Tree0164]

If you go on Dave's advice with the baby on the way he would say save it until the storm clouds go away. Once the baby is born and everything is great then you can put that 6k plus anything that you aggressively have saved in the meantime.