Paying off Debt vs. Savings

[djk]

I am looking for some advice on how to best allot our money.

My wife and I are both in our Mid-20s.

We have the following debts (all are fixed rates):
$36,900 @ 5.6% - mortgage
$11,000 @ 4.75% - student loan
$10,000 @ 6.8% - student loan
$6,750 @ 5.89% - car loan
No credit card debt

We are on time with all payments, and actually ahead by a few months on the mortgage.

We currently have about $19,000 in savings (CDs, savings accounts, etc).

We have $150 per month going into a 403(b) account (I am a teacher - no company match here...). Our total investments, along with some stocks I had, currently value about $6,500.

My initial goal was to build up our savings into a decent emergency fund (I had always heard 6 to 9 months of expenses). We have been able to "profit," for lack of a better term, about $150 per month since last September that has gone into our savings.

A few questions I would like advice on:
(1) Should we tap into the savings at all to pay extra on any of those debts, or continue to build the savings?
(2) What debt would you suggest focusing on paying extra toward first?
(3) Off the topic from the savings/debt -- my wife is currently a substitute teacher. In the event of being hired as a full-time teacher, our income could increase by as much as $25,000 per year, which will leave us with more "profit." At that point, our combined gross income would be in the vicinity of $70000-$75000. Like I said, I have been putting money into a 403(b) since Dec 2007 when I started my job, but would we be better off putting money into a Roth-IRA as opposed to a 403(b)?

Thanks!

[psuicyde king]

I would personally consider paying off the car first, and the mortgage last.

The car is depreciating, so if you have wreck or decide to sell, you might get surprised that you owe more than the vehicle is worth. The only thing worse than owing money is having to do it quickly and/or unexpectedly.

The mortgage should get paid off last since you're probably getting roughly 12% or so of your annual payments back each year on your tax return.

You might also be getting tax breaks on the student loans.

[kork13]

First, about the savings, I'd keep it as it is--don't take any out right now to pay down debts. If you really want to, however, limit it. Make sure you still keep 6 months' of expenses in savings, as it's important to keep your EF strong.

As to the payoff order, I agree with the first reply. Car loan should go first. The interest on the other three debts are most likely tax deductible for you, but the car most certainly is not, and as mentioned, it's value unquestionably goes down over time.

For your last question, I think it's a question of taxes, and I'm just not familiar enough with that to give any good advice. However, there are many around here who can help more on that front.

[psuicyde king]

Woops - I missed the third question! I don't know much about the 403(b), but assuming it's similar to a 401(k), here's the general rule: Put as much as you can into the 401(k) while still getting a company match, then put the rest of your available into your Roth IRA. Any extra available for retirement savings, pump it back into the 401(k).

[Merch]

I would go smalles to largest on the debt repayment and just keep snowballing the payments to the next debt. Goodluck.

[disneysteve]

I would pay from highest interest rate to lowest interest rate. That's the method that saves you the most money and gets you debt free the quickest. However, you need to look at true, tax-adjusted rates after any deductions. The mortgage is tax deductible. The student loans might be. The car loan is not, so that is definitely first on the list.

[Runaway Finances]

I agree with disneysteve on the order to pay off the debt.

A 403(b) is similar to a 401(K). It used to be referred to as a "tax sheltered annuity" and can only be offered to non-profits, schools and the like.

Always contribute enough to whichever plan gives you a match. Get the full match. Then you have to decide whether you put it in after-tax savings, a ROTH IRA (after tax deposits), deductible IRA or a 401K (can have a ROTH election in some cases).

There are lots of things to fund before you get to retirement (kids, college, kids, cars, etc.). Your savings plan needs to include all elements. They can overlap. For example, when I was young (not married) I tanked up on cash value insurance because I knew I'd need insurance and by the time I was married and had kids and a big house, those policies could pay for themselves. Also, in the back of my mind, the cash value of the insurance could help pay for college if I didn't have enough in other savings. Now, I am not one to believe life insurance is a great investment vehicle, but if you need life insurance for more than 10 years, cash value insurance is usually the cheapest in the long run plus it forces you to save money.

I kind of got off track, but hopefully that helps some.

[quizbiz]

It depends on where the interest rate is higher. But debt has big consequences.

[PetMom]

I am a big believer in the emergency fund. Having a well funded one for several months of your average living expenses should be your first priority.

Not having this can lead to having to go to credit cards (which you don't have now which is excellent).

Even with careful budgeting and paying off you debts emergencies that have nothing to do with layoffs can quickly eat away at even a good ef.

After that is fully filled, go after the car first, while keeping up retirement funding and then mortgage last.