Which debt to pay down

[wea6363]

My husband and I wake up to Fox and Friends everyday, thank you for being part of our daily routine. We have a question for the personal finance guru. My husband is self employed and stays busy about 50%of the time and clears about 6K a month. I’m employed full time by a great employer with wonderful benefits and a salary/bonus structure of 85-90K a year. We have 3 positive cash flow rental properties and are buying our home, all 4 have mortgages totaling 270K. I also have an unsecured student loan of 32K. Our question is, in this unstable economy, and work being sporadic, should we concentrate our disposable income on the lower interest rate secured debt, or the higher interest rate, unsecured debt? My thoughts are pay off what can be taken away first, my husband wants to get rid of the 8.25% student loan debt. Which is the best course of action? You comments would be welcome.

[clintdavis]

Thanks for sharing your situation and your question.

I would go ahead and work the debt snowball on your unsecured debts. You have positive cash flow on the rental properties. So for the most part, they are at least pulling their own weight right now.

Once you pay off all the unsecured debt, then you will formulate your plan to pay off the mortgages.

You both have a great income. So if you will keep your spending in check and expenses low, you should be able to knock out the student loan very quickly. And then you should work your tails off pay off these mortgages as fast as possible. Barring any cataclysmic event, I would think you should be able to be completely debt free within about 3-4 years if you work at it with ferocity.

Thanks again for sharing!

[crazyskunk82]

If it were me, I'd pay off the student loan first. Then when you're done, your only debt will be mortgages on properties you own.

If you pay off mortgages first, later on your student loan will be still be sitting there. And from what I gather, student loans don't get wiped out by backruptcy like mortgages do.


-Andy

Rise The Wiser - A blog about breaking free of debt and learning financial wisdom

[wea6363]

Thank you Clint for your response. Of course, my husband will be thrilled to know that once again, he is right, at least on the first response.

[snshijuptr]

Unless any of your mortgages have a high APR, I would focus on the student loans.

[bjl584]

Clear the student loan debt. I'm assuming that the mortgages are less than 8.25%. Also, should you ever have to, bankruptcy won't clear student loan debt.

[couchrobt]

People understands that shelling out money you really do not have on points you do not need will only get you in issues over time. Most people who get a charge card for his or her kid and shell out them off are performing a good point for paying for their loans, however it is vital for college students to find out about them on their very own too.

[florent]

Thanks for the post.

It's important to take a step back and look at the situation from every angle. Consider which debt is good/bad debt and interest rates. Typically, I advise to let student loans go on the back burner as these are typically seen as "good" debt, have an automatic draft, and have lower interest rates. I would recommend to pay off unsecured debt first, as they have higher interest rates and typically are seen as "bad" debt. Once your unsecured loans and student loans are paid off, then I would tackle the mortgages. All in good time, though. Easy does it. Do make sure you are also saving money while paying off your debt, as both are equally important!

Good luck!

[Frugal]

If it were me, I would also pay off the student loans first. That is what I personally am working on right now. I am trying to pay off those annoying, nagging student loans that never seem to go away, in order to next focus on paying down the mortgage next time.

[twest]

I would agree with several of the others. The mortgages should be focused on later. Work on the student loan debt first. They cannot be discharged in bankruptcy. Good Luck. You have great income as others have said just give it all you can.