Eliminate Debt OR Save?

[PITTSBURGH]

I need some advice on whether to pay off debt or continue to save for a mortgage down payment.

Here are the details:

Debt= 33.5K
School Loan 17K
Car Loan 10K
Home Equity 6.5K
Note: current total monthly debt payment is $1300 (about $800 over the total minimum payment due)

Mortgage
88K @ 3%ARM(Home Value = 125K)

Assets
Cash 58K
Retirement Accounts 90K
Home Equity 30.5K
Note: current monthly savings is $1200. This amount would increase to $2500 if debt is paid off immediately using cash reserves.

Gross Monthly Income
11.2K

Assuming we need about 60K for a mortgage down payment, should we payoff the debt and save for 12 months in order to achieve the 60K, or does it make more sense to use the 60K for the down payment sooner and payoff the debt incrementally?

Thanks for you help!!

[jteezie]

If you had no cash and all debt, I would have suggested to save vs paying debt,
However, since you have plenty of cash, you'll need to look at the cost vs benefits of saving vs paying debt. By costs I mean, how much is your credit card interest (that's your cost) vs how much do you think you can earn saving (that's your benefit). Whichever side is higher, do that.

Examples:
CC interest 5% vs estimate 8% return putting money in stock market . Pick saving
CC interest 13% vs estimate 1% return putting money into savings account. Pick paying debt.


Onto your other question about downpayments, are you planning to buy a second home?

[danieldroga]

it's better to save up first and plan for eliminating on your debt in the future for you to get the advantages that you ought to have.

[Hector]

Originally Posted by PITTSBURGH

I need some advice on whether to pay off debt or continue to save for a mortgage down payment.

Here are the details:

Debt= 33.5K
School Loan 17K
Car Loan 10K
Home Equity 6.5K
Note: current total monthly debt payment is $1300 (about $800 over the total minimum payment due)

Mortgage
88K @ 3%ARM(Home Value = 125K)

Assets
Cash 58K
Retirement Accounts 90K
Home Equity 30.5K
Note: current monthly savings is $1200. This amount would increase to $2500 if debt is paid off immediately using cash reserves.

Gross Monthly Income
11.2K

Assuming we need about 60K for a mortgage down payment, should we payoff the debt and save for 12 months in order to achieve the 60K, or does it make more sense to use the 60K for the down payment sooner and payoff the debt incrementally?

Thanks for you help!!

What is the interest rate on your debts?

[ams]

I would target your car loan to pay off since it likely has a higher interest than student and home equity loans. I would still make above minimum payments on those so you're not just paying interest. After the car is paid off, focus on saving for your down payment.

I paid off my car loan last month and my student loan this month. It feels great! I target one debt at a time. All I have left, other than my mortgage, is one credit card with approx $6k. I have a low interest rate on my mortgage and only have about 6 yrs left on it b/c I changed from a 30 yr to a 15 yr about 9 ys ago.

[dawnwes]

I am not sure why you have an ARM. Even with a low rate, you are still not paying much on principal.

You have enough cash to pay off your other debts and I would target that first. Then I would either work to pay off that mortgage before the ARM period is over. With your income and the low mortgage it could be done fairly easily.

Dawn