Not Sure What To Do

**kork13** · 02-28-2009, 01:01 PM

questions: 1) just how large was this tax reund? 2) what are the individual rates on each CC?

Judging from how you describe your refund, you should probably adjust your W-4 tax witholding so that you keep more of every paycheck. Means a smaller refund at tax time (if not a slight tax bill), but it gives you more control over your own money.

I won't address the stocks/MF's--without knowing more, I'd say just leave them be for now. You have (after repairs) $5k to work with. I'd say reserve $1k, pay off CC3 and SL2 (total: $2359), then use the last $1600 to pay down whichever CC (1 or 2) has the highest interest rate.

That is just what I can say while only using your accumulated savings. However, it doesn't address any bigger issues... If you could provide a better picture of what all of your expenses are in a month, we can give much more specific advice. The car seems to be overly expensive, and how did the CC debt accumulate in the first place? Can you get the repairs done (properly) for a lower cost?

You should try to minimize your expenses so that you can funnel as much as possible to eliminating your debts--CC's first, then the car loan, then your remaining student loans. Basically, take out the highest-rate accounts first, then apply the money that would go to those monthly payments toward eliminating the next debt in line. You're not totally in over your head with debt, but you do need to go about digging yourself out smartly. Keep saving each month, and after you wipe out the debts, get your savings up to where it should be -- aim for at least 3 months' expenses, preferably 6 months or more.

**Mr Hopkins** · 02-28-2009, 02:54 PM

The tax refund was $6370 Federal and $1000 State; I'm planning on adjusting our W-4's - that's how we got into the CC mess in the first place. I would rather pay a little at the end of the year. We didn't have any savings 2 years ago and I lost my job and ended up depleting our savings, and things came up, car repairs, home repairs (that couldn't get put off), and a couple of medical bills for my wife and son. Once things got back to "normal" I started putting $75/week into savings.

CC1 26%; CC2 15%; CC3 18%

The car wasn't exactly necessary, but with a car that was breaking down a lot and another that was used a lot, I figured we needed a good car so that I could focus on saving more and what not instead of dumping money onto a POS. The car is a 09 Fusion SE V6 that I financed for 4 years. I thought I got a pretty good deal on this.

The repairs on the house - plumbing - the drain pipe for the kitchen sink under the basement floor is broke, so the floor (concrete) has to be opened up and the roughly 15 feet of pipe has to be replaced; for that job itself I was quoted $2500. I'm very handy and I do most repairs myself, but this I don't wanna atempt. I think to much could go wrong.
For the windows, they all need replaced, they all have air leaks very bad. I wanted to get those replaced so that we could be more comfortable and so we can save a little more on our gas bill.

Monthly expenses

Mortgage $751
Car $415
SL$220
CC 1 $70
CC 2 $70
CC 3 $20
Savings $300 (for 4-week months and $375 for 5-week months)
MF$75
Life Ins $40 ($70k 25-year term for my wife and I)
Groceries $350
Daycare $100
Fuel$ 110 (I don't include my fuel, my expense checks are in a diff account)
Ins. $169 (2 cars, full coverage, $500 deductible)
Dinning Out $45
Lights $130
Gas $215
Water is quarterly about $175

Thats about $3100/month; I don't think I left anything out. We roughly net about $3500/month. Some months are less, it depends. My wife's job runs with the schools, if they have a week or two off so does she. She collects UI for those weeks, but its a lot less. Like in February, we brought in $2900. On paper I don't understand it because we should be in a much better shape. We don't use cash, we only use our debit cards this way I can track where we spend and on what. All our income gets DD in one account, so its all there, but our checking is always going from week to week. There is nothing ever left, maybe about a $100, it depends.

I think I covered everything, if not let me know!

**asmom** · 03-01-2009, 01:05 AM

I would wait on the windows.

If you do only the plumbing, you will have $4870 left.

Take that remainder, add it to what your current monthly payments and pay off all 3 of your credit cards. (4870+160=5030)

Now you have an extra $160 a month. That little bit extra plus whatever you have after adjusting your withholding should allow you to pay off student loan #2 in 3 months or less.

At that point, I might consider increasing my online savings a bit until you know more about your job situation. Once you are certain, you can then re-prioritize which loans you will pay off.

At that point, I would concentrate on the auto loan. Depending on how much you have after changing your withholding and if you are able to refinance your mortgage, and if you are really focused I don't see why you can't pay off that auto loan pretty quickly, I'm thinking in less than 18 months.

Oh and the life insurance; I would shop around. If you and your wife are healthy and don't smoke or anything you can beat that price. I pay only $12/month for a 30 year, $100,000 term life policy.

**swanson719** · 03-01-2009, 09:08 AM

Sell the car. I know - you need a car for your job. You don't need a $20,000 car for your job. You need a car. So sell it privately for $16,000, go buy a $3,500 used car, and use the tax return to cover the difference. 10 months of payments will pay off the used car. Next January you have a car paid for, and save yourself $11,000 in principle, and have an extra $415 in your pocket each month. You have $35,500 in bad debt right now, and $19,950 of that is in your car. Lose the car, and your debt goes to $15,550.

Stop paying SL#3. If your Dad has income, he can pay $100 a month. It isn't much - you can make that in 2 days working at McDonalds. That puts your debt to $12,200.

Take all of your savings except $1,000 and pay off debt, smallest to largest amount. Stop contributing to your retirement plans until the debt is all gone.

You have $950 a month in payments right now that are debt related, other than the house. If you get on a zero-based budget, sell the car, and pay off the other $12,200, which you can in a year with a $60,000 income, this time next year, you'll have an extra $950 a month to build a 6 month emergency fund of $10,000, which should take 8 months if you add in the extra $400 a month you have now on your net. That puts you 20 months from now with no debt aside from the mortgage, $10,000 in savings. Then you can save up for another 7 or 8 months and upgrade cars. So 28 months from now, you'd be back in a 2009 Fusion SE V6 - because 28 months from now your car won't be worth more than $10,000. See how that works? You save $11,000, drive a reliable beater for a couple years, get financially fit, and then get back in the same car you have now. And still have an extra $1000 a month. It'll be a rough 2 years, but if you do it, you could be debt free aside from the house and have a 6 month emergency fund.

**ksluis62** · 03-05-2009, 07:57 PM

swanson719 has a great plan. You need solid commitment for a couple years, using snowballing payments (Dave Ramsey/John Commutta style), then you'll be fine, growing your savings, soon to be riding in style again. When paying off debt, I would go with highest interest rate accounts first, but paying lowest balance first as swanson719 suggests is usually only slightly worse, and has the advantage of reducing the number of accounts you have to monitor and pay.

You might take a look at DueMinder.com to show you exactly how the snowballing payments work on the debt-elimination portion of your plan. By establishing a monthly commitment now, and sticking to it, you'll be surprised how quickly you get things paid off. The key is commitment and sticking to your plan.

**arthurb999** · 03-06-2009, 05:10 AM

Sell your car and buy a 3000 car and pay off the CCs. Cash out the stocks. Build a new 1000 emergency fund and start hammering off the debt. Start living within your means on a cash only basis using an enevelop system. Increase your ins deductibles. Why do you need full coverge on the 2nd car with no payment? No dining out. Your life ins rates stink... try to get something better.

**Mr Hopkins** · 03-11-2009, 06:38 PM

Ok. Thanks for all the input. I think what I'll end up doing is paying off the CC's, adjust our withholding amounts on our W-4's so that we don't have to live on CC's; forget about replacing the windows although it'll probably save me some cash every winter month, maybe do 1 or 2 here and there if our budget allows. That leaves us with about $2k in savings. I think I'll continue funding that account and whatever is left over at the end will go towards SL 2. Once that is done, I'll take that snowball onto SL 3, then SL 1. I might not need a $20k car, but I can't do a beater; instead of paying a payment I'll have repair bills, and that could hamper my plans. And the life insurance, that is for a policy that has been in effect for a little over 4 years. My wife was 26 and I was 24 when that was started. The premium is combined, so it comes out to be about $40/month. Is that still high for a 25-year $70K policy? IDK. What do you guys think? Thanks again!

**cptacek** · 03-11-2009, 07:21 PM

Might as well check on the rates. My DH is 34, chews tobacco and just got $300,000 for 30 years for about $30 a month

**noppenbd** · 03-12-2009, 05:15 AM

Originally posted by Mr Hopkins View Post

I might not need a $20k car, but I can't do a beater; instead of paying a payment I'll have repair bills, and that could hamper my plans.

Let's keep it real.

We hear this argument all the time, and it just doesn't add up. You are paying $415 a month for your vehicle. Are you seriously telling me you cannot find a cheaper vehicle that requires less than $415 in repairs a MONTH? We bought a fairly cheap car (paid $6500) about 2 years ago, and have put a grand total of $700 into it in 2 years, and that includes a pair of tires, which you would need regardless of the car's price! So to justify a $415 a month car payment to avoid maintenance is fooling yourself.

**kork13** · 03-12-2009, 05:37 AM

Originally posted by noppenbd View Post

Let's keep it real.

We hear this argument all the time, and it just doesn't add up. You are paying $415 a month for your vehicle. Are you seriously telling me you cannot find a cheaper vehicle that requires less than $415 in repairs a MONTH? We bought a fairly cheap car (paid $6500) about 2 years ago, and have put a grand total of $700 into it in 2 years, and that includes a pair of tires, which you would need regardless of the car's price! So to justify a $415 a month car payment to avoid maintenance is fooling yourself.

I won't knock the car--as long as you plan to keep the thing until you about drive it into the ground, buying it new isn't a terrible thing. I bought my car brand new for these reasons (among others). Maintain it, and keep it around for as long as it'll run, and it can be worth it for you in the end.

Originally posted by Mr Hopkins View Post

Ok. Thanks for all the input. I think what I'll end up doing is paying off the CC's, adjust our withholding amounts on our W-4's so that we don't have to live on CC's; forget about replacing the windows although it'll probably save me some cash every winter month, maybe do 1 or 2 here and there if our budget allows. That leaves us with about $2k in savings. I think I'll continue funding that account and whatever is left over at the end will go towards SL 2. Once that is done, I'll take that snowball onto SL 3, then SL 1. I might not need a $20k car, but I can't do a beater; instead of paying a payment I'll have repair bills, and that could hamper my plans. And the life insurance, that is for a policy that has been in effect for a little over 4 years. My wife was 26 and I was 24 when that was started. The premium is combined, so it comes out to be about $40/month. Is that still high for a 25-year $70K policy? IDK. What do you guys think? Thanks again!

It's good that you have a plan, the hard part is always sticking to it. And don't just sit and think about it, convince yourself that this will work, and leave it at that.... Crunch the numbers, and know for certain that the plan you have will meet your goals in the timeframe you're looking for. Then, of course, make it happen. Automatic payments/transfers work great for this--you can set your CC/SL payments and let them go, the same as building up your savings again (I do think you should still slowly build that up, even if only $50-$100/mo).

**jIM_Ohio** · 03-12-2009, 06:15 AM

Originally posted by Mr Hopkins View Post

DEBT
CC #1 $2218 ($2700 Limit)
CC #2 $2605 ($3250 Limit)
CC #3 $646 ($1000 Limit)
Student Loan #1 $5122 ($70/month @4.125%)
Student Loan #2 $1713 ($51/month @11.25%)
Student Loan #3 $3283 ($98/month @5.01%)
Car Loan $19950 ($415/month @ 6.61%) (10/2013)
Mortgage $65585 ($751/month w/taxes @6.875%) (6/2034)

SAVINGS
Online $10000 (includes tax refunds)
Stocks $500
Mutual Fund $900

Our income is about $60k/year (Wife and I)

CC1 26%; CC2 15%; CC3 18%

Monthly expenses

Mortgage $751
Car $415
SL$220
CC 1 $70
CC 2 $70
CC 3 $20
Savings $300 (for 4-week months and $375 for 5-week months)
MF$75
Life Ins $40 ($70k 25-year term for my wife and I)
Groceries $350
Daycare $100
Fuel$ 110 (I don't include my fuel, my expense checks are in a diff account)
Ins. $169 (2 cars, full coverage, $500 deductible)
Dinning Out $45
Lights $130
Gas $215
Water is quarterly about $175

Thats about $3100/month; I don't think I left anything out. We roughly net about $3500/month. Some months are less, it depends. My wife's job runs with the schools, if they have a week or two off so does she. She collects UI for those weeks, but its a lot less. Like in February, we brought in $2900. On paper I don't understand it because we should be in a much better shape. We don't use cash, we only use our debit cards this way I can track where we spend and on what. All our income gets DD in one account, so its all there, but our checking is always going from week to week. There is nothing ever left, maybe about a $100, it depends.

I think I covered everything, if not let me know!

I would skip the plumbing for a month.

Pay off CC1-2-3 with refund and savings. Liquidate the investments if needed- get out of debt now- within a week- if you can (at minimum you should come close).

This frees up $210/month in the budget ($2500/year) which is 4% of your gross pay.

Adjust withholdings to get another $500 back each month from federal government. This is about $6000/year and 10% of your gross.

You have $75*52=$3900 which is 6% of your gross pay going to savings now.

I see 20% of gross going to savings from this point forward, you just need a plan.

With this $1000/month you need a plan.

I suggest you bank it until you have $18,000 in cash
Then put 15% of it to a retirement account (this will lower taxes)
Put the other 5% either towards SL payoff, car payoff or mortgage payoff.

If you remove the debt immediately, I think the problems you have will be positive (as in good problems).

I don't see car loans as a problem
I see a need for an emergency fund and long term savings plan.

I would bank the $710 long enough

**noppenbd** · 03-12-2009, 06:20 AM

Originally posted by kork13 View Post

I won't knock the car--as long as you plan to keep the thing until you about drive it into the ground, buying it new isn't a terrible thing. I bought my car brand new for these reasons (among others). Maintain it, and keep it around for as long as it'll run, and it can be worth it for you in the end.

He's got an 09 Focus SE, that he will be paying $415 a month for 54 more months (10/2013). That's about $22K he will still have to pay. It's now probably worth about $13-14K (see: CarMax Car Detail)
How was that a good deal? In reality, it is really too late, since he has already taken the huge depreciation hit. I just hate it when people justify a new car purchase to avoid "costly repairs". $8K in depreciation pays for a lot of repairs!

**rizzmo** · 03-12-2009, 07:16 AM

I agree. OP will greatly improve his financial situation if he sells the car and buys a nice used car. I assume the resistance is the thought of moving backward on a precived status symbol. My parents both have used cars purchased a truck purchase with 40k miles on it and a car purchased with 60k. The milage on the truck now is 125k and has had $2,000 in repairs over 5 years ($33/m). The car is at 180k and has had $600 in repairs over 4 years($12.5/m).

**kork13** · 03-12-2009, 10:08 AM

Originally posted by noppenbd View Post

He's got an 09 Focus SE, that he will be paying $415 a month for 54 more months (10/2013). That's about $22K he will still have to pay. It's now probably worth about $13-14K (see: CarMax Car Detail)
How was that a good deal? In reality, it is really too late, since he has already taken the huge depreciation hit. I just hate it when people justify a new car purchase to avoid "costly repairs". $8K in depreciation pays for a lot of repairs!

That's exactly what I'm getting at... there's already the sunk cost of getting the new car. At this point, it's better for him to just hold on to it and ride it 'til it dies. No, saving on repair costs is never a rational reason to buy new, in and of itself. But if there are other reasons enough that justify it, then I won't crucify a guy for wanting/buying a new car.

to justify with numbers: he sells it for $14k, buys a used car for $6000. He ends up with a used car, still owes $14k on the car he doesn't even have anymore, and now this 3-4y/o car will need to be replaced sooner than the newer car would have been. Not worth it, IMO. Oh, and @rizzmo, I wouldn't exactly label a Ford Fusion as a "status symbol". It's your run-of-the-mill family sedan, like the Toyota Camry or Honda Accord.

Not Sure What To Do