Another question - ready to take the plunge

**disneysteve** · 05-25-2011, 04:55 AM

http://www.savingadvice.com/forums/debt/57979-tons-debt-but-motivated-please-help.html

For those who are search-impaired, here is the original thread.

I don't have time to respond right now but I'll try and review everything and check in later.

**emanon1501** · 05-25-2011, 10:13 AM

I would invest all of the money. Why? I would pay off the debt from my paycheck every month, so that I am reminded of my stupidity and hope that I will not make the same mistake again in the future. Looks like you took out a 2nd mortgage to cover other debts and then ran up new debts on your 2 CCs. If that is correct, then you have not learn from your mistakes. However, if you do not make good money, then you will need to pay it off to free some money per month.

If you have learn from your mistake, then start with the highest interest and work your way down.

My 2 cents

**momofla** · 05-25-2011, 11:19 AM

emanon1501, I have learned. That is why I am here asking for advice. We are no longer using credit cards. Rather we are focused on paying down debt.

disneysteve, thank you for posting the link. I wasn't quite sure how to do so. I would appreciate if you would weight in later. After reading many threads to which you have contributed, I respect your opinions.

**bjl584** · 05-25-2011, 11:52 AM

Originally posted by momofla View Post

I have a thread that I posted here earlier about my situation. There were a lot of wonderful suggestions provided there. I have taken those to heart and taken some time to contemplate. I think we are now ready to take action.

Background. We have quite a bit of debt.

CC $2600 3.9% Min $35
CC $7000 0% for 24 months $300/mo
Vehicle $17000 2.9% $548/month
2nd Mortgage (debt consolidation � stupid!!) $74000 5.625% $991/month

I also have student loans that I will begin paying on in about a year (approx $120K)

I inherited some money in the fall. We have thought and thought, and think we have narrowed it to a couple of choices.

1) Pay off the 2nd mortgage . Invest the remaining inheritance money for retirement and pay off the remaining debt (except student loans) within a year.

2) Payoff all debt except the 2nd mortgage. This frees up almost $900 per month and would leave the majority of the inheritance in tact for investing.

The other thread is "Tons of Debt but MOTIVATED - please help". There is quite a bit more info there but I stopped receiving responses. I am really hoping to hear from the experts here as I respect and value your advice.

BTW, we did contribute to a ROTH by the Apr 18 deadline for 2010.

Thank you.

How much money did you inherite? Without knowing, I would be inclined to go with option 2. Pay off everything except the mortgage. Use the extra cashflow to save for retirement and to accelerate debt repayments. That would wipe out your consumer debt and get you on track for retirement.

**momofla** · 05-25-2011, 01:06 PM

I have about 95K remaining.

**disneysteve** · 05-29-2011, 07:29 AM

Originally posted by momofla View Post

We have quite a bit of debt.

CC $2600 3.9% Min $35
CC $7000 0% for 24 months $300/mo
Vehicle $17000 2.9% $548/month
2nd Mortgage (debt consolidation � stupid!!) $74000 5.625% $991/month

I also have student loans that I will begin paying on in about a year (approx $120K)

Sorry for not responding sooner.

You guys make 105K (from the other thread). Quite simply, you earn too much to be carrying this debt. Part of the problem is you overspent on your home. Your monthly payment (PITI) is $2,450 which is 36% of your income. Rule of thumb is to not exceed 28%. Of course, unless you plan to move or expect an income boost, you are stuck with that.

You say you have 95K from this inheritance to help clean up the mess. You have $220,600 in debt, not counting your primary mortgage, so the 95K is only going to go so far here.

I know the CC interest rates are low but I'd still get rid of them because there is absolutely no reason for you to have that debt given your income and that only uses up 10% of the inheritance money. Then I'd probably knock out the 2nd mortgage. All together, that frees up $1,326/month in cash flow. Once that is done, come back and post again, including your income and expense numbers at that point, and we'll see where to go from there. I know you mentioned retirement accounts in the other thread but I don't think you said what percentage of income you are each contributing currently.

**momofla** · 06-15-2011, 02:55 AM

"You guys make 105K (from the other thread). Quite simply, you earn too much to be carrying this debt. Part of the problem is you overspent on your home. Your monthly payment (PITI) is $2,450 which is 36% of your income. Rule of thumb is to not exceed 28%. Of course, unless you plan to move or expect an income boost, you are stuck with that."

Yes, we did overspend on the housing. Luckily, I have just received a promotion and will be bringing in $1000 more each month. This should bring it in line with the rule of thumb.

We are currently contributing only about $250 per month to retirement. I want to wipe out debt and throw money into retirement. I just don't know if it is better to use the money to pay off debt so I can contribute more to retirement or invest the money and use our earnings to pay off debt.

**momofla** · 06-15-2011, 02:58 AM

Yes, we did overspend on the housing. Luckily, I have just received a promotion and will be bringing in $1000 more each month. This should bring it in line with the rule of thumb.

We are currently contributing only about $250 per month to retirement. I want to wipe out debt and throw money into retirement. I just don't know if it is better to use the money to pay off debt so I can contribute more to retirement or invest the money and use our earnings to pay off debt.

**LivingAlmostLarge** · 06-15-2011, 05:55 AM

Are you absolutely sure you've changed your behavior? I ask because that's my biggest worry, paying off debt with an inheritance and taking the faster way out of debt, then just leaving it alone.

Sometimes it's not about the money but the psychological aspects of overspending and going into debt. Changing behavior is a lot harder long term. Even now I want to get into debt sometimes, which is weird because I would have thought it would have hit when I was younger. Instead now I find I want more than when I was younger and broke.

Now I wouldn't mind a slightly nicer car, I wouldn't mind getting better furniture, wouldn't mind eating out more, etc.

So I think the CC should be taken care of, but other than that? I'm not sure.

**disneysteve** · 06-15-2011, 08:13 AM

Originally posted by momofla View Post

I just don't know if it is better to use the money to pay off debt so I can contribute more to retirement or invest the money and use our earnings to pay off debt.

There is a math answer and a psychology answer.

I would do as I suggested earlier. Pay off the CCs and the 2nd. Free up $1,300/month in cash flow and use that to invest.

**LivingAlmostLarge** · 06-17-2011, 05:57 AM

Except if the behavior isn't firmly changed she'll end up in the same boat. Which is why I asked the question is getting out of debt behavior changed firmly this time? Because with CC debt and a 2nd mortgage for previous CC debt I assume, it didn't change then?

Another question - ready to take the plunge