Should i pay it off?

**Tree0164** · 01-28-2013, 02:47 PM

You sound like you have a fairly big security gland like I do.

I would pay off the debt especially the car and credit card debt.

Since your job isn't that stable I would keep the student loan but be fairly aggressive in paying that off.

**LadY** · 01-28-2013, 03:01 PM

The reason i dont want to pay it off is because i dont see the benefit except the feeling of being debt free

CC has 0% I mean Im not paying anything for this loan..(except 1%

)

Car Loan has 1.49% which is also very low. Car is worth $16,000 so in an emergency i can sell it and buy something cheaper.

Student Loan's % is big but I don't want to give up $17,000 right now. My monthly payment is $146 and I would always be able to find $146 to make min payment.

On the other hand i feel secure knowing that i have money to pay everything off....

Please tell me that im wrong

**disneysteve** · 01-28-2013, 03:12 PM

It sounds like you're doing pretty well, but I do think you need to clean up the debt.

Set aside a 6-month emergency fund in savings.

Then start attacking the debt from highest to lowest interest rate. The one exception is the 0% credit card. Make sure you pay that off before the promotional period expires. If you roll it into a new 0% deal but you have to pay 1% in the process, it is no longer 0%. Don't do that.

Is the vacation home interest tax deductible? Why did you specify that you don't want to pay that off? If it is tax deductible, the effective rate is lower than the student loans. If not, it is your most expensive debt and you should work toward getting rid of it.

What percentage of gross household income is going to retirement savings? Your goal should be at least 15%.

Oh, and your car is not an emergency fund. Do you really want to have to sell your car to raise cash? First, that takes time. Second, your car loses value with each passing day. Third, it would leave you with no car. Makes things like going to work difficult.

**PrudentSaver** · 01-28-2013, 05:47 PM

Without looking at your particular numbers, I can give you some advice.

What do you have in terms of investments?

If you have none, but your current monthly income exceeds your debt payments, I suggest you transfer some of that profit into investment vehicles of some sort. Consider starting an at-home business or getting involved in real estate.

What you want at the end of the day is a positive cashflow.

So when should you pay off debt?

You should pay off debt when there is NOTHING better to do with that money. Go after the debt's principal and think of it is as your "investment of last resort." You do get a return on paying off debt, and that return is hopefully a smaller monthly payment.

Food for thought.

**disneysteve** · 01-29-2013, 05:07 AM

Originally posted by LadY View Post

i expect to receive about $2,000-$3,000 in tax refund

I forgot to comment on this. Make sure to adjust your withholding so this doesn't happen again. Strive to break even or maybe a small refund of a few hundred dollars. Getting thousands back is a waste. That's money that could have been used all year to pay down debt.

**Petunia 100** · 01-29-2013, 06:44 AM

So, there is no mortgage on your primary home, is that right? Or, are you renting?

You are the breadwinner for a family of 4 and feel your job is not stable. I understand why you would want a lot of savings on hand. How long would your savings last if your income stopped tomorrow? A year? Less? More?

2-3% into your 401k is not much.

When is your bonus paid? Is the next one coming up soon?

Do you have a written monthly budget?

**LadY** · 01-29-2013, 06:53 AM

Originally posted by disneysteve View Post

It sounds like you're doing pretty well, but I do think you need to clean up the debt.

Set aside a 6-month emergency fund in savings.

Then start attacking the debt from highest to lowest interest rate. The one exception is the 0% credit card. Make sure you pay that off before the promotional period expires. If you roll it into a new 0% deal but you have to pay 1% in the process, it is no longer 0%. Don't do that.

Is the vacation home interest tax deductible? Why did you specify that you don't want to pay that off? If it is tax deductible, the effective rate is lower than the student loans. If not, it is your most expensive debt and you should work toward getting rid of it.

What percentage of gross household income is going to retirement savings? Your goal should be at least 15%.

Oh, and your car is not an emergency fund. Do you really want to have to sell your car to raise cash? First, that takes time. Second, your car loses value with each passing day. Third, it would leave you with no car. Makes things like going to work difficult.

Thanks for taking time to reply!

I plan to pay off credit cards by the promotion date.

I do want to pay out the house but not now when i have CC and Car debt. I guess wasnt clear enough. I want to pay everything else before i start attacking mortgage. Interest on the house is tax deductible. Plus we rent it out for 2-3 month a year and the profit covers full mortgage (without taxes or insurance - which are $2,000 a year) Right now we put the house on the market to rent it for the whole year for $900/per mnth. Due to the second baby we wouldn't be able to use the house therefore we decided to rent it out for the whole year.

Right now I save about 13-14% in retirement. $10,000 Roth + $3,000 401K I plan to start maxing out 401K next year. This year my work put 7K into 401K (Profit sharing) therefore i think im OK for now with retirement. Ofcourse the goal is to max out 401K

I agree about the car. Im thinking about paying it off now...

Tax refund is due to bonus. I wasnt expecting that much of a bonus. It was taxed at 40% therefore im getting a refund...

**LadY** · 01-29-2013, 07:02 AM

Originally posted by Petunia 100 View Post

So, there is no mortgage on your primary home, is that right? Or, are you renting?

You are the breadwinner for a family of 4 and feel your job is not stable. I understand why you would want a lot of savings on hand. How long would your savings last if your income stopped tomorrow? A year? Less? More?

2-3% into your 401k is not much.

When is your bonus paid? Is the next one coming up soon?

Do you have a written monthly budget?

Yes i bring all the bacon (as my husband likes to say

)

Right now we would be able to live on the savings for a year.

I understand that 3-4% into 401 is not much but I fully contributed into ROTH for two people. Goal is to max 401K. I think i will try to do it next year. Not this year, since will be paying off debt.

Job stability - It is not that i can get laid off. I said job is not stable is because im not 100% sure if i want to stay in this company

Otherwise my profession is very stable. I can easily find the job for $80K. My exp in my profession is very good. Right now my job requires long hours and hard work

Boss said that if i will work harder this year he will give me bigger bonus

but im not sure if i want to work like crazy anymore with the baby (dont get me wrong i work hard and before the baby was born was working like a maniac)

**LadY** · 01-29-2013, 07:06 AM

Originally posted by PrudentSaver View Post

Without looking at your particular numbers, I can give you some advice.

What do you have in terms of investments?

If you have none, but your current monthly income exceeds your debt payments, I suggest you transfer some of that profit into investment vehicles of some sort. Consider starting an at-home business or getting involved in real estate.

What you want at the end of the day is a positive cashflow.

So when should you pay off debt?

You should pay off debt when there is NOTHING better to do with that money. Go after the debt's principal and think of it is as your "investment of last resort." You do get a return on paying off debt, and that return is hopefully a smaller monthly payment.

Food for thought.

right, but EF is the king for me. I feel so secure with big chunk of cash in the bank

I think i will pay off the car

**LadY** · 01-29-2013, 07:09 AM

We are renting for $1,100 and thinking about buying a house in 2-3 years.

**LadY** · 01-29-2013, 07:14 AM

Thank you everyone for taking time to reply!!

I think i will pay off the car after a month when i go back to work. (Just to see how things will go there).

Also, I plan to pay CC debt with 1/3 of the tax refund and full balance by the end of the 2013.

Plan for this year is:

1. Fully max ROTH for both of us.

2. Contribute 3-4% into 401K

3. Save $10,000 into savings

**Goldy** · 01-30-2013, 07:29 AM

Originally posted by LadY View Post

Hello,

Age:28

I have the following savings & debt and not sure if i should pay off some of the debt.

Savings:

$47,000 at 0.9% in saving
$7,090 in euros (approximately $9,500)
$3,000 saving

Debt:
$6,000 in CC at 0% APY (will expire in August/December) I can do another transfer with 1% fee. Putting $450-500 towards it every month.

$10,000 Car loan at 1.49% (3 more years/$270 a month)

$17,000 student loan at 4.5%

$80,000 mortgage at 5.375% (vacation house) (this one i dont want to pay off. Each year i try to do $500-$1000 prepayment)

Reason for CC debt is because 3 years ago i quit my job to stay home with my newborn. I had about $15,000 in CC debt when 2 years ago went back to work.

Few month ago I had a new baby and plan to to return work in one week. My husband would stay home with the baby and wouldnt work. I am wondering if i should pay some of my debt..or if i should keep the cash and make regular payments as im making. My job is not that stable. Right now my salary is $100,000 (+$42,000 bonus this year went straight into saving account) In 2012 i was able to save $22,000 ($10,000 saving and $12,000 retirement) not considering bonus.

Last two years i was trying to save money and pay off some debt. Now that more saving increased by a lot im not sure if i should put more money towards debt. Im not 100% sure in my job stability.

Every year i max out Roth for both me and my husband and put around 3-4% in 401K.

Also, i expect to receive about $2,000-$3,000 in tax refund that i plan to put into saving account.
Thanks!

If it were me I would focus less on your debt and more on your retirement savings and down payment savings. What is the price range of houses that you are looking at? A 20% downpayment could change this advice depending on how large it is.

I would wait till July to pay off that credit card. If you keep making $500 payments by July the amount will be something like $3,000 and much easier to just cut a check for.

As for your car loan, this too I would not pay simply because the amount of interest you will pay over the remaining life of the loan is $231. With interest so low I would be willing to pay the $6.41 a month in interest and just continue to make payments till its gone.

Now, the student loans. Yes as you pointed out the payments are small and easily made but the interest rate is moderate so if we look at the amoritization table for this loan it says that at the end of the loans life you will have paid $5,485 in interest from today till the end.

So, my advice would be to
1) Pay off student loans
2) Try to max out 401k and continue with roth
3) Identify what you need for a 20% downpayment and start saving
4) If there is money left over, start looking at that vacation mortgage

Should i pay it off?