What would you do???

[Nebraska girl]

Okay i need a little advice or to know what you guys would do! My fiancé and I are expecting in July. We are trying to be wise about money so we can be wealthy one day. The only debts we have are the house = $84,000 which I won't help to pay off early until we are married, but we aren't there yet anyway; attorney = $6,200.00; and my car $1,688.00. I am 23 and he is 28 and he has a daughter from a prior relationship. We have a $12,000 emergency fund and contribute to retirement and are getting ready to save for college for the kids. The problem I am having is whether or not to just save or pay off those debts. The attorney is only requiring us to pay $100/month with no interest, but this puts us FIVE years away from paying off that debt when we could have her paid off by the end of the year. My fiancé wants to keep paying $100.00/month until she is paid off since there is no interest. I don't feel like that's fair to the attorney or us! And I have a family member that is making payments on my car while I go to school - I take two college classes per semester and they are paid for with cash. The car will be paid for by the end of the year. My issue with that is that we plan to use next years refund for a new to us vehicle that is more suitable for kids in car seats and reliable and I would like to have my car paid for before the baby arrives and drive it for a year or so while it is paid off. So I guess do you think it would be smart to go ahead and pay off either of these debts this year or just save and keep doing what we are doing on the debts? Hope this all makes sense!

[bjl584]

If your attorney is okay with giving you an interest free loan for the next 5 years, then by all means take advantage.

You said the car will be paid off next year. Is it scheduled to be paid off, or are you paying extra on it?

[Nebraska girl]

It's scheduled to be paid off by then. So you would be okay with having a debt for five years even if you can pay it off in one?

[bjl584]

It's scheduled to be paid off by then. So you would be okay with having a debt for five years even if you can pay it off in one?

Yes. It's a 0% loan. Take the extra money that you would've used to pay it off and invest it. You can get a 7% to 10% return on it in the markets.

[bjl584]

For the car,
as long as it's paid off before you get rid of it, then it probably won't matter. The interest that you save by paying it off 6 months early will be minimal. I'd probably stretch it out till the end of the year. How does the family member that's making the car payment tie in to this? Will you pay them back after school? So, the payments on the car aren't really coming from you? They are instead being taken care of by someone else? If I understand that right, then that may change things. You said you could pay off the car by July. Could you, or could the person making the payment pay it off by July? If you personally could, then I see no reason to have a family member continue to make the payment for you. I'd take over the payments immediately and focus on paying your family member back.

[MonkeyMama]

It's scheduled to be paid off by then. So you would be okay with having a debt for five years even if you can pay it off in one?

Personally I'd pay the attorney sooner. With one caveat. Have this baby, replace your car, see how all that goes first. Maybe pay the lawyer off in a couple of years. I just wouldn't take advantage if you didn't have to. My in-laws negotiated something similar with their attorney in a legal situation. Attorney was too stupid to realize they were far from broke. Though she was proud of her negotiating skills, MIL paid him off in one lump sum very shortly. I think he allowed a similar deal ($100/month for 5 years). I'd personally take my time and take advantage, because I think you can use the advantage while having a baby and being in school, etc. I think the cash will be important with a baby on the way. But I would not plan to take 5 years to pay off if all else goes well. Like you said, I don't think that's fair to either of you. It's a little different if it is a bank versus the kindness of someone's heart. This is taking advantage of someone who was kind, in my opinion. & paying a payment for 5 years is really a PITA. I'd want to be done with it much sooner. But I think during a pregnancy you need cash more than anything. I'd re-evaluate your situation at the end of this year, if I were you, but leave all the debts be for now.

[Bingo]

Hi- a couple of questions - one, do you have anything in savings/ especially with a baby on the way it would be a good idea. and two - are you all paying child support for your SO's child? that can cut into your ability to make ends meet too.

[Nebraska girl]

Bjl584 - My aunt is paying on my car while I am attending college. It is not a burden to her. We simply have an agreement and she is more then happy to pay it as long as I keep up my end of the deal, which I am. I could pay off the car by July.

Monkey Mama- thank you! I have been begging for someone to tell me that! lol The attorney knew that we were going through a rough patch at the time she said $100/month - my fiancé had lost his job and when he got another one his pay was still cut in half. Therefore, now that we are doing well I feel like we are taking advantage of her by not paying more since we can. A the time, he was behind several months on house and lost his pickup to the bank. We have $12,000 for FFEF and I saved a months worth of my income for when the baby gets here. I hope to only need one-third of that though because I will take six weeks off (assuming all goes well) and they pay for three weeks for maternity leave and then I will have 2 weeks worth of vacation.

Bingo - we have $12,000 emergency fund and one months worth of my income saved in case we need it while I take maternity leave. He pays $500 a month for child support.

[Wino]

I would also pay off the lawyer ASAP, especially hearing that she accepted the payment terms only because you really needed the help. I always try to help those who help others (especially if I happen to be the "other").

[Nebraska girl]

Thanks, Wino! I don't feel like its fair to pay her that small amount forever when we could pay her more! I especially don't understand keeping a debt for over 5 years when we could really pay it off by the end of the year! That may take some money from savings this year doing it this way, but its one less monthly bill and $1,200 more a year (towards retirement or paying off house early, or anything!) for 4 years after that and one less thing to worry about!

[mgkimsal]

Thanks, Wino! I don't feel like its fair to pay her that small amount forever when we could pay her more! I especially don't understand keeping a debt for over 5 years when we could really pay it off by the end of the year! That may take some money from savings this year doing it this way, but its one less monthly bill and $1,200 more a year (towards retirement or paying off house early, or anything!) for 4 years after that and one less thing to worry about!

Another thought on the attorney - this person may in fact be OK with holding up their end of the $100/5year plan, even if they know you can pay more and are not in dire straits. But... consider what will happen if/when you need legal services again. Going back to that same attorney will be a heck of a lot easier if you've paid her off well in advance of your original agreement.

[leaderscorp]

Five years of paying 100$ per month without an interest is not bad. Your car will be paid fully this year right?

[snafu]

With so much change imminent, I suggest squirrelling away money until after your return to work following mat leave.. What is your arrangement and anticipated cost for infant care? Will you need care for the older child from time-to-time? Once a routine is established I suggest a financial review so that you know where every dollar goes. At that point it will be clear how much car you can afford [unless aunt is paying for 'family' vehicle]. You likely will be able to pay the lawyer as much as $ 500. per month so long as you keep 'wants' from overtaking the plan.

While you've not mentioned specifics about the house, it is worthwhile to review the mortgage and print out how much of each payment goes to principal, interest, taxes and mortgage insurance if applicable. If anything extra like the income tax deduction and $100. a month can go directly to principal, it is a giant step towards wealth in the future.

[leaderscorp]

"While you've not mentioned specifics about the house, it is worthwhile to review the mortgage and print out how much of each payment goes to principal, interest, taxes and mortgage insurance if applicable" a very good suggestion!