Need your Advice!

[cashisking500]

Ok, so here is our situation. My wife and I have made a ton of headway and have paid off all of our credit card debt.

Outside of a mortgage, We still have the following:

Car loan 1: Approx. 13,000 balance @ 4.5%
Car loan 2: Approx. 12,000 balance @ 4.25%
Student Loan: One loan split into two parts...Part 1: $1700, Part 2: $4500...both very low interest
Personal Loan: $2800 remaining at 13%

We have a 12k emergency fund which represents between 3-4 months expenses if we suddenly had no income.

Both my wife and my jobs are likely as stable as you can be in these economic times. We do not have kids yet. We have the ability to save about $600 a month in addition to paying our regular debt balances each month.

Let me know what you think is the best course of action. I'm itching to get rid of the personal loan at a minimum!

Thanks for your help!
Cashisking

[ctigers0714]

Congratulations on paying off all your credit card debt, that's a big first step!

I would take the $600/month extra and throw it at your personal loan because the interest rate is so high. The next step after that is debatable because you could:

1) Roll over the money you were paying towards the personal loan and snowball the payments to the loan with the highest interest rate.
2) Increase your emergency fund to 6 months to provide a little extra security given the state of the economy, however you did you your jobs were stable so this doesn't seem critical.
3) You didn't mention retirement savings, are you contributing to a 401k or IRA? It's imperative to get a jump start on that while you're young.

Good luck!

[cashisking500]

Thanks CTigers. I appreciate the feedback. Does pulling from the 12k emergency fund to pay off the 2800 personal loan seem like a bad idea? We would replenish our E-Fund fairly quickly if you take the 600 plus the amount we are currently paying on personal loan.

[snafu]

Good on you for staying focussed and clearing so much consumer debt so quickly. Since your jobs are stable I'd pay off that personal loan before the day is done. I'd follow that up by increasing the payment to the higher interest car loan by $ 300. verifying the extra sum was being applied directly to principal. The other $ 300. to getting EF to a minimum 3 month s expenses.

Big pat on the back to you and DW for your hard work!

[Petunia 100]

Does pulling from the 12k emergency fund to pay off the 2800 personal loan seem like a bad idea? We would replenish our E-Fund fairly quickly if you take the 600 plus the amount we are currently paying on personal loan.

No, it is an excellent idea.

[kork13]

I agree completely with snafu. Take some of your EF money & pay off that outrageous personal loan immediately. 13% interest is simply lunacy to keep paying if you have the cash to pay it off right now.

Beyond that, take your personal loan payment plus that $600/mo & split it in half. Half goes to your emergency fund (get it up to at least 3-6 months' expenses), then the other half goes to your car loans as principle payments. Depending on the interest rates, you can put it all toward the highest-rate loan, or you can split it between both loans.

As previously asked, what does your retirement picture look like right now? You don't say your exact age, but it sounds like you're in your 20's or 30's. If you already have 401k's or IRA's going already, great. If not, that will be your next big financial project: securing your future.

[cashisking500]

Thanks everyone. To answer the retirement question, we both have 401k's and I also have a IRA that I'm contributing to. We aren't contributing as much as I'd like to, but we have to get the debt paid off first! We will both be 30 years old this year.

We are both ready to be done with this debt NOW!

[JoeP]

Agree with paying off the personal loan with the EF.

Are there any expenses you can trim to make more headway into the car loans? Typical "minor pain" cuts people sometimes make include: cheaper cell plan, getting rid of cable/satellite, selling stuff, maybe look into getting a new car/home insurance quote, etc.

[ctigers0714]

I agree with everyone else that it would be okay in this instance to use your EF to pay off the personal loan, but this isn't true for all people. To free up your cash flow a little bit you could consider paying off the smaller of the two SL's and this would give you even more extra money to pay down the higher interest rate car loan. Just a thought, but your first step after paying off the personal loan is to rebuild that EF right away.

[cashisking500]

I'm back! So here's the update...

In August, we paid off the Personal Loan (hooray!). So now we have the two car loans and the student loans left to tackle. Since then we've also had a visit from Murphy and had to replace our water softener.

Our EF will be back to 10k at the end of this month! So, it brings up another round of questions...

1) Should we stash away cash into the EF? I project by next summer we could have 20k (God willing!)in our EF and could pull from that to pay off the projected balance on the higher interest car (roughly $9k to pay it off by July).

2) Should we split the difference and contribute $300 per month to savings and the balance of what's left (could be up to $700 per month now in most months) towards the car loan?

3) Should we stop contributing to the EF and put every extra penny into paying off the car loan?

It's important to us to get this car loan paid off by next summer as my wife drives a lot for her job and I don't want to be paying on a car with 120k miles on it.

As always, thanks for your help!

CashisKing

[Financeman]

Pay the highest rate debt first.

It’s worth overpaying if possible on the higher percentage loans as they will ultimately be costing you the most. Wouldn’t think the student loan would be a high priority. It sounds like your heading in the right direction. Keep it up.