Debt pay off plan - critiques?

[crazydoglady]

Hi all,
My fiancé and I are looking to start paying off our sizable amount of debt at the end of this year (right now, all of our excess income is going towards our wedding).

Stats:
26 +28 years old.
Bought a single family home last year (30 yr mortgage which is not included in our current pay off plan)

Combined take-home pay monthly: 8600+
(He works a lot of overtime and his income can fluctuate based on that; the above number is based on his base salary)

Mortgage/PMI/Taxes/Insurance: 2250
Utilities: 550
TV/Internet/Phone: 165
Cell phone: 80
Gym: 100
Student loans: 625
Car loan: 240
His Insurance: 75
My insurance: 75
Car savings: 75
Food/Paper/Toiletries: 600
Dogs: 250
Entertainment/Gas/Spending/Misc: 1000 (500 each)
House Projects: 400
"Yearly expenses" : 100
Vacation: 500
Wedding : 1500

Some notes: Right now, we pay ~$150/month for electric; the other $400 in the utilities budget we either use to fill the oil tank, pay the quarterly water bill, or just transfer the rest to the house projects account.
*Car savings - since my car is paid off, I use this as a separate savings for any repairs that my car needs.
*Yearly expenses are things like professional licenses/education, car registration, gifts for weddings, random stuff.

Savings consists of:

Emergency fund: 11k (10k in an online account, 1k in our local bank savings)
House projects: 1k (had more, but doing some work on the house now and just removed around 4.5k)
Vacation: 2k (honeymoon coming up)
Car: 750
Yearly: 375
Pet: 1400 (unexpected vet bills - we don't contribute to this monthly)
And a wedding account which we are actively spending from as our wedding is less than 5 months away!

Loan balances:
Car - 7600 at 5%
Student loans:
1) 9800 at 7.9%
2) 23,000 at 3.25%
3) 26,000 at 3.25%

Retirement - he has a pension, and also an old 401k from a previous job that has roughly 25k.
I have a 401k from a previous job with 5k, and my current 403b with ~14k (I contribute 8%, employer match is 6).


The plan: Currently that $1500/month goes to our wedding savings. Starting in November 2016, that is unaccounted for. I'd like to:

1) Put the full $1500 towards student loan#1 (highest interest/lowest balance) and knock that out by April 2017. The $225/month we pay towards that loan would then be rolled into the remaining 2 loans so we still pay the same $625/month
2) Starting May 2017, then use the $1500 towards the car loan, should be paid off by August 2017. We would also still "use" the $240/month and just put it towards savings for repairs and eventually, new vehicles.
3) September, Oct, Nov, Dec 2017 - use the $1500 to start a "baby fund" - we'd like to start a family within the next few years, and I'd like a small savings to account for furnishing the nursery, hospital bills, etc.
4) - Then, January 2018 - split the $1500 by starting Roth IRAs for each of us ($500/month for each of us) and that still leaves $500/month left over. At that point, we could use the $500 towards the student loans, or continue to build an emergency fund...

Also - we are both paid bi-weekly, so in Dec 2016, and June 2017, we each get an "extra" paycheck - was planning to put each of those into our emergency fund. Theoretically, that would put us at about 19k total by the end of June 2017

My fiance is starting to feel like our retirement plan should be a bigger priority, but I feel that our debt is the bigger issue right now. It's not like we have nothing going on retirement-wise, and we do *eventually* have a plan to get to the Roth stuff, it's just a year and a half away.

What are your thoughts? Is there a smarter way to handle this? Should we be thinking more about retirement now or can it wait another 18 months?

Thanks for your input

[Jluke]

You seem to have a good plan that is very detailed.

does he contribute to a 401k, other retirement, if available? Should at least do the employer match.

PMI on the mortgage. how far away are you from being able to eliminate this?

when does the 500/month vacation fund stop? will you have 2000/month once the wedding is paid for?

1000/month on entertainment/gas/spending - are you able to break this apart and find more savings opportunities?

do you pay your auto/home insurance monthly? you can save money if you pay 6 months or 1 year ahead.

based on the monthly take home, do you qualify for a ROTH?

Looking ahead to retirement goals, one benchmark is 3 times your salary by age 40...

do you have term life insurance or life insurance through your employer?

I'll stop there and wait to see what others have to say.

[Nutria]

Not overspending on the wedding is a great way to pay off debts quicker. (I won't judge whether or not you are.)

Mortgage/PMI/Taxes/Insurance: 2250

That's really high, because you didn't wait to accumulate the 20% DP.

the other $400 in the utilities budget we either use to fill the oil tank

Is heating oil really that expensive??

Emergency fund: 11k (10k in an online account, 1k in our local bank savings)

Good, but it's less than two months. Since you all both work, and presumably you won't both be laid off at the same time, you don't need 6 months.

My fiance is starting to feel like our retirement plan should be a bigger priority, but I feel that our debt is the bigger issue right now.

I agree with you. Killing that debt is a guaranteed ROI.

Should we be thinking more about retirement now or can it wait another 18 months?

You're in your 20s. Another 18 months won't kill you. Just don't keep kicking the can down the road...

[crazydoglady]

You seem to have a good plan that is very detailed.

does he contribute to a 401k, other retirement, if available? Should at least do the employer match.

PMI on the mortgage. how far away are you from being able to eliminate this?

when does the 500/month vacation fund stop? will you have 2000/month once the wedding is paid for?

1000/month on entertainment/gas/spending - are you able to break this apart and find more savings opportunities?

do you pay your auto/home insurance monthly? you can save money if you pay 6 months or 1 year ahead.

based on the monthly take home, do you qualify for a ROTH?

Looking ahead to retirement goals, one benchmark is 3 times your salary by age 40...

do you have term life insurance or life insurance through your employer?

I'll stop there and wait to see what others have to say.

1) I'm pretty sure he does not have a 401k through current employer, only the pension -- will look into this further to see if it's an option
2) too far away from eliminating PMI. Not our best call, but we only put down 5% DP on the house
3) we plan to continue to put away 500/month even after the wedding - we would like to travel before starting a family, hoping for an overseas trip next year if we continue to save
4) The 1000 is split between the 2 of us, so we each get $500 - that's used for gas, too which I usually run a minimum of $100-150 monthly, his is closer to $175. The rest is clothing, entertainment. We could cut back if necessary maybe to $800 total monthly?
5) I pay my auto and our home yearly , for the discount. Not sure why we never considered changing his auto as well. All with the same company for another discount
Life insurance is whatever is employer provided at this point. We've discussed adding more after the wedding, when we do our wills etc


Thank you for the response - I have some things to research more

[crazydoglady]

Not overspending on the wedding is a great way to pay off debts quicker. (I won't judge whether or not you are.)

Mortgage/PMI/Taxes/Insurance: 2250

That's really high, because you didn't wait to accumulate the 20% DP.

the other $400 in the utilities budget we either use to fill the oil tank

Is heating oil really that expensive??

Emergency fund: 11k (10k in an online account, 1k in our local bank savings)

Good, but it's less than two months. Since you all both work, and presumably you won't both be laid off at the same time, you don't need 6 months.

My fiance is starting to feel like our retirement plan should be a bigger priority, but I feel that our debt is the bigger issue right now.

I agree with you. Killing that debt is a guaranteed ROI.

Should we be thinking more about retirement now or can it wait another 18 months?

You're in your 20s. Another 18 months won't kill you. Just don't keep kicking the can down the road...

Thanks for your reply.

1) wedding spending is what it is at this point - vendors are contracted, deposits paid. We will definitely be able to pay for everything on our current path, so I'm comfortable with that (not incurring any debt)
2) again, kind of "is what it is" - no we didn't put down 20% but we already made the purchase so we will just continue to pay as we have been
3) no Oil isn't always that much, but has been $3xx in the past for an almost empty tank so i would overestimate and be safe. Again, whatever isn't spend goes back to savings in the house project account
4) E-fund: we could get close to 3 months by my calculations, because in the event of a job loss we would nearly eliminate the dog expense (that's mostly daycare for them) as someone would be home/not working, also would definitely reduce spending and could be more vigilant on grocery bill, and we would practically eliminate all of those savings categories (vacation etc) also, I do plan to add more over the next year (see OP- extra income December and next June)

[Nutria]

Thanks for your reply.

1) wedding spending is what it is at this point - vendors are contracted, deposits paid. We will definitely be able to pay for everything on our current path, so I'm comfortable with that (not incurring any debt)

Good.

2) again, kind of "is what it is" - no we didn't put down 20% but we already made the purchase so we will just continue to pay as we have been

Another thing to think about is accelerating the mortgage payments to get you over the 20% mark so as to do away with PMI. A spreadsheet with all the different debts and savings goals can help you find the optimum strategy.

3) no Oil isn't always that much, but has been $3xx in the past for an almost empty tank

What fraction of a tank do you use in a month? (I'm from the South and use piped in gas for central heating, so this is quite foreign to me.)

so i would overestimate and be safe. Again, whatever isn't spend goes back to savings in the house project account

dog expense (that's mostly daycare for them)

That's another foreign mindset! But hey, different strokes.

as someone would be home/not working, also would definitely reduce spending and could be more vigilant on grocery bill

It's something you should try now, so as to be in the habit for when kids arrive and your expenses rise even more.

and we would practically eliminate all of those savings categories (vacation etc)

So true. That whole "six months of income to maintain your current lifestyle" notion is completely retarded.

Anyway, I took a simplified, columnar form of our budget and copied it three times, to plan what would we'd have to cut if I lost my job, she lost hers and we both lost them.

[snafu]

Do you use or be willing to use a free program like Mint to track actual spending?
What was fiancé over time earnings 2015? How do you allocate these variable sums 2016?
What did Christmas 2015 cost? Will it be a line item 2016 and into the future?
Suggest spread sheet to easily track housing costs Principal, Interest, Municipal Tax, PMI, Insurance, Repair/Projects

Housing values have been moving up significantly in many communities, are you seeing any increase in equity? If over-time earnings were to be applied directly to principal, would the 20% equity requirement likely be met in 2 years? What would be your estimate?

[Sorry this is an issue that really bothers me. It is ridiculously expensive and gives you no benefit. Lenders are back to their old games and you are paying the price for their greed]

[Nutria]

[Sorry this is an issue that really bothers me. It is ridiculously expensive and gives you no benefit. Lenders are back to their old games and you are paying the price for their greed]

You seem to have this notion that Greedy Lenders have mandated that people buy houses with only 5% down.

[pflyers85]

My fiance is starting to feel like our retirement plan should be a bigger priority, but I feel that our debt is the bigger issue right now. It's not like we have nothing going on retirement-wise, and we do *eventually* have a plan to get to the Roth stuff, it's just a year and a half away.

What are your thoughts? Is there a smarter way to handle this? Should we be thinking more about retirement now or can it wait another 18 months?

Thanks for your input

While it is important to not delay a retirement plan for too long I think your bigger priority is cleaning up your debts. When your debts have been eliminated you will have a sizable chunk of income available to make up for lost time in a retirement account. In fact from there you can look into a bunch of different investment opportunities to broaden your portfolio.

[crazydoglady]

Good.



Another thing to think about is accelerating the mortgage payments to get you over the 20% mark so as to do away with PMI. A spreadsheet with all the different debts and savings goals can help you find the optimum strategy.



What fraction of a tank do you use in a month? (I'm from the South and use piped in gas for central heating, so this is quite foreign to me.)





That's another foreign mindset! But hey, different strokes.

It's something you should try now, so as to be in the habit for when kids arrive and your expenses rise even more.

So true. That whole "six months of income to maintain your current lifestyle" notion is completely retarded.

Anyway, I took a simplified, columnar form of our budget and copied it three times, to plan what would we'd have to cut if I lost my job, she lost hers and we both lost them.

I'd love to start paying more on the principle at some point, just figured we should try to clear up these other debts first before tackling the mortgage! I would definitely love to be rid of the PMI.

I haven't really kept track of how much oil we use in a month, usually just check every couple of months but that would be a much smarter idea to track it more frequently.

We have 2 dogs, they usually go to daycare 1-2x a week. It's good for socialization and exercise, and they usually go while we are sleeping during back to back overnight shifts so it's good for everyone

I could definitely be better about the groceries, using coupons and not buying so much/wasting what we buy.

I think I'll try Your column approach thanks

[crazydoglady]

Do you use or be willing to use a free program like Mint to track actual spending?
What was fiancé over time earnings 2015? How do you allocate these variable sums 2016?
What did Christmas 2015 cost? Will it be a line item 2016 and into the future?
Suggest spread sheet to easily track housing costs Principal, Interest, Municipal Tax, PMI, Insurance, Repair/Projects

Housing values have been moving up significantly in many communities, are you seeing any increase in equity? If over-time earnings were to be applied directly to principal, would the 20% equity requirement likely be met in 2 years? What would be your estimate?

[Sorry this is an issue that really bothers me. It is ridiculously expensive and gives you no benefit. Lenders are back to their old games and you are paying the price for their greed]

I do have a mint account; was using it more often while we were saving for the house but kind of got away from it.
I haven't really tracked the OT earnings - usually what happens is it gets used for random expenses or "wants" and if not, we decide what to do with it (i.e. Starting that pet/vet savings, put some towards student or car loan) or it goes to the wedding.
It's very inconsistent, and he is also of the mindset that he should be allowed some of that money to blow as he wishes because he worked for it (example: he wants a new rifle, more ammo for the range, some video game whatever accessory - he works a few OT shifts and then he uses that for whatever it is he wanted). If we have household needs or something comes up he has no problem putting it towards that, but I don't like to plan on it for anything in particular.

Christmas is usually low-key. I work/volunteer at another commitment very part time and for very little money - it's enough to cover our holiday spending but not much else

Haven't given any thought to the house/PMI/equity issue as we've been focusing our efforts on other areas, but this is something to consider. If we were to use OT earnings it would definitely be at a random timeline, but I suppose it doesn't hurt to keep throwing extra money there

[Nutria]

he is also of the mindset that he should be allowed some of that money to blow as he wishes because he worked for it

I agree wholeheartedly with that, since an entertainment budget is important for everyone. It helps to keep him happy and motivated.

Where the trouble comes, though, is that highly ambiguous word "some". You two need to agree on a percentage that he keeps for his own . While you're paying off debts, on the order of 1/3. Once you're on solid financial footing (non-mortgage debts are paid off, retirement and EF are fully funded, and PMI is gone), then you can bump it up.

[klarose]

I think $1,000 a month on spending is very very un-needed. That is literately more than I get paid in a month.

I would drastically cut that back until some of the debt is paid.

You said he works a lot of overtime, and then spends that money on wants. I would recommend sending that straight to debt. It will help cut it down a lot quicker. Also, he already has more than enough money in the spending budget to practically buy anything extra he wants if he would just save some of it for a month or two.

[snafu]

I too am concerned about retirement planning. Not everyone understands how significant the compounding factor is over the long haul. Where is fiancé's [old] 401K held? What are specific investments? What is the management cost? Is there any contribution space after pension contribution? The downside of pensions is they are often very conservative, limiting every individual's contribution growth each year. Worse yet, as last century retirees discovered, pouf...promised benefits left with bankruptcies.

[Jovanny]

Planning your budget according to your priorities can help you clear off your debts.