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    Debt repayment order

    Now that we're pretty well settled in our home, it's time for the wife and I to really figure out how we want to pay back our debts. Here is the run down (balances are approximates since I don't have the info right in front of me):

    Student Loans:
    1 - $2500 @6.9% (64/month)
    2 - $16,000 @6.9% (185/month)
    3 - $50,000 @5% (in deferment but will be about $400/month)

    Car - $14000 @1.9% (376/month)

    Mortgage - $202,0000@3.675 (1591 including escrow and PMI/month)

    Income - DW is at $4416/month gross
    Job one puts me at $3125/month (with about another steady $1,000 with OT)
    Job two I can pull in around $1000-$1500 depending on how much I want to work
    Gross monthly is about $8541 at minimum with up near $10,000 if need be. DW's job is new but should be very stable as are both of mine.

    Savings - 401k is at $25,000 and Roth is about $10,000 and we're both early 30's. Obviously very, very behind with that but the last two years have been a major cash suck with the wedding and home purchase. We cash flowed near $45-50k for both of those purchases.
    Also have about $9500 in an emergency fund. Another $2500 saved for I'm not sure what. It's just sitting around.

    We have a pretty decent net cash flow at the end of the month. I'm not going to list each expense (unless you'd like to see that) as we have nothing exorbitant except the damn cell phones. We each have 5% going into retirement with nothing into our Roth right now but I'd like about a couple of months in the home to better analyze our expenditures.

    My first thought was to use Dave Ramsey's snowball method and pay off the $2500 student loan. However, the car is currently our biggest cash suck (until the deferred loans starts getting paid back) and it would be really really nice to have an extra $376 to put towards that huge student loan balance. Financially it doesn't make a whole lot of sense but maybe it ultimately doesn't make a huge difference. My goal is that within two years we have everything but the mortgage paid off which will be a very very tight time frame and probably unlikely to some degree but doable if I just work my butt off. Thoughts? How should I be paying these off?
    Last edited by rutgers07; 07-15-2016, 04:25 AM.

    #2
    In this case, Dave Ramsey's method works initially because it also happens to be the highest interest rate. Pay off the $2,500 loan. Then the $16,000 loan. Then the $50,000 loan.

    The car is a "cash suck"? There's a simple solution to that. Ditch the car! Sell it ASAP and replace it with something much more modest. You can get a perfectly good used car for $5,000. That would instantly reduce your debt by $9,000 assuming you can break even on the sale.

    Work all the OT you can get, live lean, and you can clean this up soon enough.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

    Comment


      #3
      If your time frame is short is probably doesn't matter much. I do think the $2500 loan would be great to start with.

      There's a great calculator at What's the Cost. Make sure it shows in dollars!
      My other blog is Your Organized Friend.

      Comment


        #4
        Originally posted by creditcardfree View Post
        If your time frame is short is probably doesn't matter much.
        This is true ultimately. If you are going to aggressively attack the debt, the order really doesn't make a big difference. It might be a difference of a couple hundred dollars in interest or an extra month or so to get debt free. It isn't a difference of thousands unless you drag out the repayment over many years.
        Steve

        * Despite the high cost of living, it remains very popular.
        * Why should I pay for my daughter's education when she already knows everything?
        * There are no shortcuts to anywhere worth going.

        Comment


          #5
          Just exploring another option based on the info provided.

          For each debt item, have you figured out how much interest remains to be paid over the life of the loan (ie. amortization schedule for each)? knowing each loan term would be helpful for us to advise.

          Depending on the interest remaining and given your current 401k balances and age, you may want to find a balance where you increase your contributions and pay off your non-mortgage debt over a slightly longer time frame (extra 1- 2 years say). 5%, is that getting the full company match if there is one??

          I do agree with the need as you mentioned to live a little in the house first to see how your expenses play out.

          The car does eat up a lot, but if you're going to keep it for a really long time it might be worth holding onto.

          Comment


            #6
            Originally posted by disneysteve View Post
            In this case, Dave Ramsey's method works initially because it also happens to be the highest interest rate. Pay off the $2,500 loan. Then the $16,000 loan. Then the $50,000 loan.

            The car is a "cash suck"? There's a simple solution to that. Ditch the car! Sell it ASAP and replace it with something much more modest. You can get a perfectly good used car for $5,000. That would instantly reduce your debt by $9,000 assuming you can break even on the sale.

            Work all the OT you can get, live lean, and you can clean this up soon enough.
            "Cash suck" may have been a bit dramatic. By that, I just meant 376 going each month is a struggle to watch. Selling is not an option in DW's eye as it's DW's car and she wouldn't entertain the idea, nor is it so exorbitant it will make us go broke. She's one to drive a car into the ground so we'll have it for many many years to come.

            Comment


              #7
              Originally posted by Jluke View Post
              Just exploring another option based on the info provided.

              For each debt item, have you figured out how much interest remains to be paid over the life of the loan (ie. amortization schedule for each)? knowing each loan term would be helpful for us to advise.

              Depending on the interest remaining and given your current 401k balances and age, you may want to find a balance where you increase your contributions and pay off your non-mortgage debt over a slightly longer time frame (extra 1- 2 years say). 5%, is that getting the full company match if there is one??

              I do agree with the need as you mentioned to live a little in the house first to see how your expenses play out.

              The car does eat up a lot, but if you're going to keep it for a really long time it might be worth holding onto.
              That's something we've considered. It's tough for me to do that only because I'm debt aversive and I don't actually have any debt, it'll the DW's student loans. I'd like to just get it over with but I know financially it might make sense to sock away extra. We could both easily max out our Roth's and with 401k we'd be right near 15% retirement savings a year. I'll just run a bunch of numbers and see what we can tolerate.

              Comment


                #8
                Congratulations to you both on this newest milestone of homeowner. I presume the $ 2,500. listed is a base EF. Can you verify that both you and wife are collecting all available matching retirement contributions from respective employers?

                I suggest running a spreadsheet on monthly expenses as houses have an amazing ability to run up seemingly smallish expenses that add up to amazing totals. I hope you've looked as easy reductions. Several agents posting on SA have mentioned the higher FICO scorers get the best rates for combining home & vehicle insurance, the importance of annual review and appropriate deduction. Is there any option to modify/reduce cell phone costs?

                Have you worked out how many mortgage payments will be needed to eliminate PMI? I wonder if you'd consider applying any reductions you identify and possibly a slice of job #2 income to mortgage principal to rid yourself of PMI faster.

                Comment


                  #9
                  Originally posted by snafu View Post
                  Congratulations to you both on this newest milestone of homeowner. I presume the $ 2,500. listed is a base EF. Can you verify that both you and wife are collecting all available matching retirement contributions from respective employers?

                  I suggest running a spreadsheet on monthly expenses as houses have an amazing ability to run up seemingly smallish expenses that add up to amazing totals. I hope you've looked as easy reductions. Several agents posting on SA have mentioned the higher FICO scorers get the best rates for combining home & vehicle insurance, the importance of annual review and appropriate deduction. Is there any option to modify/reduce cell phone costs?

                  Have you worked out how many mortgage payments will be needed to eliminate PMI? I wonder if you'd consider applying any reductions you identify and possibly a slice of job #2 income to mortgage principal to rid yourself of PMI faster.
                  No, the 9500 and really 10k is our EF (which maybe is too meaty) and the 2500 is just money that is sitting in a savings account with no identified purpose. We are pretty good at minimizing expenses (but of course we can get better) and I use Dave Ramsey's Everydollar website/app to keep track of those things. Our home/car rates are good and exploring around hasn't revealed any lower rates.

                  One thing I didn't mention is we also have another 10k sitting around that my parents gave to use to help with the home purchase and all that stuff. They haven't said they want it back, but I don't want to not pay the back so that's another 10k I could potentially spend and build back up if they really want it back.

                  I have not looked into the PMI thing, but it's probably in all of the paperwork about our mortgage we were given by the bank. I had considered it but I think it would make sense to eliminate some of the debt before tackling the mortgage hard. But maybe it wouldn't. Hence why I've come here for advice

                  Comment


                    #10
                    Would DR be disappointed that you have $22,000. 'sitting around,' unspecified? I am of the opinion that every dollar should have a job. I hope you'll work out what you actually need as an EF; a rock bottom sum needed for 3 months basic expenses.
                    Since you asked for opinions...

                    With interest rates so abysmal, undesignated sums decrease buying power. Do you fund a ROTH? That $ 10K can increase in value until requested or it's needed. You might consider designating a set monthly contribution to reflect 1/12 of 1% of your home's market value for long term updates, upgrades and repairs in some type of low cost Index ETF for example.

                    Personally I abhor paying interest. I'd snowball the debt listed from smallest to larger sum, having 1st reviewed the PMI details.
                    Last edited by snafu; 07-21-2016, 07:51 AM.

                    Comment


                      #11
                      If you have $2500 just sitting around for you don't know what, why don't you take it and knock out the $2500 student loan altogether? If it has no purpose, give it one and fully rid yourself of one debt right out of the gate.

                      Comment


                        #12
                        Yes I agree you should pay off your debts first.

                        Comment


                          #13
                          Just to add a bit of frustration to this, is my boss for Job 2 just told me that he's going to have to cut my consulting fee from 50% to 35% per evaluation which means I'll be losing about 23.35 per evaluation (each evaluation takes about one hour with another hour for writing) so over $10/hour I'm losing and I might do up to 7 evaluations a week so a potential loss of $140/week. I'm not quite sure what I'll do at this point. Job 1 is high stress at times and I was hoping to do more at Job 2 but that plan is probably not viable. Funny enough, OT from job 1 and regular rate at Job 2 all come out to just about the same $30/hour. May pick up other responsibilities at Job 2 which works out better financially for me but is less fiscally helpful for the clinic as a whole. Not sure what I'm going to do at this point.

                          Comment


                            #14
                            Originally posted by rutgers07 View Post
                            Just to add a bit of frustration to this, is my boss for Job 2 just told me that he's going to have to cut my consulting fee from 50% to 35% per evaluation which means I'll be losing about 23.35 per evaluation... Not sure what I'm going to do at this point.
                            did you pay off this one?
                            1 - $2500 @6.9% (64/month)

                            You did talk about some decent amount of cash sitting around. you could try to work on this one as well - maybe put 8k towards it now??

                            2 - $16,000 @6.9% (185/month)

                            assuming that the income loss wasn't needed for the basic expenses.

                            what is the status of the cell phones - are you able to switch at this point?

                            Comment


                              #15
                              Originally posted by Jluke View Post
                              did you pay off this one?
                              1 - $2500 @6.9% (64/month)

                              You did talk about some decent amount of cash sitting around. you could try to work on this one as well - maybe put 8k towards it now??

                              2 - $16,000 @6.9% (185/month)

                              assuming that the income loss wasn't needed for the basic expenses.

                              what is the status of the cell phones - are you able to switch at this point?
                              $2500 is not paid off yet, but money is still there. I'd been unsure but should probably pull the trigger and get rid of it. I don't have 8k unless I pull from my EF which I won't do. This is our first winter in this new home and it can get quite cold here (Vermont) so we want to see how it goes before I can use that fund. The income loss only really affects how much additional I can put towards debt, not needed for basic expenses. We're well covered with both of our salaries before OT and Job 2.

                              Cell phones also not switched yet. No real excuse for that yet, just haven't gotten around to it with a lot going on this summer. I did cancel her gym plan which frees up another $50/month though.

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