Add to Emergency fund or extra to debt reduction

[crazydoglady]

Hi all,

If you had $1500 to play with, would you build up your emergency fund, or pay down debt?

We are already planning to put $1000 of our tax refund towards DH's highest-interest student loan. We are close to paying this off; including this $1k, it will be paid in full by March 2017.

We are considering putting another $1500 of the refund towards our Emergency fund.. but I don't know if we should maybe just put that towards other debt instead?

Background: Current emergency savings is $11k, which is just about 2 months of living expenses without altering our lifestyle all that much. DH and I both work in steady/stable jobs, and also have a good chunk of savings allocated towards upcoming vacations which we would obviously cancel and could rely on that money as well in an emergency.
Our home is newly renovated (furnace, appliances all are new within 2 years, roof is 15 years old, metal type which we are told lasts 30-50 years), cars both in decent shape, under 10 years old -- basically, I can't foresee anything major going south but of course, random things do always come up ..

Debt (Excluding mortgage)
school 1: 3,500 @ 7.8% - this is the one that we will have done by march including the 1k from tax refund we are planning on
school 2: 21,000 @3.75%
school 3: 24,975 @ 3.75%

car: 6,000 @ 5%

So our initial plan was/is to finish off school #1 by March, then work on the car. We are planning to snowball the school loan payment as well.

Would you advise to continue to build the emergency fund by 1500, or pay off the debt sooner [either school or car]?

[FLA]

I would put it toward the debt since you have a decent EF and vacation money you could use.

[StormRichards]

I agree with FLA. You are both under 30 and presumably in good health. You have vacation money as a backup to your EF. Here is my recommendation.

1. Pay off school #1
2. Pay off car
3. Build the EF to a more suitable amount
4. Snowball remaining student loans

[Jluke]

List out your monthly payments for each of the loans

I would be tempted to focus on the student loans instead of the car loan.

Your EF is good, could be better but the debt should be a priority. Maybe add $100/month to the EF when focusing on debt.

How are you saving for retirement - 401k or other? IRAs?

[crazydoglady]

List out your monthly payments for each of the loans

I would be tempted to focus on the student loans instead of the car loan.

Your EF is good, could be better but the debt should be a priority. Maybe add $100/month to the EF when focusing on debt.

How are you saving for retirement - 401k or other? IRAs?

School loan 1: 225
School loan 2: 220
School loan 3: 185

Car: 240

The idea with the car is it is reasonable to get rid of that this year ( within a few months) and free up that monthly payment, and save that for a down payment on the next car. Even if we chose to spend the rest of the tax refund on the emergency fund, school #1 will be done by end of March, and the car then will be done by end of July. Just seems to make sense to knock that out within the next 6 months, right?

I contribute 9% with employer match to a 403b. DH contributes ?% to a 401k and also a pension through his employer. We hope to open IRAs each next year -2018..(wanted to focus on debt and building savings for 2017)

Also we will each have two extra paychecks this year, so we could use those to build up emergency fund too.

[Jluke]

Thanks for those additional details.

Based on the monthly payment and how quickly you are able to pay off the car loan that is a good plan.

That extra $465/month will really help you moving forward.

One other comment on the IRA. Remember that in 2018 you have until tax day (15-Apr-2018) to still contribute to a 2017 IRA so you may have a chance to contribute some money towards 2017. After tax day then contribute to 2018.