Tax Refund Time!

[jIM_Ohio]

Re: Tax Refund Time!

approx 24,000 (car)
36,000 student loans
about 7,000 credit card (not paying on any - all VERY OLD accounts that have been charged off) all recent cc's have been paid off and closed.

Thanks

G

OK this changes the solution somewhat.

Pay off the 7k now. You have an income tax return. 100% of this goes to old debt... car is not the problem.

24k car is probably a higher interest rate than 36k student loans. Guessing based on experience... Whichever has the higher rate, I'd pay that off. factoring in the student loans are tax deductable (to a point), I would work on the car. 6% is a reasonable return... more than most savings accounts and less risk than stocks.

You cannot afford to be getting a 6k tax return with 24k of car debt. You are giving the government free money, and it's costing you whatever interest rate you are paying on the car (6%?). Adjust withholdings to give you an extra $200/month for car. Depending on how long the loan is for, this should pay off car 1-2 years sooner. This will be a 6% immediate return on your decision (or whatever interest rate you are paying on the car).

There is $300/month extra from withholdings. If you want to spend some of this, I could see merit to that. I would then set up an automatic deduction to an IRA (Roth is the suggestion). $200/month to Roth and $100/month to spend sounds reasonable. If you are worried about spending the money, use the 7k tax return to open a new bank account. Adjust your withholding allowances to get the $500/month into your paycheck into this account. Might want to add in amount of car payment too. Then send $500 from each paycheck to this new bank account. DO NOT get debit or ATM card for this account. Once account has $7500 in it (tax refund+one months pay) pay off the credit card. Then next month, set up so the car payment+$200 is deducted from account automatically. And the Roth IRA is set up to come out of this account automatically.

This assumes the rental is cash flow positive. If the rental unit is NOT cash flow positive, dump it, or invest $300/month into it to make it cash flow positive. Assuming you know enough about taxes, are you depreciating the rental for a tax deduction? A you deducting the interest and taxes for the rental? If you are not, seek a tax professional or dump the rental.

I don't see the student loan debt as a major issue... but getting cash flow positive on the rental to me is priority 2 after paying off old CC debt (priority 1).

[autoxer]

Re: Tax Refund Time!

Though getting out of debt is a priority...it is not my first priority...I have to start saving for dd's education...my car loan/student loans are not hurting me right now (I'm caught up on both and have those under control)

I am looking ahead...being debt free is great but if I only have my income dd won't have a chance of going to college...I need additional income...

Thanks
G

You want to start saving for dd's education while you have $36k in student loans. And you want to liquidate a retirement account to buy a rental property for extra income so you can save for dd's education?

dd can always borrow money to go to school, but you can't borrow money to retire.

[jIM_Ohio]

Re: Tax Refund Time!

You want to start saving for dd's education while you have $36k in student loans. And you want to liquidate a retirement account to buy a rental property for extra income so you can save for dd's education?

dd can always borrow money to go to school, but you can't borrow money to retire.

I agree with this... I am not sure the retirement account was what would be liquidated.

OP needs to give a more complete single post disclosure of what is where (as far as what a CREFF acount is, how long car payoff is, and what interest rate is on the car).

OP appears to be making "emotional" decisions. "I want this." "I want this too." With regards to rental and child's education. But is overlooking how much the 6k income tax refund is costing him (she'll pay taxes on the 6k next year, and he's paying 3-6% for the car above what he "paid" for it.)

She could make her money work for herself more than it is now.

[creditcardfree]

Re: Tax Refund Time!

OP appears to be making "emotional" decisions. "I want this." "I want this too." With regards to rental and child's education. But is overlooking how much the 6k income tax refund is costing him (he'll pay taxes on the 6k next year, and he's paying 3-6% for the car above what he "paid" for it.)

Oh, you can say that again. Time to save is a woman. She has posted here before.

I'm glad to see you are finally getting ahead on your car payment with this tax refund. I know it has been a problem for you since August. I also think that it's great that you are putting the remainder to debt.

I absolutely would not pull money out of a retirement account to buy rental property to fund my daughter's education. Even if it is not a retirement account, I think you have enough on your plate without being a landlord.

The main thing you should consider since the account is not doing well, is finding a different investment to put the money in...where it can grow at a faster rate without a lot of time on your part. If it is a retirement account, it can be transfer to another mutual fund at another company with no tax implications. What kind of account is it? Is in in an annuity with a back end fee?

Don't do anything without getting all the information just because you are desparate. Your daughter will go to college regardless if you have the money saved. People do it everyday. Think scholarships, student loans, she can work and you can work to get it done when that day comes.

Right now you need to handle your own finances...so you can be an excellent example to her. Nice to see you back. Sorry I can't be supportive in your property endeavor.

[disneysteve]

Re: Tax Refund Time!

Though getting out of debt is a priority...it is not my first priority...I have to start saving for dd's education...

I would strongly reconsider those priorities. Getting debt free is far more important for your personal financial well being and your future. And remember, once you are debt free, you will be able to help DD with college out of current income since it will no longer be going to make debt payments.

I am looking ahead...being debt free is great but if I only have my income dd won't have a chance of going to college...I need additional income...

Thousands of kids go to college with zero parental support. How do they do it? They choose reasonably priced state schools. They get jobs at nights, on weekends and during school breaks. They borrow money just as you did through student loans. It simply isn't a good idea to dig yourself deeper and deeper in debt just to allow you to put some money aside for your child's college education.

Do you need additional income? Maybe. But the way to get it does not involve spending 40K on a rental property. If you feel you need more income, you need to find a way to earn it that doesn't cost you money upfront.

Also consider that at 12, your daughter is old enough to take a Red Cross babysitting certification course. If that is something she is interested in, that's a great way for her to get some work experience and start earning some of her own money for things that you are paying for currently and starting to put some money away for college. My daughter is 11 and is looking forward to doing this next year. And my neice, who is a junior in college, earned several thousand dollars babysitting when she was a teen.

[jIM_Ohio]

Re: Tax Refund Time!

Though getting out of debt is a priority...it is not my first priority...I have to start saving for dd's education...my car loan/student loans are not hurting me right now (I'm caught up on both and have those under control)

I am looking ahead...being debt free is great but if I only have my income dd won't have a chance of going to college...I need additional income...

Thanks
G

I missed something the first 3-4 times I read this thread. "I need additional income".

I work two jobs. Software by day (pays the bills) and soccer coach by night (gives me beer money, vacation money etc...). A second job which brings in even $50/week is a good thing.

If you have a rental property, can you disclose how you paid for it (or are paying for it?). You can get ahead renting, but everything I have researched suggests if the unit is not cash flow positive, it will be a money pit. Meaning if property is generating income for you now, good. If income from property only breaks even, you are taking on "unrewarded" risk. Make sure you make money for taking on the risk (waiting to make money is not what I would advise).

Most people don't have an income problem... it comes down to priorities and spending. Like prioritizing the income tax return (to get into your paycheck) so you can pay down cars and have more income.

I am GUESSING you have 36k in student loan debt because you graduated with a 4 yr degree? This further assumes you have a decent job? I don't think "needing more income" is always a good way to think about a solution. But a second job might carry a better benefit than renting with less risk.

[kv968]

Re: Tax Refund Time!

If you have a rental property, can you disclose how you paid for it (or are paying for it?).

That's just it, the OP doesn't have the rental property but wants to purchase on for the "extra income". This IMHO is a very bad idea. With the debt you currently have, you don't need anymore headaches. Sure the property could work out great and you'd make a little extra income but, as others have pointed out, what happens when/if you can't find a tenant or it's not rented out for the entire year? That's just going to add to your current debt problem as you'll still owe taxes, upkeep and the like. I say definitely raise your weekly deductions and get at least some of that huge tax refund in your paycheck and use that to pay off some of the debt. I know you stated that you're not very good with saving and like that big check at the end of the year but if you're committed to paying off the debt you will find a way to make sure that money goes towards it. And as far as your DD's college fund goes, I'd say, as the others have also, that you have to get your financial situation under control before you worry about that.

[Ima saver]

Re: Tax Refund Time!

I had 3 rental properties. It was the worst mistake I ever made. My husband was constantly fixing things. We had to evict people, they tore the houses up inside. I finally sold all 3 of them for much less than i paid for them. It was the worst time of my life and I will never buy a house I am not going to live in. I don't mind buying vacant land.

[Snoopy2645]

Re: Tax Refund Time!

We are using ours to pay off dh's student loans I know he dont like that idea but its what needs to be done.

[Ima saver]

Re: Tax Refund Time!

I think paying off your dh's student loans is a good thing.

[timetosave]

Re: Tax Refund Time!

I just read through all the posts and am more confused than I was when I posted...

I am getting 7k back (a little less) from taxes. 1000 to an emergency acct. and the rest to debt.

I have a Retirement account that I am considering liquidating because I want to invest in a rental property (I get that nobody thinks that is a good idea...)

I have a state retirement acctount as well as a Fidelity account (in addition to the CREFF acct.) I don't need three...

My dd's school is VERY important to me. I want to be able to do for her what my parents denied me...no, I will do for her what my parents denied me.

I am assuming that the best thing to do is maybe liquidate the retirement account and using the 5k from taxes and put it all towards paying off my car?

And yes, I'm female

Thanks
G

[creditcardfree]

Re: Tax Refund Time!

Upfront I have to say that pulling money out of retirement accounts is very unwise and there are many financial professionals that would agree. Your $30K will grow to approx $600k in 30 years based on an average rate of return. That money you have already saved...is working for you. No one can borrow to pay for their retirement, but one can borrow for college.

You would be better off stopping any current retirement savings than to pull this money out to reach your daughters college goals. Have you thought about how much you think you need to save for her college? How much would that equal per month to get there in 6 or 7 years?

If I were you this is what I would do...

1) Use tax refund to get car current, save $1000 for EF and put remainder on debt. I'd probably put it on car debt first and worry about old debts later.

2) Stop current retirement savings and use that money to pay off the car and then the student loans. Only stop this if you think you can attack these and get out of debt in 2-3 years. You were already willing to cash in $30k...so I assume you would be willing to stop your retirement for a time.

3) Once debt paid off I'd start saving for retirement again and any extra to daughters college.

4) Consider taking out loans in your name when time comes to fund college education...if you can't save the money before then.

I've tried to tailor my ideas for you based on what I know about you and what your priorities seem to be. I think it is awesome that you want her to go to college and are willing to do whatever it takes to get her there. I'm sure you are feeling like there is not much time left, but there is time and there are many options for getting tution paid.

If you had all your debt paid off in 6 years, you would have several hundred dollars a month (maybe even $1000) to put towards college each year. So $1000 * 12 months is $12,000 you have each year to pay for college. Obviously we don't know what college will cost then, but you'll either have plenty or be a little short. If you are short you can take out a parent student loan.

Okay, just thoughts and ideas from the top of my head. I know not everyone will agree with me here, but I'm just trying to show other ways of obtaining the goals you want to achieve.

[disneysteve]

Re: Tax Refund Time!

I have a Retirement account that I am considering liquidating because I want to invest in a rental property (I get that nobody thinks that is a good idea...)

I am assuming that the best thing to do is maybe liquidate the retirement account and using the 5k from taxes and put it all towards paying off my car?

The first part of this is correct - nobody thinks liquidating your retirement account is a good idea.

The second part is incorrect because of the first part. You shouldn't liquidate your retirement account to pay off your car or for any other reason. That money is there for retirement and should stay there until you retire.

[jIM_Ohio]

Re: Tax Refund Time!

I just read through all the posts and am more confused than I was when I posted...

I am getting 7k back (a little less) from taxes. 1000 to an emergency acct. and the rest to debt.

I have a Retirement account that I am considering liquidating because I want to invest in a rental property (I get that nobody thinks that is a good idea...)

I have a state retirement acctount as well as a Fidelity account (in addition to the CREFF acct.) I don't need three...

My dd's school is VERY important to me. I want to be able to do for her what my parents denied me...no, I will do for her what my parents denied me.

I am assuming that the best thing to do is maybe liquidate the retirement account and using the 5k from taxes and put it all towards paying off my car?

And yes, I'm female

Thanks
G

I think you can fix many of your cash flow problems by taking home an additional $500/month and not get a large tax refund.

$500/month invested at 10% gives you 46k in 6 years. There is college fund. No selling needed.[/COLOR]

I would not cash out of a retirement fund. Leave it tax deferred. You might be able to borrow against it for education.

If your child is 12, she will need college funds at 18. Depending on her major and school choice, she might need $5, $5000 or $50000.

If my parents had paid my room and board, my college tuition would have been free (I co-oped from freshman-senior year and made $12k-20k per year thru co-op wages). I have a degree in Mechanical Engineering. Until you know what your child will be doing (maybe armed forces?), you should not put all eggs in a basket, or sell out one leg of financial portfolio (at a huge tax expense) for another.

What I would concentrate on is your immediate financial picture. I would NOT cash anything out for the possibility of something in 6 years. I don't think a rental property would give you the return needed for 50k of tuition in 6 years (that is a net of 8250 gain each year above expenses).

If you find a rental which profits $8250 per year (after taxes, mortgage, etc...), please e-mail me. I want a piece of that.

[creditcardfree]

Re: Tax Refund Time!

I think you can fix many of your cash flow problems by taking home an additional $500/month and not get a large tax refund.
$500/month invested at 10% gives you 46k in 6 years. There is college fund. No selling needed.

Oh, I would love to see you do this. This is a great idea. Based on what you keep saying, I don't think you will. It is amazing how our belief system can get in the way of our goals. I do wish you the best of luck in reaching them however!!