New here - looking for advice :-)

**Fairchild** · 06-18-2008, 05:10 AM

Yes, I would suggest to scale back your retirement to the company match of 4%. I would use this extra to tackle your debt.

I have to say that, first, I would SELL that Tahoe. Whew! I would get a MUCH cheaper car with a maximum of 3-year loan.

But, if you don't.... start a mini-emergency fund first (DaveR says $1000) then work on that car loan and then your 2nd mortgage. Then, you can finish your emergency fund and up your retirement savings.

I don't write much, but I sure do read a lot in this forum -- you've come to the right place!

**jIM_Ohio** · 06-18-2008, 05:34 AM

The advice depends on your comfort level. I am in a similar spot and choose to invest 16% of my income. I have less debt notes (no student loans), have two car payments and a 1st/2nd mortgage combination.

I see my issue as liquidity. I want cash on hand, not less debt. Here is my plan

1st mortgage 288k (probably owe 287k now- in year 2 of 30 yr fixed at 5.75%).
2nd mortgage 54k (probably at 53k now- in year 2 of 30 yr fixed at 7.x%).
Our house is valued at 372k (342/372=91% owned by bank/ 9% equity)
car 1- in year 3 of 4 year payment of $700/month 6.x%
car 2 in year 3 of a 3 year lease. My wife travels for work and requires high milage, so we lease and turn car in at end. $350/month.

We have a 3 month emergency fund, plus we are working on getting another 3 months expenses in a secondary emergency fund. The primary emergency fund with 3 months expenses is in 90 day CDs (3 90 day CDs maturing every 30 days). The secondary EF is in a mutual fund PRPFX, which has moderate risk, but returns twice what the CDs do, possibly more. My goal is to have 3-12 month expenses in the mutual fund (in addition to the CDs) before tackling debt further.

Investing wise I send 11% of pay to my 401k, wife sends 6%, the matched from our employers kicks in 4% for me and 3% for wife. I max my Roth IRA each year, and wife's Roth is at 60% of max (3k) per year.

I am 35 yo and expect to retire between ages of 53 and 68. The goal is to invest heavily now and let time erase the debt working towards a debt free retirement. We do not need to be debt free next year, we need to be debt free in 18 years. Keep your eye on the right goal.

The $700/month for car will be applied to second mortgage when my truck is paid off in 2010. Once the second mortgage is paid off, that will add to PRPFX position. The $400/month from 2nd mortgage will also add to this position. $1100/month hits the 12 month expense goal in about 1.5-2 years. Second jobs and tax refunds might get the PRPFX position to 3 months before end of this year anyway.

In mean time any new money we get goes to PRPFX account. Here is why:

The debts cost us between 5.75% and 7.x%. PRPFX can probably beat the low end debts, the 7.x% is a question mark, so eliminate the question and pay down the debt, but I would prefer more liquidity in today's housing market. Cash on hand is better than the bank getting their money back sooner, or me paying less in interest this year.

I will now pass onto you the advice I gave myself- invest heavily when you are young. The next 5-10 years is when you will get the most growth. My advice would be this- invest based on retirement planning and tax planning, then let other circumstances adjust the debt load.

1) Set a goal for 401k/Roth levels. 11k now, how about 250k in 10 years?
2) Set a tax goal- what was 2008 taxable income? If you were in 25% tax bracket (above $65100 married filing jointly), then increase 401k contributions (and lower the Roth contributions) to get below $65100. This way you pay taxes at 15% and not 25%. The difference is huge (10% return). Show me anywhere else in this picture where you earn 10% except the company match. Debt doesn't cost you that, house doesn't, students loans don't either.
3) Once you are on track to reach 250k goal and tax goal, then deal with the debt. I do agree it is high, the issue is more the repayment periods that the actual amount owed. Pay extra on cars, then send that money to student loans, then send that money to 2nd mortgage (that is payoff order).
I would NOT, emphasize NOT make debt free the priority, just make it a goal and work towards the goal after the other 2 concerns are dealt with first.

**aida2003** · 06-18-2008, 05:56 AM

Like Jim said, it depends on your comfort level with your debts. I personally am debt-averse, so my advice would be super conservative, IMO.

Also, it's hard to advice you because you didn't give us your current spending budget like the take home income, spending and what's left each month. Will your DW become a SAHM or will you need to pay for a daycare? Do you have an EF which is very important, IMO?

I'd choose between the car payments and the 2nd mortgage.
Sure I'd never have chosen to buy a huge SUV. If you don't want to sell it (you might be upside down on it, too), I'd speed up its payments unless there's a prepayment penalty.
Or I'd work on the 2nd mortgage.

Just my 2 cents.

**Nate417** · 06-18-2008, 08:11 AM

Thank you all for the advice. Sorry for the lack of information in my original post.

We do have a small EF of $1000.

My DW plans on continuing to work for the forseeable future, but she gets a great discount on childcare of only $56/week. We have put this aside using my dependent care account at work, so our take home pay already reflects this added expense.

The Tahoe was an emotional buy - however gas was only at $2.30/gal when we purchased it. Hindsight is 20/20. We have had it listed for sale for about a week and a half now. Only one call on it so far. Others like it are listed in my area for $37-38k (BB value is 38k). I have mine listed for $34 and owe about $27,500 on it. If I don't get any other calls by the end of July I will drop it to $30k.

Take Home Pay (includes deductions for 401k, insurances, FSA, and DC accounts):

$5059/month

Other expenses:
Auto Ins: $99/mo
Cell Phones: $98/mo
Utilities: ~ $250/mo
Groceries: $350/mo
Cable/internet: $106/mo
Misc expenses: $150/mo (oil changes - waste removal - life ins - etc)
Gas: $70/mo
Baby Supplies: $100/mo
Total: $1053

Total w/others: $3811

**feh** · 06-18-2008, 08:50 AM

I'm torn between keeping your retirement savings up and paying off that second mortgage. If I had to choose, I'd suggest paying off the mortgage, but hopefully you can keep a high (10%) savings rate going at the same time.

There's nothing like saving a lot when you're young. That money will compound and compound and compound, and one day you'll be very comfortable.

One other comment - I suggest you try to change your spending habits. It seems your house and Tahoe were purchased with almost no down payment at all, and for long terms. I realize you can probably afford the payments, but if you get in the habit now of living frugally and avoiding debt, you'll be rewarded.

**skydivingchic** · 06-18-2008, 11:23 AM

If your numbers are accurate, you should have over $1200 left over at the end of the month ($5059 income vs $3811 expenses). Where is that $1200 going right now? If you don't know, you need to spend a month or two tracking every single penny you spend. If you truly have that much money left at the end of each month, I see no reason to adjust your 401(k) contributions. Simply take that $1200 each month and use it to attack the debt.

**Scanner** · 06-18-2008, 12:31 PM

The double mortgage worries me and probably means you are paying PMI on one of your mortgages since you only have about 13% equity in your home.

So, yes, I would make debt reduction part of your financial plan.

I would focus on these debts in this order:

1. Second mortgage (secure your home)
2. Your student loans (tackle a long term, non-appreciating asset investment - your education)
3. The Tahoe (short term debt but a reasonable rate)

If you can liquidate your Tahoe and come out ahead, I'd do it and pick a more reasonable, non-emotional buy car to drive (a used car). If you absolutely need a big-a$$ed SUV (you haul horses, rocks, boats, etc), I don't see it as a high priority, if you intend to keep it until the wheels fall off.

**gamecock43** · 06-18-2008, 12:40 PM

no credit card debt?? you are already ahead of the curve

**ScrimpAndSave** · 06-18-2008, 01:26 PM

I don't have any advic...but you have definitely come to the right place!

**Nate417** · 06-18-2008, 02:07 PM

Originally posted by Scanner View Post

The double mortgage worries me and probably means you are paying PMI on one of your mortgages since you only have about 13% equity in your home.

So, yes, I would make debt reduction part of your financial plan.

I would focus on these debts in this order:

1. Second mortgage (secure your home)
2. Your student loans (tackle a long term, non-appreciating asset investment - your education)
3. The Tahoe (short term debt but a reasonable rate)

If you can liquidate your Tahoe and come out ahead, I'd do it and pick a more reasonable, non-emotional buy car to drive (a used car). If you absolutely need a big-a$$ed SUV (you haul horses, rocks, boats, etc), I don't see it as a high priority, if you intend to keep it until the wheels fall off.

Thanks for the advice! Just to clarify, there is no PMI on the mortgage, that is why we went with the 75/25 split mortgage instead of one overall 30yr note.

We did purchase the Tahoe used. The sticker on it was $52k, we purchased it for $36k owe $27.5k and hope to sell it for around $32k. Our plan is to get a 2002-2008 Subaru Forester for $10k or less.

No credit card debt. We had some at one point basically because we had to pay for our own wedding and didn't have enough cash to cover it.

To feh's point, I agree about controlling our spending habits. On the car and house we didn't put much down. Neither I nor my wife have ever been ones for delayed pleasure (we are instant gratification type personalities - but we are trying to control that).

jIM_Ohio - What great advice, thank you. A couple of quick questions. 1. what does PRPFX stand for? 2. are there any good investment calculators out there that anyone would recommend? 3. One thing I have always struggled with is determining how much money i will need at retirement; any good rules of thumb I should follow?

**JBL** · 06-18-2008, 06:09 PM

I recently sold off a car that was quite new and I realized I could not really afford. I did lose some money on the deal, but now have a budget that works. Something that helped me get the car sold off more easily was that I got the title cleared. I pulled a personal line of credit (at 13%) and paid off the car note. As soon as I got the title in my hands, I started advertising heavily. I then sold the car as quickly as I could, and turned the cash around to pay off the personal note. I ended up paying some money in interest this way but it made it a lot easier to get the car sold not having to hassle the potential buyer with title transfer difficulties. I know people who have sold off cars with liens, but it can be tricky. Another option would be to take the car to a subaru dealer and trade it in on a forrester. This would be the easy but more expensive way to do it.

Wishing you luck!

**JBL** · 06-18-2008, 06:11 PM

Another thought... If you can get your equity position in your home up to the 20% area you might be able to refinance the mortgage into something with lower interest. I am not sure what the rates are these days, but you can usually get the best rates if you have at least 20% equity.

**Nate417** · 06-19-2008, 03:12 AM

Originally posted by JBL View Post

I recently sold off a car that was quite new and I realized I could not really afford. I did lose some money on the deal, but now have a budget that works. Something that helped me get the car sold off more easily was that I got the title cleared. I pulled a personal line of credit (at 13%) and paid off the car note. As soon as I got the title in my hands, I started advertising heavily. I then sold the car as quickly as I could, and turned the cash around to pay off the personal note. I ended up paying some money in interest this way but it made it a lot easier to get the car sold not having to hassle the potential buyer with title transfer difficulties. I know people who have sold off cars with liens, but it can be tricky. Another option would be to take the car to a subaru dealer and trade it in on a forrester. This would be the easy but more expensive way to do it.

Wishing you luck!

Great tip, never would have thought about that. I will probably take this route over the trade in as I intend to purchase the forester at an auto auction as opposed to a dealer. Taking the hit on trade-in value is a difficult thing to swallow. But thanks for the tip, great advice!

**Tree0164** · 06-20-2008, 09:52 AM

Since you are familiar with the Dave Ramsey plan- I would walk up the baby steps.

1) Sell the Tahoe if you have to take a bit of hit-do it- I would drop it to 30k now. Once less hassle you have to deal with. also check out Drive Free, Retire Rich

2) I would drop the 401k down to the match of 4%

3) Once you get the cars paid off hit the student loans-get that off of your back.

If you wife is going to be leaving work-I would then tacke a 6 month Efund to help with going down to a one income family.

New here - looking for advice :-)