Need Advice..

[FoolFromAZ]

Hope everyone is fine. We have reduced our CC debt from over 50K to 40K. I still have car loan of 25.5K at 7.5%. Home loan (first mortgage 240K at 6.25% and second mortgage for 40K at 6.5%). My wife recently lost her job but found a new job within a week time but salary has gone down from 65K to 50K. Now our total income has come down to 160K.

I have rearranged our CC debt by moving some of my high intrest balance to 0% intrest that my wife got recently. now I have 30K cc debt at 5% and remaining 10K at 0%.

We have not contributed towarks 401K so far this year as we wanted to pay down CC aggressively. We have totally less than 10K on 401k as our employers dont match so we were never so keen on 401k.

Now Should we start contributing to our 401k or continue paying down CC debt. we have just started saving for emergency fund. we have 1K on EF so far.
our net income per month with no 401K contribution is 9K.

it comes around 6K to pay monthly bills which includes minimum cc payment. we have 3K to pay down our debt.

should I continue paying down cc? should I contribute on 401K, if so should I max out?
How about Roth IRA?

Please advice.

[disneysteve]

You are both eligibile to contribute to a Roth if you file jointly and your MAGI is under $166,000, so it sounds like that would apply here. If your employers don't offer a 401k match, I'd open a Roth for each of you and contribute to that. You can each put in $5,000 for 2008.

Even with your wife's pay cut, you guys still have a very good income and there is no reason you shouldn't be able to clean up this debt pretty quickly if you tighten the belt a bit. Have you gone over the budget in detail to see if you can trim that 6K expense number? Without seeing your numbers, I'd venture to say you could probably find at least a few hundred more that you could free up to use toward debt repayment.

Even if you don't, you've got $3,000/month to work with. In just over 13 months, that will pretty much take care of the CC debt. Pull out 10K for the Roths and that becomes just over 16 months. That would leave you with just the car loan and your home loans, which really aren't unreasonable given your income, though I hope the next time you need a car, you will think twice before spending that kind of money.

So I say fund the Roths, attack the CCs aggressively and work on trimming the spending by 10% or so. If you are willing to post your expenses, folks here are great at picking through them and pointing out places to cut back.

[FoolFromAZ]

Thanks for your response Steve. I have listed my monthly expenses below. I have put $200 for SRP (energy) but it does not mean we get $200 bill every month, only during the summer we get bills around 200 sometime over 200 too.
I was thinking of contributing towards 401k (max out) and also to max out roth ira. then we will have very little to pay off cc but once we have around 40 to 50k on 401k, we can borrow from 401k to pay off the cc debt that time. what do you say on that?

Cox Internet $74.95
house cleaning $75
SRP $200
Utilities $60
Gas $30
Pest Control $15
backyard maintenance $40
Dish $61.83
Day care $740
Cingular $80.15

Gerber Insurance $19.08
Security System $35.51
Home equity Line of credit $300
Chase Mortgage $2028
Honda Odyssey $540.02
HOA $58
Auto Insurance $167
All state motor club $10

Beauty Parlour $80

Car Oil Change/Maintenance $20
Car Wash $20
Car fuel $250
Groceries + Restaurants
+ Entertainment + Medical $800
cc min payment 400
$6104.54

[disneysteve]

I was thinking of contributing towards 401k (max out) and also to max out roth ira. then we will have very little to pay off cc but once we have around 40 to 50k on 401k, we can borrow from 401k to pay off the cc debt that time. what do you say on that?

ABSOLUTELY NOT! You should NEVER borrow from your 401k unless it is a dire emergency and there is no other possible place for you to get the needed funds. Avoiding bankruptcy is about the only decent reason to borrow from a 401k.

[disneysteve]

Comments on expenses:

You are paying $74.95 for internet and another $61.83 for Dish TV. Is that correct? If so, why is your internet so expensive? Around here, it runs $30-$40/month. Or does that include phone service. As for Dish, cut down to the basic package for $20-$30/month. Have you looked into a bundled service to cover phone, tv and internet?

I'm a little confused on utilities. You list SRP, which you said is "energy", but also listed $60 for "Utilities" and $30 for "Gas". Is SRP electricity? And what is covered in Utilities? Is that just water or something else?

I'm assuming Gerber is life insurance on a child. I'm a firm believer that the purpose of life insurance is to replace lost income if a wage earner dies prematurely. Unless your child is somehow supporting the family, I'd cancel that coverage and save yourself $19.08/month. And I don't see any life insurance premiums for adults on your list.

$10/month sounds high for the motor club. Have you checked AAA to see if they are cheaper? It is $58/year around here, half of what you are paying.

I'd like to see you break down the groceries/restaurants/entertainment/medical category. That is a lot of unrelated things being lumped together that may be hiding some good opportunities to reduce costs.

[jganem]

Contribute to Your 401 K

If you have your credit card debt under control and are making steady progress towards reducing it, I would contribute as much as you can to your 401 K. With an income of 160 K per year, a modest contribution of 10 K per year might only cost you 6-7 K when you account for all the tax savings. That is less than 5% of your net income.

Also money in retirement accounts often accumulates tax-free (depending on the type of account) and is off-limits to creditors. It will help build some a relatively secure asset. You don't say what your age is, but over 20-30 years, modest contributions can add up to a substantial amount of money.

[LivingAlmostLarge]

Definitely consider maxing out the 401ks. It will lower your taxes which can be huge. In your 25% bracket + state it's almost 1/3 less you are really contributing to retirement.

[FoolFromAZ]

Comments on expenses:

You are paying $74.95 for internet and another $61.83 for Dish TV. Is that correct? If so, why is your internet so expensive? Around here, it runs $30-$40/month. Or does that include phone service. As for Dish, cut down to the basic package for $20-$30/month. Have you looked into a bundled service to cover phone, tv and internet?

I'm a little confused on utilities. You list SRP, which you said is "energy", but also listed $60 for "Utilities" and $30 for "Gas". Is SRP electricity? And what is covered in Utilities? Is that just water or something else?

I'm assuming Gerber is life insurance on a child. I'm a firm believer that the purpose of life insurance is to replace lost income if a wage earner dies prematurely. Unless your child is somehow supporting the family, I'd cancel that coverage and save yourself $19.08/month. And I don't see any life insurance premiums for adults on your list.

$10/month sounds high for the motor club. Have you checked AAA to see if they are cheaper? It is $58/year around here, half of what you are paying.

I'd like to see you break down the groceries/restaurants/entertainment/medical category. That is a lot of unrelated things being lumped together that may be hiding some good opportunities to reduce costs.

74.95 include both internet and telephone. 61.83 for dish. yes we can reduce a bit on dish. but we spend most of our evening time and weekends watching TV. we have to see if we could downgrade the service.

yes SRP is for electicity. utilities include water and thrash. $30 for gas as we use gas for stove and washer.

gerber insurance for our daughter, when she goes to college after 20 yrs.

grocery : $350
restaurant and entertainment: $300
Medical (copay and medicine): $150

as our daughter goes to daycare, she gets virus pretty much every week. we go to doctor atleast once in a month for her.. sometimes twice.

[Seeker]

Congrats on paying down the debt and to your wife for finding work so quickly after losing the original job! Not easy accomplishments by today's economy.

I'm not going to repeat what others have already stated, but the below thoughts come to mind:

1)
New Hondas generally come with Roadside assistance for a good 5 years from the date of purchase. I'm not sure about your second car nor your daily driving habits; but your listed amount for car fuel is pretty small, so you probably don't drive too far.

Consider when you last used the motor club and whether or not you really need it.

2)
You probably don't want to view it this way, but most of your wife's income is going toward Day Care, Honda car payment, say 50% of the total auto insurance bill, Beauty parlor, etc.

Some women absolutely want to "work" and believe they'd be bored without doing so, but health-wise for your daughter and expense-wise, it may be better for her to actually be a SAHM for awhile.

That's a definite personal decision though and it would need to be analyzed from a cost/benefit perspective.

Also if your job is at risk, then I'd recommend leaving things as they are.

3)
If I owed $280k for house, $25k for auto, and had $40k of credit card debt, I wouldn't be paying others to: Houseclean, maintain the yard, nor wash the cars.

You might want to consider reducing (maybe every other month) or eliminating these expenses entirely by doing these tasks yourselves.

4)
Your Internet is a lot more expensive than ours (50%). We have DSL though our local phone company and pay $45-50 per month for local phone calls and DSL. For long-distance we use our cell phones and pay $82 for their service; similar to your Cingular.

5)
At first your $300 for entertainment seemed rather high.... but I don't honestly know what's included there. It amounts to $75/week.

Per week DH & i probably do like $20-30 and rarely over $100 per month -- that's together though and comes out of the "together budget."

We give each other "mad money" to do with as we will. If this $300 is also inculsive of this undisclosed or free-will spending money, then it's probably a reasonable amount per month.

6)
You don't state your ages, but saving for EF and for retirement needs to be made a priority as well. If your interest percentages are "fixed" and will not change, then your first priority should be to get your EF fund together (3-6 months expenses), and contribute your matched amounts to 401k at your workplaces. Yes, even before paying down the CC debt.

[disneysteve]

Consider when you last used the motor club and whether or not you really need it.

When you last used it really doesn't matter. This is like a form of insurance, one of those things you pay for each month and hope you never need. However, I would definitely switch to AAA because that membership gives you so much more than just emergency road service. You get all kinds of discounts, travel guides, maps and more, and it may cost less than what you are paying now.

[Seeker]

When you last used it really doesn't matter. This is like a form of insurance, one of those things you pay for each month and hope you never need. However, I would definitely switch to AAA because that membership gives you so much more than just emergency road service. You get all kinds of discounts, travel guides, maps and more, and it may cost less than what you are paying now.

I know what RA offers Steve.... but I disagree as far as whether or not it matters. It's a personal decision to buy it or not. There's no law that says you must pay for this "insurance."

To me, the fact that here in California we're not really ever in the boonies alone, means that we probably don't need it. But my needs are different from yours. My considerations are different.

And if the OP has Roadside Assistance with his new car, that may be an extra $10 that he really does not need to be spending at all. No?

Also AAA is outrageously overpriced in our state; and one benefit to Allstate's Motor Club program is that it's one price for both the H&W drivers. AAA charges double the cost if we want two drivers to be under this program. Allstate, too, offers maps, trip planning, etc. But again, this is in California; your state may vary.

[disneysteve]

Understood, Seeker. Around here, AAA is a good deal. $58 for the year. That's well worth it to us just for the travel guides we get from them. And hardly a year goes by without at least one flat tire. A couple of years ago, a neighbor was building an addition and there was junk all over the street. My wife got 5 flats in less than 2 months. We were sure glad we had AAA then.

[Scanner]

Our ins. co. offers free roadside assistance, in addition to being the cheapest and A rated - NJ Skylands.

Never had to use it but I am glad it is there for the wife. The only downside was at the time I bought the policy, to get the competitive rate, I had to pay a year up front.

[maat55]

I see a slew of luxuries that can go temperarly:

House cleaning 75.00
cox down grade ?
pest controll 15.00
gerber 19.00
security 35.00
Honda sell 541.00
beauty stuff 80.00
car wash do it yourself 20.00
resturants ?


Finances are a lifetstyle. You either earn and pay or buy and pay interest. Just because you have a good income doesn't mean you will prosper. I suggest you get on a real budget and pay off your debts. I also suggest that you HAVE money before you try to look like you have money. This means you should get out of debt and save money for your consumer goods and invest at least 10% of your income off the top.

Don't take my advice in the wrong way, you have the potential to do very well in life, don't throw it away on instant gratification. Good luck.

[FoolFromAZ]

Thanks everyone for the advice.
i am paying $10 for roadside assistance for my old camry. It is very old and not reliable anymore. I have to find out if I could reduce it to $5 per month.

Maat, I bot a new minivan recently about 3 months ago. I wish I had asked you guys advice before buying it. now if i try to sell it, i would lose nearly 3 to 4K right. do you still think its a right idea selling it? and another one for say 10k..