Savings/Loan Payoff/Home Buying Priorities

[DaFace]

Just stumbled across this forum, and it seems like a great resource for people like me trying to get a handle on personal finances. I hope you don't mind a n00b immediately coming in and asking questions!

My wife and I are recent college grads, and we're finally starting to be able to save our money rather than spend it all on school. So, here are the high points of where we're at:

• $8k on a car loan @ 8%
• $30k on student loans at 6%
• Credit card debt is effectively zero. (We use one for all purchases for the rewards, but pay it off each month so no interest.)
  
• $7k in savings @ 3.5% APY

I struggle with putting money into savings, which yields only 3.5%, when I could be paying off the car loan at 8%. On the other hand, we'd really like to be able to buy a house in the next few years, so we're really trying to save up for a down payment.

My main question is, given that our primary goal would be to get out of an apartment, how should I prioritize our savings/debt payoffs? Should I dump the car loan ASAP, meaning we'd have to save an extra $8k on the downpayment eventually? Or pay the minimums on the car loan while socking the rest into savings for the downpayment? Or is there something else I'm completely missing (I'm sure there is).

Thanks for any suggestions or advice.

[MiikeB]

Really need more information to give advise.

How much money do you have to put towards debt or savings each month? What is your monthly income/expenses?

[jIM_Ohio]

Welcome/

My general advice is set aside 20% of gross pay for financial independance. Then learn to live on 80% of gross for day to day expenses.

How you allocate the 20% depends on life, my general advice is to
a) fund 401k up to match
b) get out of cc debt
c) set aside 15% to long term goals and 5% to short term goals. ALWAYS fund long term goals first.
d) keep other debt to a minimum.

Some comments specific to you- you do not have any glowing problems. 6% on student loans is not bad (mine were 8-9% 12 years ago). 8% on a car loan is steep. But as long as you are not accumulating more debt, the two you listed will be blips on the big picture looking back 5 years from now.

Here is what I would do:
1) round up on the car payment. If $390 send $400, if $405 send $500. Start putting a dent in the debt... a little now will make a HUGE difference. I remember sending $200 to a $190 student loan payment and that reduced payment considerably in 12 months.

2) create a timeline
start at today
list when car is paid off
list when student loans are paid off
list when you think you want to buy a house
list when you think you will retire (use age 65 or 68 if you have not thought this through).

Then list the amounts it will take to reach that time goal.

For example if you owe 30k on student loans, and they are paid off in 10 years, calculate or estimate the 10 year interest payments- it will probably cost you 60k to pay off the 30k for example.

Do same with car- noting that the shorter time period will reduce interest paid (even though rate is higher than student loans).

List a 25% down payment for house. 20% goes to house, 5% goes to closing and moving. If you don't know house prices in your area, window shop and see what a new construction house costs now. Doesn't cost you anything and will give a price range for what you want.

Most of money management is about making simple little decisions which are good, and more importantly avoiding bad decisions (like piling up debt).