Indecisive

[matt58]

Looking for some advice/ideas:

30 years old
Single
Annual Income $90k
Retirement-401K 34K


Debt
1st Mortgage 175K remaining at 5.6%
2nd Mortgage $5200 remaining
Credit Card $7K
Total debt/month is $1500

I have $32K in my checking account. My salary meets my monthly expenditures. I am aware I need to implement a savings strategy and do something besides let my money sit in checking. When it comes down to decision time on what type of savings/investing to do and what debt to eliminate (and how to prioritize), I am indecisive and can't decide on a strategy.

Thoughts?

[photo]

2nd Mortgage $5200 remaining
Credit Card $7K

I have $32K in my checking account.

Are the 2nd mortgage and credit card debt both at no-interest? With $32,000 in the bank, they'd better be!

[matt58]

They are not.
The CC is 18%. Not sure the rate on the 2nd (I think it is the same as the first-5.6%).

[photo]

They are not.
The CC is 18%. Not sure the rate on the 2nd (I think it is the same as the first-5.6%).

Are you serious? Why on earth would you pay 18% and 5.6% on a few thousand dollars of debt when you could easily pay it off?

This must be a joke.

[KTP]

If your checking account is paying more than 24% interest, then I would recommend keeping the credit card debt and continue paying the minimum while you let your checking account grow. I used 24% because you are probably in the 28% tax bracket, thus you will need to earn 24% before taxes in your checking account to have 18% after taxes.

A very big congrats on finding a checking account with this high of a yield. Mine only pays me 0.2%.

[kork13]

Sarcasm aside, you should definitely pay off the credit card immediately. It's costing you WAY too much in interest. That will bring your cash on-hand to $25k.

How much would you say your expenses are every month? Assuming your employment situation and health are good and stable, you should keep at least 6 months' expenses in a cash account (checking, savings, or money market... CD's or similar if desired) as an emergency fund to cover you in the event of something unexpected. So reserve (and build up) that $25k as required to maintain your EF.

From there, you should pay off your 2nd mortgage as soon as you can, simply because it's a low balance and it can save you the 5-6% interest costs.

At that point, look through your expenses and determine where you can trim them down. It sounds like you currently don't have much surplus each month (sounds like expenses = income....which isn't good). Once you trim your costs and eliminate those two debts, you can develop your saving/investing plan based on your goals, the money you have available every month, and your personal acceptable level of risk.

So the immediate questions for now:
1) What are your savings goals? Retirement, higher education, investment property purchase, car purchase, travel, general savings, .... ?
2) How familiar are you with investments (stocks, bonds, mutual funds, ETF's, etc.)?
3) Do you have any idea of what your risk profile might be? Whether you would want to be aggressive with your investments (higher risk, higher potential gains), or conservative (lower risk, lower returns), or somewhere in between?
4) Do you have any sort of retirement account besides your 401k (like a Roth or other type of IRA)?

[jpg7n16]

1 - pay off the CC in full. Keep it at a $0 balance going forward. Use it, sure - but pay off each month. You need don't to carry a balance to benefit your credit score.
2 - pay off the 2nd in full
3 - if staying in the house for a while, see if you can refi home down to lower 4's (use some of cash on hand to pay closing costs)

After those are accomplished, I'd build back to 3-6 months max in cash. Any excess cash should be used for debt elimination or investing.


I too would like to hear answers to kork's questions before deciding where to invest.

Also add to them:
- Does your employer match on the 401k? (If so, start doing at least that amount immediately)

[Slug]

Yeah, everything JPG said. Congrats on building up that amount of money, but now it's time to put it to good work. These recommendations are a no-brainer. The sooner you take action, the better off you'll be.

[Petunia 100]

Good job on having more income than expenditures.

1. Pay off your credit card. Today. Don't wait for your next statement.

2. Pay off your second mortgage. Today. Don't wait for your next statement.

3. Look into a refi on your first. 30 year fixed is at 3.875 at the moment. You can do even better on a 15. Consider which will be better for you.

4. Open a Roth IRA. It is not too late to contribute 5k for 2011. You have until April 17.

[MonkeyMama]

I agree with the others, though it might make more sense to try to put max into 401k than worrying about a ROTH. (I can tell your tax bracket is *ouch*?).

One other question - what is the value of your home? - are you upside down? I'd think knocking out the cc debt and 2nd mortgage would be a priority, but if you are upside down, gaining some traction/equity might be more important than other financial goals (*after* the cc & 2nd). I mean, it might be worth a 3% interest rate if you can get in a position to refi. (I think it's safe to assume anyone with a 5.6% interest rate can't refi for some reason? Just not sure. & if you are upside down $200k versus $50k, well, that's a whole other thing).