Some budget/debt advice needed

[iliketosavemoney]

Hi all,

I'm trying to figure out how to get rid of my debt quickly.
My debt consists of:
Mortgage 133,000 @ 3.375%
Car Loan 10,900 @ 4.87%
Student Loan 10,200 @ 2.25%

I contribute to my company's 401k to what they match and max out my Roth IRA.
Also I am able to save around $500 a month in my savings account.

I did some research and it seems I shouldn't stop contributing to 401k and and Roth IRA.
I only have about $3000 in savings and I keep reading I should have a 3-6 month emergency fund but I have a credit card that I can utilize with 0% balance transfer and $0 in fees for 15 months if I ever need emergency money.

I guess my question is should I stop saving and put my $500 a month into paying off one of my loans (I'm assuming car or student first)? Getting rid of one big loan would be a big mental burden off my shoulders because I hate being in debt but in my situation, would it be safe?

Any ideas/suggestions are greatly appreciated!

[bjl584]

I would keep saving until you have a minimum of a 3 month Emergency Fund. A Credit Card should not be treated as an Emergency Fund. Once you have your EF fully funded start paying off the car with any and all extra money. Student loans next, then the mortgage. Keep contributing to retirement all the while.

[YLTL_Dan]

I think it comes down to a matter of intensity. If you are serious about getting out of debt, I'd go with the Dave Ramsey plan (below). If you're ok with the debt sticking around a little longer, then I'd go with Brian's advice. Personally, I went the Dave Ramsey route and attacked my debt before I had a big emergency fund.

If you cut out your Roth contributions for now and lowered your 401k to the amount matched, it sounds like you should have an extra $1,000 - $1,500 each month to pay off the debt... with that you could be debt free besides the mortgage in 16-18 months and then kick your saving and investing back up.

Step 1: $1,000 In An Emergency Fund
Step 2: Pay Off All Debt With The Debt Snowball (excluding mortgage)
Step 3: 3 To 6 Months Expenses In Savings
Step 4: Invest 15% Of Income Into Roth IRAs and Pre-Tax Retirement Plans
Step 5: College Funding
Step 6: Pay Off Your Home Early
Step 7: Build Wealth And Give!

[iliketosavemoney]

Brian and Dan, thank you both for your advice!

[kv968]

I would keep saving until you have a minimum of a 3 month Emergency Fund. A Credit Card should not be treated as an Emergency Fund. Once you have your EF fully funded start paying off the car with any and all extra money. Student loans next, then the mortgage. Keep contributing to retirement all the while.

All great advice except maybe for the car/student loan.

Is the student loan fixed for the life of the loan or can it reset at some point? If so, you might want to pay that one off quicker. If not, then I'd go with Brian's suggestions.

[kork13]

As Brian said, a credit card is DEFINITELY not a plan for "emergency money." An emergency fund is what you want in order to prevent you from going into credit card debt.

None of your interest rates are crushing (10%+), so you don't necessarily have to race to get them paid off immediately, and you do want to keep building your EF if possible. So personally, I would reduce your monthly cash savings to perhaps $100/mo, then roll the remainder against your car loan. Once that's gone, put everything against your student loan. All the while, you'll slowly be building your EF safety cushion.

I'd also recommend that you stay the course with your retirement savings. Max your Roth, and contribute to the 401k up to the point of the match (but no more). With long-term investments like that, more time invested is money in your pocket.