Need Some Advice

[eric448503]

I am not sure where this should go, so if it needs to be moved I apologize. I am about to receive a $60,000 windfall and not sure what the smart things to do with it are. I am 29 and my wife is 33. We have $0 student loan debt, about $2500 in revolving credit card debt, one auto loan at 0% that has about $16k and 4 years left at $333/month. A second auto loan that has about $30k and 66 months left at 0% at $454/month. We have no other outstanding debt as far as medical bills or anything of that nature. We have about $11k in personal savings and we both have retirement accounts in $40k-$50k range. We make about $85k a year between the two of us. We also have a baby on the way due in January. The lease on our condo is up in March and we would like to buy a home. My question to the community is, what should we do with the money? I would like to find a low risk method to grow some of the money. I also plan on keeping a few months worth of bills in a separate account in case of emergency. Do we pay off one of the cars to free up some more money every month to put into savings? I appreciate any and all help, let me know if more info is needed!

Thanks
Eric

[bjl584]

I'd be inclined to get rid of the auto loans. Even at 0% interest, you are still gaining over $700 a month in cash flow.

I'm assuming that you want some of that money to put toward a house?

[youshallliveinoverflow]

Car Debts

Eric,

I think it's great that you are considering your options with the money you are expecting. I believe the best solutions would be to get rid of the car debts that you. It seems that you have been pretty strategic with managing your debts. However, you may even consider the selling the cars and maybe downsizing to something more economical. I do not know if you live in a major city, if so, maybe keeping one car and catching the metro, which would save you money while helping the environment. Maybe, you should look into investing some of the money as well to build you a passive income. Best of Luck!

[autoxer]

I wouldn't rush to pay off 0% debt, if you are trying to buy a house. That windfall could allow you to put 20% down and cover closing costs.

If you feel that the car payment is a burden, then consider downsizing the car.

Here is another idea for the windfall:

• Start maxing out your retirement accounts. Increase your 401k contribution to max it out at $17,500.
• While your take home pay will be lower, you can supplement that with small amounts of money from the windfall account.
• Jump starting your retirement saving could allow you to retire 10 years earlier than your current trajectory.

[Eagle]

I am not sure where this should go, so if it needs to be moved I apologize. I am about to receive a $60,000 windfall and not sure what the smart things to do with it are. I am 29 and my wife is 33. We have $0 student loan debt, about $2500 in revolving credit card debt, one auto loan at 0% that has about $16k and 4 years left at $333/month. A second auto loan that has about $30k and 66 months left at 0% at $454/month. We have no other outstanding debt as far as medical bills or anything of that nature. We have about $11k in personal savings and we both have retirement accounts in $40k-$50k range. We make about $85k a year between the two of us. We also have a baby on the way due in January. The lease on our condo is up in March and we would like to buy a home. My question to the community is, what should we do with the money? I would like to find a low risk method to grow some of the money. I also plan on keeping a few months worth of bills in a separate account in case of emergency. Do we pay off one of the cars to free up some more money every month to put into savings? I appreciate any and all help, let me know if more info is needed!

Thanks
Eric

Welcome to the forums!

*Income:
85k – so take home is probably around 5-6k?

*Expenses:
5-6k a month? If so you currently have in your personal savings 2 months’ worth of expenses. I’d be more comfortable with 3-6 months. We have about 5 months of savings in the bank right now for example

*Debt:
Revolving Credit $2500
Vehicle1 $16k
Vehicle2 $30k
Potential Mortgage? What price range are you looking at? Are you wanting to put 20% down on the house to avoid PMI?

*Assets:
Personal Savings - $11k
His Retirement Account - $45k
Her Retirement Account - $45k
Vehicle1 - $ value?
Vehicle2 - $ value?

[Eagle]

@ Eric

*Upcoming events:
-> Windfall 60k – I agree with Brian getting rid of both auto loans would free up $787 a month
-> Baby due in January – Things to consider: Baby expenses (clothes, diapers, wipes, car seat, baby crib) and insurance deductibles (typically you pay a deductible for Mom and baby; also any co-insurance up to a certain %; have you checked your insurance terms?)
-> Lease on condo up in March. How much are you paying now?
-> Purchase a home? What would a typical house cost in your area? What would be the projected monthly mortgage payment?

[eric448503]

I have considered paying off both auto loans, but that wouldn't leave much left. I live near Chicago and housing is not cheap at all. Buying a home in an area conducive to our commutes, would mean spending at least $215k, but we would like to find something cheaper without buying a dump. That's for a basic 1500 sq ft single family home with high property taxes, at least 6k a year. I am more inclined to pay off the 16k loan for the immediate 333/month and keep the remaining 46k. Both of the cars have been bought within the last year and are fairly new, so we won't be needing new ones for a decent amount of time. Even though it will be costing us more in the long run, I like the idea of having that money on hand to do with as we please. Our rent is $950 and we hope to keep our eventual mortgage under $1100/month with property tax included. Our monthly expenses are about $3600 a month.

We are in very good positions on both of our auto loans, especially since they were purchased brand new.
Vehicle1 - $24000 - 16k loan
Vehicle2 - $33000 - 30k loan

Do we keep the revolving debt, or are the cars enough?

[Bob B.]

You need a place to live. This windfall puts you in a good position to put down 20% on a nice home that you can stay in for a while. 43K down on the home leaves you with a 172K mortgage. At 30 years, and 4.25% int. that's a principal and interest payment of about $850.

You could:

Put 43K toward down payment on house
Keep 10K in savings to beef up your emergency fund to approximately 6 months spending
Pay off revolving debt with 2.5K
Keep 4.5K in reserve to cover house closing costs and new baby expenses.

[autoxer]

Do we keep the revolving debt, or are the cars enough?

If you are paying interest on the revolving debt, then you might want to pay that off immediately with the savings account. Don't even wait for the windfall.

We are in very good positions on both of our auto loans, especially since they were purchased brand new.
Vehicle1 - $24000 - 16k loan
Vehicle2 - $33000 - 30k loan

Car payments don't have to be a fact of life. Don't let the 0% interest fool you, they inflate the price of the vehicle to cover a kick back to the bank which covers the financing. You still have to pay for the cost of financing, but they juggle the numbers around so you don't see it.

If you are serious about buying a house soon, then you should hang on to the entire windfall. Paying off one of the cars may free up a little cash flow, but it ties up a lot of equity. If you want to truly free up some money, then you should reconsider your 'need' for two luxury vehicles. See Bob B.'s recommendations above this post. After putting 20% down on a $215k house, you will have a mortgage of $172k. $850/month PI, $500/month taxes, $100/month insurance and you are looking at a total mortgage of $1,450/month. You might want to budget another $200/month for maintenance and the utilities for a single family home will probably be higher than on your condo. Don't sacrifice the down payment, because paying PMI will make it even more painful.

[bjl584]

I have considered paying off both auto loans, but that wouldn't leave much left. I live near Chicago and housing is not cheap at all. Buying a home in an area conducive to our commutes, would mean spending at least $215k, but we would like to find something cheaper without buying a dump. That's for a basic 1500 sq ft single family home with high property taxes, at least 6k a year. I am more inclined to pay off the 16k loan for the immediate 333/month and keep the remaining 46k. Both of the cars have been bought within the last year and are fairly new, so we won't be needing new ones for a decent amount of time. Even though it will be costing us more in the long run, I like the idea of having that money on hand to do with as we please. Our rent is $950 and we hope to keep our eventual mortgage under $1100/month with property tax included. Our monthly expenses are about $3600 a month.

We are in very good positions on both of our auto loans, especially since they were purchased brand new.
Vehicle1 - $24000 - 16k loan
Vehicle2 - $33000 - 30k loan

Do we keep the revolving debt, or are the cars enough?

You may want to seriously consider downgrading the cars to something more affordable. You could clear the vehicle loans AND keep almost all of the windfall at the same time.

[eric448503]

If you are paying interest on the revolving debt, then you might want to pay that off immediately with the savings account. Don't even wait for the windfall.


Car payments don't have to be a fact of life. Don't let the 0% interest fool you, they inflate the price of the vehicle to cover a kick back to the bank which covers the financing. You still have to pay for the cost of financing, but they juggle the numbers around so you don't see it.

If you are serious about buying a house soon, then you should hang on to the entire windfall. Paying off one of the cars may free up a little cash flow, but it ties up a lot of equity. If you want to truly free up some money, then you should reconsider your 'need' for two luxury vehicles. See Bob B.'s recommendations above this post. After putting 20% down on a $215k house, you will have a mortgage of $172k. $850/month PI, $500/month taxes, $100/month insurance and you are looking at a total mortgage of $1,450/month. You might want to budget another $200/month for maintenance and the utilities for a single family home will probably be higher than on your condo. Don't sacrifice the down payment, because paying PMI will make it even more painful.

I am familiar with the inner workings of the car business as I used to be in it, that's how we are so far ahead. Neither of us have "luxury" vehicles and those will not be going anywhere. I am damn determined to not pay PMI and will certainly be putting a good amount of money down on a home. We will probably find somewhere a little further from our jobs than originally planned as the savings can become drastic.

[eric448503]

You may want to seriously consider downgrading the cars to something more affordable. You could clear the vehicle loans AND keep almost all of the windfall at the same time.

We already have downgraded both of our vehicles and that will not be an option at this time. They are nearly brand new and we enjoy them.

[autoxer]

I am familiar with the inner workings of the car business as I used to be in it, that's how we are so far ahead. Neither of us have "luxury" vehicles and those will not be going anywhere. I am damn determined to not pay PMI and will certainly be putting a good amount of money down on a home. We will probably find somewhere a little further from our jobs than originally planned as the savings can become drastic.

You may not be driving a mercedes, but some fraction of your purchase is a necessity and the rest is luxury. You certainly don't need a $33k car to get from point a to point b. You are paying more for a bigger engine or bluetooth or whatever. That part is discretionary.

Its good that your loans arent underwater, but i wouldn't say you are really far ahead when you still have 4 or 5 years of payments to make.

I love my cars too, but I was quick to sell it when I realized it was impeding my ability to save for a house.

[bjl584]

We already have downgraded both of our vehicles and that will not be an option at this time. They are nearly brand new and we enjoy them.

Keeping them is your choice, but remember that the $57,000 that you have tied up in loans would go a long way toward a house downpayment or toward your retirement nest egg. Just something to ponder.

If $57K represents a downgrade, what on earth were you driving?

[ActYourWage]

Get rid of the vehicles, buy two more for the price of what you are paying for one. That should cut your vehicle loan(s) in half. That way you can use the 60k to bump your savings, retirement or on future mortgage. Then, you will be on your way. I have noticed when people ask for advice on the forum, when people advise them about car loans, most get offended and oppose those suggestions. But you really need to consider where you want to be in the future in regards to your money situation.