Advice Requested on Debt Reduction

[teleGuy]

I have the following debts:

HELOC: $4200
Car #1: $5000 left, $280 per month for 2 more years
Car #2: $5000 left, $201 per month for 3 more years
Student Loan: $9000 left, $80 per month for what seems like forever : (

I also have my mortgage but I don't think that's relevant for now.

Here's the other important info:

Married, 2 young kids. Own our home but want to move up to a nicer one
in 1 to 4 years when my wife returns to work, so my goal is to get as
debt free as possible prior to her returning to work, so that the only
debt I have left is the HELOC which would be paid off from the equity in
our current home (we currently would make about $90,000 clear after
realtor commissions and the HELOC is paid off from the sale). Since we
want to move up to a larger house we'll have to use all of the remaining
equity for the downpayment towards the new house.

What I want to do:

I have managed to pay off my wife's $9000 student loan and our other
debts over the past couple of years, thanks to some advice I received
from this NG back then which steered me in the right direction.
Hopefully you can confirm or provide guidance on my plan for this year:

I'm going to be receiving some cash, a very small but significant to me
inheritance of $3000, and also a bonus from work for $7000. I have $2000
cash in a money market. So I have $12000 in cash (or will, within the
next couple of months).

Unfortunately I have to replace the carpeting in my house and also the
furniture in my living room. Unfortunately the carpet and furniture are
in such bad shape that I have to do it. I estimate that cost to be about
$6000 to $6500. I realize that the carpet replacement will be a complete
loss really, in terms of recouping the money we spend now, in resale.
But the carpet has needed replacing for a couple of years now and we
can't stand to live here any longer with it in present state. Moving
earlier is not an option until my wife goes back to work.

So with the remaining cash I was thinking it would be best to pay off
one of my car loans (the one that results in the higher monthly
payment). And then use the remaining for the capret/furniture, with the
balance of that remaining in savings.

Another option would be to pay off both car loans, and then finance (no
interest for a year) the carpet purchase. I could then use the $2000
savings plus a little extra cash I could come up with to pay for the
furniture. Net result of that would be no car loans, and an extra $480
per month in cash flow from not having car payments anymore. I could use
that to pay against the financed carpeting. If all goes right and we pay
it off in time (which theoretically we should) then we'd have no car
loans and we would be able to pay off the financed carpeting within a
year. I have sworn off using credit cards to pay for things, but this
may be a smart way to go considering I'd be getting rid of the car
loans. Incidentally - the cars are both clean Hondas with low miles and
in good shape. I expect them to last at least another 3 or 4 years
before we'd even consider selling them/purchasing another vehicle.

Another thing that is tipping me towards going the latter route is that
if something happens and I can't pay off the financed carpet in time
then I could write a check from my HELOC to cover the remaining balance
so I wouldn't have to incur the finance charges for the carpet.

Thoughts? Thanks in advance for your advice.

TeleGuy

 

[Andy]

I have the following debts:

HELOC: $4200
Car #1: $5000 left, $280 per month for 2 more years
Car #2: $5000 left, $201 per month for 3 more years
Student Loan: $9000 left, $80 per month for what seems like forever : (

I also have my mortgage but I don't think that's relevant for now.

Here's the other important info:

Married, 2 young kids. Own our home but want to move up to a nicer one
in 1 to 4 years when my wife returns to work, so my goal is to get as
debt free as possible prior to her returning to work, so that the only
debt I have left is the HELOC which would be paid off from the equity in
our current home (we currently would make about $90,000 clear after
realtor commissions and the HELOC is paid off from the sale). Since we
want to move up to a larger house we'll have to use all of the remaining
equity for the downpayment towards the new house.

Unfortunately I have to replace the carpeting in my house and also the
furniture in my living room. Unfortunately the carpet and furniture are
in such bad shape that I have to do it. I estimate that cost to be about
$6000 to $6500.

You don't say what the interest rates are on the loans. I would pay
off whatever loan has the highest interest rate.

I personally would not replace the carpet or furniture while I was
carrying debt incurred to finance consumption (which is what the car
loans and the HELOC are). To me financial stability is more important
than household aesthetics. You can always make the house nice after
you get out of debt, but you may never get out of debt if you continue
buying things on credit.

Andy

 

[cal lester]

"

I personally would not replace the carpet or furniture while I was
carrying debt incurred to finance consumption (which is what the car
loans and the HELOC are). To me financial stability is more important
than household aesthetics. You can always make the house nice after
you get out of debt, but you may never get out of debt if you continue
buying things on credit.

Andy

and you might want to consider what we used to call "throw rugs",
to cover up what is annoying you.
Cal

 

[$cott]

Depending on the interest rates of car loans/HELOC, it might be wise to
consider consolidating all of this consumer debt into mortgage debt by
taking out a second mortgage.

In addition to potentially lowering your payments on your vehicles, you
have converted non-deductible consumer debt into tax deductible
mortgage debt.

You will need to do the "math' to confirm or deny if this would work
for you, but in most cases, it makes sense.

Regards,

Scott Miller
Commercial and Residential Lender/Broker

"I've got money, want some?"

www.RealEstate-IQ.com
www.EZMortgageLoanz.com

 

[herlihyboy]

Depending on the interest rates of car loans/HELOC, it might be wise to
consider consolidating all of this consumer debt into mortgage debt by
taking out a second mortgage.

Scott Miller
Commercial and Residential Lender/Broker

What is your household income? Can you just cut spending by sticking
to a tight budget and knock the debt out? I'd advise against
consolidating your consumer debt into mortgage debt as Scott states.
You have good equity in your home, but you're simply moving the debt.
And, in the process, you're adding additional risk of losing your home
if you find yourself unable to make the payments.

Personally, I'd get rid of non-essential budget items, cut spending,
live with worn carpet/furniture, and clean the debt up as fast as
possible.

Ryan

 

[mike]

This is what I would do, give your situation.

-If your going to move out and the carpets are that bad, maybe get the
carpets professionally cleaned (I'm from NJ and i get stanley steemer..
you'd be suprised how good they look afterwards.. can get out stains,
etc).

-Put off getting the furniture.. it may be a complete waste getting new
furniture... if you are moving into a new house in a few years.. how
will you know if that furniture will fit/look good in your new house?

-Pay off your 9k student loan from the 7k your receiving from your
bonus and 3k inheritance.

That means you have 1k leftover from the inheritance, plus 2k in your
savings. Keep this 3k in your savings.

Try and put a little extra toward your car payments each month, knowing
you have an extra 3k in savings.

Next year, after you get your bonus, payoff one or possibly both of
your vehicles.

By the time you move into your new house, the only thing you should
have is your HELOC.

I have the following debts:

HELOC: $4200
Car #1: $5000 left, $280 per month for 2 more years
Car #2: $5000 left, $201 per month for 3 more years
Student Loan: $9000 left, $80 per month for what seems like forever : (

I also have my mortgage but I don't think that's relevant for now.

Here's the other important info:

Married, 2 young kids. Own our home but want to move up to a nicer one
in 1 to 4 years when my wife returns to work, so my goal is to get as
debt free as possible prior to her returning to work, so that the only
debt I have left is the HELOC which would be paid off from the equity in
our current home (we currently would make about $90,000 clear after
realtor commissions and the HELOC is paid off from the sale). Since we
want to move up to a larger house we'll have to use all of the remaining
equity for the downpayment towards the new house.

What I want to do:

I have managed to pay off my wife's $9000 student loan and our other
debts over the past couple of years, thanks to some advice I received
from this NG back then which steered me in the right direction.
Hopefully you can confirm or provide guidance on my plan for this year:

I'm going to be receiving some cash, a very small but significant to me
inheritance of $3000, and also a bonus from work for $7000. I have $2000
cash in a money market. So I have $12000 in cash (or will, within the
next couple of months).

Unfortunately I have to replace the carpeting in my house and also the
furniture in my living room. Unfortunately the carpet and furniture are
in such bad shape that I have to do it. I estimate that cost to be about
$6000 to $6500. I realize that the carpet replacement will be a complete
loss really, in terms of recouping the money we spend now, in resale.
But the carpet has needed replacing for a couple of years now and we
can't stand to live here any longer with it in present state. Moving
earlier is not an option until my wife goes back to work.

So with the remaining cash I was thinking it would be best to pay off
one of my car loans (the one that results in the higher monthly
payment). And then use the remaining for the capret/furniture, with the
balance of that remaining in savings.

Another option would be to pay off both car loans, and then finance (no
interest for a year) the carpet purchase. I could then use the $2000
savings plus a little extra cash I could come up with to pay for the
furniture. Net result of that would be no car loans, and an extra $480
per month in cash flow from not having car payments anymore. I could use
that to pay against the financed carpeting. If all goes right and we pay
it off in time (which theoretically we should) then we'd have no car
loans and we would be able to pay off the financed carpeting within a
year. I have sworn off using credit cards to pay for things, but this
may be a smart way to go considering I'd be getting rid of the car
loans. Incidentally - the cars are both clean Hondas with low miles and
in good shape. I expect them to last at least another 3 or 4 years
before we'd even consider selling them/purchasing another vehicle.

Another thing that is tipping me towards going the latter route is that
if something happens and I can't pay off the financed carpet in time
then I could write a check from my HELOC to cover the remaining balance
so I wouldn't have to incur the finance charges for the carpet.

Thoughts? Thanks in advance for your advice.

TeleGuy

======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a few lines to add context, the previous post is deleted.

 

[jIM]

Leave the $2000 cash in the bank. You never know, and this is NOT an
emergency.

some comments/opinions from my peanut gallery.

spend $200 and put a throw rug over the carpet
don't buy new furniture, put a sheet over the couches and trash them
after you move.
pay off the cars, then start setting the $480/month aside for after you
move. Keep the cars until they die. 4-8 years out of the cars should
be the expectation .

Pay cash for furniture after you move.

I moved 10 days ago and paid CASH for 3 new rooms of furniture
following the advice I just gave you. new sectional, new living room
couches and a new bedroom set.


cya

 

[teleGuy]

First off, thanks to everyone for your responses. I do appreciate it.

Posting my questions was a great thing for me because I was able to more
clearly see the numbers and think about things longer-term.

To answer some of the posts:

- I have very little disposable income leftover after expenses are paid.
2.5 years ago, when my daughter was born, my wife decided to stay home
to raise her (and once that was decided, we decided to have another baby
- he's now 15 months old; we will not be having any other kids - 2 is
enough!). My wife made the same amount in salary as me, so losing her
salary cut out income in half. Since it was pretty much unplanned that
she was going to stay home, it was a tough first year and we scraped by
at times. We managed to not incurr anymore debt though and we were able
to curb our spending drastically (not by choice obviously!). Since then
I have made a concerted effort to pay down our debt when possible. Last
year I paid off my wife's $9000 student loan with my bonus and some of
our savings.

- Believe it or not I, technically I guess, have a financial planner.
Shortly after my wife stopped working I called him and met him at his
office. I was due for an "annual checkup" with him. He seemed kind of
negative about the whole stay-at-home Mom thing and his advice to me was:

1. convince her to go back to work and
2. take all of my debts (at the time it was my wife's student loan and
mine, as well as the 2 car loans) and roll it into my HELOC. This guy is
a believer in never paying off your mortgage.

I didn't like that idea even a little bit. So when I could I paid off my
wife's student loan. I would have rather put that cash in savings or
paid off one of the cars at the time to have more cashflow, but in
hindsight it was an awesome move (this was last February when I paid it
off). To cover any short-term expenses incurred in case I would have
lost my job I upped the HELOC's line of credit to $20k. So worst comes
to worst we wouldn't be broke. I do however keep a keen eye on the job
market here and I would have no problem getting a job making at least
close to what I'm making now, within a month or two. So I'm not
concerned about emergency funds. It's a risk I'm willing to take.

After thinking more and more about this, my options are now these:


1. Pay off my student loan with the windfall of cash I'll be coming into
over the next 2 months.

or

2. Pay off both car loans and then with the $480 per month I'd save I
could apply that towards the student loan.

I'm leaning toward option 1 right now, because I owe $9k on the student
loan at 8.25% with years and years to go if paid at the minimum payment.
That's a lot of interest. Theoretically option 2 might be the better
way to go because of the amount of cash it would free up from not having
the car payments anymore. But we've done such a good job of keeping our
expenses down over the last few years that I don't want to have all that
extra cash freed up, for fear we may increase our spending and not
consistently put it towards the sudent loan. I realize that you guys are
all driving Yugo's and eating Top Ramen for lunch with 7 figure bank
accounts to show for it, but I don't know that we're that hardcore : )

One factor though that I hadn't considered was the student loan interest
being deductible. I don't think it's that big of an issue, but perhaps
it is something to consider.

I've decided not to recarpet the house. I do however have to do
something with the living room carpet - it has to go. I'm going to put
down laminate flooring and do the work myself. That will cost me about
$1200 total for materials and everything. Unfortnately that flooring has
to get replaced.

So what do you guys think - pay off the student loan or pay off the car
loans? I'm still undecided, but am leaning towards paying off the
student loan. If only for the fact that if I pay off that loan, then in
2.5 years, even if I don't pay any extra towards the car loans in the
meantime, I'll be debt-free. Whereas if I pay off the car loans now,
then I'll most likely still have at least half of my studnent loan left
over in 2.5 years.

Incidentally, I will most likely be getting another good annual bonus
next year in early 2007 as well. So I believe I'll be able to pay off at
least one of the cars if not both with that then, or put it towards the
student loan.

thoughts? Hope I'm making sense : )

 

[Andy]

- Believe it or not I, technically I guess, have a financial planner.
Shortly after my wife stopped working I called him and met him at his
office. I was due for an "annual checkup" with him. He seemed kind of
negative about the whole stay-at-home Mom thing and his advice to me was:

1. convince her to go back to work and
2. take all of my debts (at the time it was my wife's student loan and
mine, as well as the 2 car loans) and roll it into my HELOC. This guy is
a believer in never paying off your mortgage.

After thinking more and more about this, my options are now these:

1. Pay off my student loan with the windfall of cash I'll be coming into
over the next 2 months.
or
2. Pay off both car loans and then with the $480 per month I'd save I
could apply that towards the student loan.

I'm leaning toward option 1 right now, because I owe $9k on the student
loan at 8.25% with years and years to go if paid at the minimum payment.
That's a lot of interest.

I think you are definitely correct to pay off the student loan first
because the total amount of interest you end up paying on a loan is a
function of the interest rate and the term of the loan. Because the
student loan has a long term and a relatively long interest rate you
will end up paying a lot in interest over the years, and by paying it
off your long term savings will be significant.

By the way, I think you should get a new financial advisor. At the
very least he doesn't have the same values and attitudes as you do.

Andy

 

[Tess Millay]

TeleGuy, what are the interest rates on the car loans? From
the numbers you gave, that they're lower than the student
loan is not entirely clear to me.

Do you have good health insurance for all the family and
life insurance for yourself and wife (particularly since the
household has now only income provider)?

Also, does your company have a 401(k) plan with company
matching? If so, to what percent does the company match? If
it is matching, paying off debt tends to be less
attractive... I reckon you may not even want to think about
retirement right now. You want to get rid of that debt,
period. And that's /quite/ understandable. It is a big
psychological boon to be debt free. OTOH, based strictly on
the numbers, putting your money into a 401(k) now, instead
of later, may be a better investment.

Way to go with the $1200 compromise plan for the living room
floor! Good thinking!

I agree with Andy about finding another financial advisor. I
don't want to insert my values too much into this, but
shoot, one parent at home for the kids until they're much
older is an investment in their future, too. That sort of
attention properly directed ISTM is more likely to steer
them into good educations, maybe college scholarships, and
ultimately good jobs, too.

Lastly, I hope you're kidding about the Top Ramen. That salt
will kill ya. Gotta be something not much more expensive but
more healthy. Invest in your health as well as everything
else. Seriously! You men in particular are prone to early
heart attacks. Where's that going to leave your wife and
kids? :-((

 

[zxcvbob]

- Believe it or not I, technically I guess, have a financial planner.
Shortly after my wife stopped working I called him and met him at his
office. I was due for an "annual checkup" with him. He seemed kind of
negative about the whole stay-at-home Mom thing and his advice to me was:

1. convince her to go back to work and

That's none of his business unless you are drowning in debt and have
negative cashflow.

2. take all of my debts (at the time it was my wife's student loan and
mine, as well as the 2 car loans) and roll it into my HELOC. This guy is
a believer in never paying off your mortgage.

Very bad idea -- especially the car loans. Who wants to still be paying
for a car you don't even own 20 years from now? Or convert an unsecured
long-term debt to a secured even-longer-term debt?

IMHO, interest-only loans only make sense /maybe/ for business property.
I hope you're not paying this adviser anything...

After thinking more and more about this, my options are now these:


1. Pay off my student loan with the windfall of cash I'll be coming into
over the next 2 months.

or

2. Pay off both car loans and then with the $480 per month I'd save I
could apply that towards the student loan.

I'm leaning toward option 1 right now, because I owe $9k on the student
loan at 8.25% with years and years to go if paid at the minimum payment.
That's a lot of interest. Theoretically option 2 might be the better
way to go because of the amount of cash it would free up from not having
the car payments anymore. But we've done such a good job of keeping our
expenses down over the last few years that I don't want to have all that
extra cash freed up, for fear we may increase our spending and not
consistently put it towards the sudent loan. I realize that you guys are
all driving Yugo's and eating Top Ramen for lunch with 7 figure bank
accounts to show for it, but I don't know that we're that hardcore : )

One factor though that I hadn't considered was the student loan interest
being deductible. I don't think it's that big of an issue, but perhaps
it is something to consider.

I've decided not to recarpet the house. I do however have to do
something with the living room carpet - it has to go. I'm going to put
down laminate flooring and do the work myself. That will cost me about
$1200 total for materials and everything. Unfortnately that flooring has
to get replaced.

What is under the carpet? (if you're lucky, it's hardwood flooring, even
if it needs refinishing which you can put off for a few years) Can you
put down a carpet remnant and bind the edges to make an area rug? You
might also consider 12" vinyl tiles and an area rug.

So what do you guys think - pay off the student loan or pay off the car
loans? I'm still undecided, but am leaning towards paying off the
student loan. If only for the fact that if I pay off that loan, then in
2.5 years, even if I don't pay any extra towards the car loans in the
meantime, I'll be debt-free. Whereas if I pay off the car loans now,
then I'll most likely still have at least half of my studnent loan left
over in 2.5 years.

Both are good choices. I think it depends a lot on what the interest
rates are on those car loans. Personally, (assuming the interest rates
are comparable) I like paying off debts that will have the greatest
effect on monthly cashflow and then applying all the freed-up cash to
the longer-term debts. If your situation changes, you don't /have/ to
keep applying all your discretionary cash to paying extra on the
remaining debt. That can come in handy for emergencies, although you
have the unused HELOC available for that...

BTW, I'd used the HELOC to pay for the flooring, doing the job as
cheaply as I could and still have it look nice for a few years.

Good luck, and best regards,
Bob

 

[mark]

I think you are definitely correct to pay off the student loan first
because the total amount of interest you end up paying on a loan is a
function of the interest rate and the term of the loan. Because the
student loan has a long term and a relatively long interest rate you
will end up paying a lot in interest over the years, and by paying it
off your long term savings will be significant.

By the way, I think you should get a new financial advisor. At the
very least he doesn't have the same values and attitudes as you do.

Andy

Thanks Andy. I don't really feel like I need a financial advisor at this
point. We got the one we presently have only because when my wife and I
got engaged and we decided to combine our finances, we signed up for a
"Successful Money Management" class at a local evening school. The
planner was teaching it. We signed up with him, and I'm glad we did,
because it forced us to start saving. We had saved up quite a bit more
but needed to pay some other home repair costs (our heating/ac system
failed a couple of years ago). I've always felt a little bit of
allegiance to the guy because without having attended the class I doubt
we would have started saving/investing, but at the same time I don't
like his "buy the biggest fattest mortgage you can possibly get and
never pay it off" philosophy. Also, when we started with him, he told us
not to pay off our student loans (at that time we had over $20,000 in
student loan debt). Had I listened to myself at the time I would
probably be out of the student loan debt by now, or at least much closer
to it.

Contrary to the equivalent of thinking out loud that I've done in this
thread, I feel like I do have a decent understanding of personal
finances/investing, so I'll forego having an advisor. I plan on
cancelling my accounts with my present one within the next month. The
annual fees for the Roth IRA's are way too high anyway.

mark

 

[teleGuy]

TeleGuy, what are the interest rates on the car loans? From
the numbers you gave, that they're lower than the student
loan is not entirely clear to me.

The student loan was consolidated back in 2000 at 8.25%. Ugh. What a
mistake.

The car loans are at 4.25% and 5.75%, so they're quite a bit lower than
the student loan interest rate.

Do you have good health insurance for all the family and
life insurance for yourself and wife (particularly since the
household has now only income provider)?

Yes, I have an excellent employer-sponsored health insurance plan. It's
a dual-plan and it covers really everything. My son had open-heart
surgery last month (he's fully recovered and is doing great!). We've
never had to pay anything out of pocket. The dual-insurers is kind of a
hassle when it comes to paperwork at times, and I've griped about how
easy it used to be at my other job to simply hand over an HMO card and
be done with it, but in hindsight, other than copays, we are covered for
everything really.

Also, does your company have a 401(k) plan with company
matching? If so, to what percent does the company match? If
it is matching, paying off debt tends to be less
attractive... I reckon you may not even want to think about
retirement right now. You want to get rid of that debt,
period. And that's /quite/ understandable. It is a big
psychological boon to be debt free. OTOH, based strictly on
the numbers, putting your money into a 401(k) now, instead
of later, may be a better investment.

I have a 401(k) plan. It matches either 3%. I contribute 7% of each
paycheck (pre-tax of course). I plan on perhaps bumping up that
contribution to 8 or 9% in April when I get my annual raise (4.2%).

My wife has her 401(k) from her previous job. It's been sitting in a
fidelity account since her departure. I thought about rolling it over
but have not looked into it yet. We also started Roth IRA's for each of
us a year prior to my wife stopping work. Once she stopped work we had
to stop saving and contributing to the Roth IRA's. There is only about
$1500 in each of them, so it isn't much.

Way to go with the $1200 compromise plan for the living room
floor! Good thinking!

This was originally the plan, but the thought of just having someone
come in and replace the carpet of the entire house was tempting (even
though I personally hate carpet). I'm concerned at the amount of time
it's going to take for me to replace the flooring myself - our living
room is huge and is the central place where we all play/hang out. While
I'm replacing the flooring my wife and kids will have to stay at her
mom's during the day. So hopefully I can get it done within a weekend,
to minimize the hassle. In the end I think I'll be happier with it than
carpet. We'll see.

I agree with Andy about finding another financial advisor. I
don't want to insert my values too much into this, but
shoot, one parent at home for the kids until they're much
older is an investment in their future, too. That sort of
attention properly directed ISTM is more likely to steer
them into good educations, maybe college scholarships, and
ultimately good jobs, too.

I used to think the same as my financial advisor. I never saw the
benefit of staying home. I was a "latch-key" kid myself. But I'm very
proud of my family and it's worked out amazingly well. It's truly
amazing that we were able to cut our income in half, and increase our
daily expenses (diapers, formula, doctor visits, wipes, food, toys,
etc), yet not take on anymore debt from before we had kids and at the
same time I was able to pay off my wife's student loan last year. I
attribute this mostly to my taking over the finances (my wife previously
did them, before we had the kids) and watching our spending/situation
carefully using MS Money.

Lastly, I hope you're kidding about the Top Ramen. That salt
will kill ya. Gotta be something not much more expensive but
more healthy. Invest in your health as well as everything
else. Seriously! You men in particular are prone to early
heart attacks. Where's that going to leave your wife and
kids? :-((

Just kidding : )

 

[zxcvbob]

I'm concerned at the amount of time it's going to take for me to
replace the flooring myself - our living room is huge and is the
central place where we all play/hang out. While I'm replacing the
flooring my wife and kids will have to stay at her mom's during the
day. So hopefully I can get it done within a weekend, to minimize the
hassle. In the end I think I'll be happier with it than carpet. We'll
see.

I replaced the nasty flooring in our kitchen/dining area in with Pergo
about 10 years ago. I think I got it done mostly in a weekend
(everything except the trim, and that's with Wife and Dawg walking on
the stuff while I was trying to install it (it's mighty hard to
completely take the kitchen off-line for more than a few hours.) This
is in an old house with unlevel and bumpy floors.

I don't really like Pergo all that much, but it still looks pretty good
after 10 years of abuse. It would actually be easier to do a large area
like you have rather than a small kitchen with all that cutting for
cabinets, moving appliances, etc.

Best regards,
Bob

 

[Tess Millay]

The student loan was consolidated back in 2000 at 8.25%.

Ugh.

Right. But stuff happens. Everyone I know has at least one
"bad investment" story. Makes all of us better investors in
the future.

What a
mistake.

The car loans are at 4.25% and 5.75%, so they're quite a bit lower than
the student loan interest rate.

Right, then pay off the student loan. (I'm betting the tax
write-off still won't justify that 8.25% interest.) Plus,
like you said, you can make a huge dent in the auto loans
next year with the next bonus, IIRC.

snip, but on health insurance--

The dual-insurers is kind of a
hassle when it comes to paperwork at times, and I've griped about how
easy it used to be at my other job to simply hand over an HMO card and
be done with it, but in hindsight, other than copays, we are covered for
everything really.

Right, it's not like the old days. Unfortunately I think
things will get worse, with insurance premiums and health
costs, before they get better. But I think there's not much
one can do to plan, other than take good care of one's self
and family to prevent disease, accidents, etc.

I have a 401(k) plan. It matches either 3%. I contribute 7% of each
paycheck (pre-tax of course). I plan on perhaps bumping up that
contribution to 8 or 9% in April when I get my annual

raise (4.2%).

From my reading, conventional wisdom is to only put in as

much as is matched, then max out the Roths OR pay off debt.

But that's a whole other discussion. Put my point up on a
shelf, take it down when you feel like you can handle more
discussion of this point. (Or maybe you feel real
comfortable already with your current strategy--there are
sometimes reasons for doing what you're doing.)

My wife has her 401(k) from her previous job. It's been sitting in a
fidelity account since her departure. I thought about rolling it over
but have not looked into it yet.

FWIW, it's good that it's on your mind to some extent. Dunno
what those 401(k) fees are, but if they're high, rolling
over into a traditional IRA may pay.

It's truly
amazing that we were able to cut our income in half, and increase our
daily expenses (diapers, formula, doctor visits, wipes, food, toys,
etc), yet not take on anymore debt from before we had kids and at the
same time I was able to pay off my wife's student loan

last year.

You bet! Way to go, especialy with monitoring your expenses
and income carefully via MS Money! You may be a walking
advertisement for accumulating wealth. Or the 12-step
program from debt to riches!

If you're a reader, maybe consider taking a look at the
recent book _The Millionaire Next Door_ sometime. One can
read a few pages a night and get some more nice, fun
lessons. Or even chuckles about how others misappropriate
their money.

I
attribute this mostly to my taking over the finances (my wife previously
did them, before we had the kids) and watching our spending/situation
carefully using MS Money.

Great story, all around. Good luck.

 

[Sgt.Sausage]

Unfortunately I have to replace the carpeting in my house and also the
furniture in my living room. Unfortunately the carpet and furniture are in
such bad shape that I have to do it.

Correction -- you *want* to do it, but you don't *have* to.

An important distinction that will help you get out of debt
faster, and remain out of debt for the rest of your life. Determining
"want" from "need" goes a long way towards saving money.

I estimate that cost to be about $6000 to $6500.

That would be $6000 to $6500 that could go towards
paying current debt obligations, rather than going further
in debt.

Think about it.

 

[jIM]

option 1: pay off student loans first and cars debt second.

the question I would ask: how long until totally debt free (I think you
uggested 2.5 years). In that 2.5 years (30 months) what will be paid
off first (car1, car2 or student loan?)

option 2 pay off cars first and student loan second. How long to be
totally debt free with this technique? car1 zand car 2 are paid off
immediately, leaving only 1 bill left (student loans). $9000 bill,
with another $480/month being applied to it, my simple math has this
paid off in less than 20 months. Gets you access to your money 10
months sooner. In addition there is a tax deduction which may help
this cause.

option 3 might be less obvious, but when I looked at all my student
loan debt (I had 10 loans when I graduated), I added an additional $25
to each payment. Didn't do much "immediately", but even after 1 year,
a couple of my loans dropped their minimum payment enough I could see
progress. A possible third solution could be to make more than the
minimums on the student loan while paying off the car first.

 

[$cott]

As this thread was originated by the poster under the guise of debt
consolidation, my suggestions were geared towards this goal in mind.

After reading the entire thread and additional posts from the author, I
would like to make some additional comments:

- Home equity is a sleeping asset. In other words, it has no tangible
value until one of two things happens; either you sell out to capture
the equity or you refinance to claim the equity. Home equity can not
be considered part of one's networth until one of these two events
happen.
- "Moving debt" is a short term fix to the author's dilemna, the long
term fix is to either lower cash outlays to be in line with the current
family's income (budget) or increase the family's monthly income (Earn
your way out of debt).
- Aside from the added tax benefits from converting non-deductible
consumer debt into tax deductible mortgage interest, the author would
benefit from drastically reduced monthly expenditures. Rolling the 19K
currently owed into a 30 year 2nd mortgage at 6.25% would result in a
payment reduction of nearly 400% or reduction from 561 per month to
116.99. Combined with an equity acceleration plan, the author can
benefit from the added tax benefits and minimize the total interest
paid back. It appears to me that the author is trying to do "more with
less" (or at the same with less), and this is a viable option based
upon this goal.
- If the author can't pay his bills, then he is going to lose both his
house and the uncaptured equity.
- I wouldn't pay off anything with either the bonus or inheritance as
the author is currently unemployed with child (and stay at home mom).
This money might come in handy for one of those unexpected emergencies.


Regards,

Scott Miller
Commercial and Residential Lender/Broker

www.RealEstate-IQ.com
www.EZMortgageLoanz.com

 

[John A. Weeks III]

- Home equity is a sleeping asset. In other words, it has no tangible
value until one of two things happens; either you sell out to capture
the equity or you refinance to claim the equity. Home equity can not
be considered part of one's networth until one of these two events
happen.

That advice will lead one to 1,000 bankruptcies. A house is
shelter. Everyone needs shelter. If you don't have a paid
for house, then you need to rent shelter, often times paying
high rates of interest in the process, or even worse, by helping
to make a landlord rich. Home equity is a safety net that keeps
your family safe and warm, and saves your but in the event of an
unexpected disaster.

-john-

 

[Andy]

That advice will lead one to 1,000 bankruptcies. A house is
shelter. Everyone needs shelter. If you don't have a paid
for house, then you need to rent shelter, often times paying
high rates of interest in the process, or even worse, by helping
to make a landlord rich. Home equity is a safety net that keeps
your family safe and warm, and saves your but in the event of an
unexpected disaster.

Home equity is the functional equivalent of a bond that pays monthly
interest equal to the rental value of your home. And, that monthly
interest is tax free!

My home is probably worth $330,000 and it is paid off. Houses in my
neighborhood have been renting for about $1,100 or so. Doing the math,
my home equity asset is giving me a rate of return of about 4%, tax
free. Thats not too bad for a guaranteed rate of return.

Andy