Update: Debt Free (except the house) and Baby on the Way

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Topic Author
Gronnie
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Joined: Sun Oct 19, 2014 2:08 pm

Update: Debt Free (except the house) and Baby on the Way

Post by Gronnie »

edit: Have posted an update at end of thread. Debt free but the house and baby on the way, thanks Bogleheads!

Hello all, lurked on and off for a bit. I am 28 (29 in April) and my wife will be turning 30 in December. We both got kind of a late start in getting our acts together, but very soon will both be earning pretty good incomes. Wife is an RN and makes about 70k/year. I will be graduating college in December, and have accepting a job paying a salary of ~70k, plus a $3500 (before taxes) bonus paid every 6 months (10% of salary earned in the past 6 months).

We were foolish and did not cut back our lifestyle when I decided to finish school about 2 1/2 years ago, and have run up about $45k in credit card debt. The only silver lining is that we don't plan on increasing lifestyle at all as we are very comfortable now.

Breakdown is as follows:
$8300 balance, 0% expires 1/13/15, standard rate 13.99%
$11500 balance, 0% expires 5/10/15, standard rate 15.99%
$5400 balance, 0.99% expires 6/1/15, standard rate 17.49%
$5500 balance, 0% expires 7/22/15, standard rate 13.99%
$7400 balance, 5.99% expires 4/20/16, standard rate 15.99%
$6300 balance, 0.99% expires 10/01/16, standard rate 28.99%

We also have about 129000 in student loan debt, with about 29000 the payments being made by her parents. Right now we pay about 1100/mo on just hers ($340 covered by her parents). I expect payments on standard 10 year repayment plan to be about 600 for me, for a total of 1700/mo (1360 us, 340 her parents).

We own a home worth about 200-215k, loan balance 164000, 15 year fixed at 2.75%. Payment including MIP, taxes, and insurance is $1700/mo. We rent out one room to my best friend for $525/mo. MIP will be done in October 2015, saving us about $60/mo.

I expect my biweekly take home to be about $1820, and her minimum biweekly take home to be about $1800. This includes health insurance, HSA, 403b/401k up to the match, etc. Hers will usually be higher, as she often gets a bit of overtime, and also receives shift differential pay.

I drive a 2000 Honda Accord that is paid off and in good mechanical shape. She drives a 2008 Honda Pilot that has about $15800 left on loan at 4.4%, $440/mo payment.

My job will have a 401k match of 100% of first 5% of salary (2.5% paid immediately, another 2.5% paid at end of year if contributions total at least 5% of salary). She receives a small pension plan, plus they have just instituted a 50% match of first 4% of salary in 403b.

We are considering getting a home equity loan at the credit union through her work. They will loan up to 95% LTV, 10 year repayment, 6% interest rate with our scores (which have dropped due to high balances). Would put 100% of whatever we borrow towards the credit cards, locking in a rate much lower than standard rate, that is also tax deductible. This would also help free up cash flow. Good idea or no?

After that, the plan would be to first quickly pay off any cards left before promo rate expires. I would like to then pay off the Pilot as quickly as possible before moving on to student loans.

Not sure if we should do a Roth IRA for each of us right away, or at what point we should start? After credit cards are paid off, after vehicle is paid off, after student loans are paid off? I think we can do the HELOC, we can have all but the mortgage and the HELOC paid off in 3.5-5 years if we are not maxing out a ROTH, probably 5-6 years at least if we are maxing a Roth. This is assuming no kids as well, which my wife wants soon.

Will also look for some guidance in picking funds for 403b and 401k, will do that later.

Cliffs:
Me 28, Wife 30
Monthly take home including $525 rent from spare bedroom: $7765 minimum (usually a bit more, depending on if wife worked any OT, how much shift differential she has)
Monthly expenses: About $5400 including minimum payments on all debt
Her 403b match: 50% of first 4% of salary, plus small employer paid pension
His 401k match: 100% of first 5% of salary


Debt:
$45k on credit cards, currently all on promo rates
$129000 student loans
$15.8k car loan at 4.36%, $440/mo payment
$164k on home, ~12.5 years left on 15 year fixed at 2.75%, current value $200-215k

Looking for advice on debt repayment plan and when to start Roth, whether to take 10 year home equity loan at ~6% to lock in that rate on credit cards, will post 403b options later to get advice on investments.

Wow, that was a lot! Thanks for anyone that takes the time to read this and help!!!! Let me know if you need any more info.
Last edited by Gronnie on Tue Feb 14, 2017 9:01 pm, edited 3 times in total.
Topic Author
Gronnie
Posts: 339
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

Also, the $7765 monthly does not take into account the bonus I will receive every 6 months nor the fact we are both paid biweekly and will each have 2 months in the year where we take home a 3rd paycheck (for a total of 4 extra paychecks a year).

I also forgot that right now we have about $7000 in liquid in our account.

I made a PFD of the investment options available in her 403b: https://www.dropbox.com/s/ks10pblsu4rrh ... s.pdf?dl=0

I do not know what is available in my 401k plan as I just accepted the job, do not yet have access (I start 12/15), and can't seem to find the offerings anywhere online.

I was tentatively planning on choosing these 3 funds for hers:
VITNX 50% ER: 0.04% (Vanguard Institutional Total Stock Market Index)
FSPSX 40% ER: 0.075% (Spartan International Index Fund - Fidelity Advantage Institutional Class)
VBLTX 10% ER: 0.2% (Vanguard Long-Term Bond Index Fund Investor Shares)

At first I was just planning on doing target retirement funds, but the ER is so much higher!!!
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retiredjg
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

First, you need an emergency fund. Even if it is only $1k or $2k.

Second, contribute enough to the plans at work to get the match. No more.

Don't even consider Roth IRA until all of the credit card debt is paid and probably all or most of the student loan is paid (depends on interest rate).

Credit card debt is the absolute worst kind of debt you can accumulate. That is because the rates are high to begin with and because interest accrues each month. Then the next month you pay interest on that interest. And the next month, you pay interest on the interest that you paid on the interest. It is completely nuts and very difficult to get out of. That's how they make money. So you need to put every penny available toward those loans, starting with the one that expires first.

You did not mention the interest rate on the student loans. Or did I overlook it?
We are considering getting a home equity loan at the credit union through her work. They will loan up to 95% LTV, 10 year repayment, 6% interest rate with our scores (which have dropped due to high balances). Would put 100% of whatever we borrow towards the credit cards, locking in a rate much lower than standard rate, that is also tax deductible. This would also help free up cash flow. Good idea or no?
This is reasonable if you are absolutely sure you can pay both the mortgage and the home equity loan on time. Adding on the home equity loan (unless things have changed) puts your home in much greater jeopardy than just having the mortgage. Check this out first.

Do not pay off the Pilot before any loan with an interest rate higher than 4.4%. Probably best to just pay that one on time.

As for your investment options, ask again when you find out what is available in your 403b. His and Hers should work together.
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Gronnie
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

Sorry, I did indeed forget to mention the interest on the student loans. Here is a spreadsheet with the breakdown, as they are at many different rates:
https://www.dropbox.com/s/1dgshn0ewn6yv ... .xlsx?dl=0

Yes, I agree we do need emergency funds. We currently have $7k liquid available. I was planning on having an emergency fund of 1 month expenses plus 1 extra mortgage payment until the credit cards are paid off, and then working on increasing that.

I was planning on paying off the car a early for cash flow reasons, although you are probably right that paying off student loans with higher interest rate is probably better and will think hard about it and probably end up doing that.
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retiredjg
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

Gronnie wrote:Sorry, I did indeed forget to mention the interest on the student loans. Here is a spreadsheet with the breakdown, as they are at many different rates:
https://www.dropbox.com/s/1dgshn0ewn6yv ... .xlsx?dl=0
In that case, you need to forget about Roth IRA for what will seem like forever. Don't despair, it isn't really forever.

Keep in mind that paying off debt is part of what you need to do to accumulate enough for a good retirement. Paying off debt definitely moves you toward your goal so don't let this waiting period frustrate you - it is all moving in the right direction.

Any debt over 3% or 4% (some might say 5%) should probably be paid before you invest any money for your future other than meeting the match in your work plans. This is because your canoe has taken on water (debt) and it is important that you bail out more water (pay debt) than is coming in (returns on potential investments). I know it seems that your investments may pay more than 5%, but often they do not. Take the guaranteed return of paying off the debt.
Yes, I agree we do need emergency funds. We currently have $7k liquid available. I was planning on having an emergency fund of 1 month expenses plus 1 extra mortgage payment until the credit cards are paid off, and then working on increasing that.
It is hard to save emergency funds. Something is always more important, or seems so. For that reason, I'd keep all of the the $7k liquid as your emergency fund.
I was planning on paying off the car a early for cash flow reasons, although you are probably right that paying off student loans with higher interest rate is probably better and will think hard about it and probably end up doing that.
Yes, the other interest rates are higher - pay them off first.

The "right" way, supported by numbers, is to pay them off by paying the highest interest rate first. For your credit cards, this would be modified by trying to pay off any balance you can before the date it converts to high interest.

Credit card debt comes before regular debt - car loans and student loans have interest, but you don't pay interest on the interest on the interest, etc.

Some people have found the Dave Ramsey snowball approach helpful - put all your extra money toward the the smallest debt first. Again, credit card would come before ordinary debt. Ramesy's approach is an easier psychological approach because you can see progress (paying off the little stuff) easier than paying off the high interest rates first. You might, however, pay a little more in the long run to achieve that psychological benefit.

As for your match, getting a 50% or 100% match is getting a HUGE return - way more than the interest you are paying out. That's why you need to contribute up to the match. It is free money.
stan1
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by stan1 »

I think you need to look closely at expenses. I think you need to figure out a way to put $4,000 per month towards paying off the credit cards, car, and student loans. It will take about 3.5-4 years. There I said it, and it should be possible if you are making $140K/year plus bonus. That's approximately your income plus the rent you get from your tenant. Get it over with and then never look back.
Warning: I am about 80% satisficer (accepting of good enough) and 20% maximizer
Topic Author
Gronnie
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

stan1 wrote:I think you need to look closely at expenses. I think you need to figure out a way to put $4,000 per month towards paying off the credit cards, car, and student loans. It will take about 3.5-4 years. There I said it, and it should be possible if you are making $140K/year plus bonus. That's approximately your income plus the rent you get from your tenant. Get it over with and then never look back.
This is the plan. The $5400 expenses already includes $2400 towards credit cards, student loans, and the car. Her parents also kick in an additional $340/mo.

We are trying to figure out how to allocate the remaining approx. $2300, as well as the extra money from any OT wife gets, 3 paycheck months, bonus etc.

Looks like the best plan is to pay off credit cards first (in order of promo rate expiration), then payoff from highest to lowest interest. Contribute up to employer match in 403b and 401k, but none to IRA until debt is paid off.

Wife's job is very stable (assuming she doesn't hurt her back or something and is unable to work. It is almost impossible to get fired from where she works, and in fact, they are extremely short on RNs right now). My job should be fairly stable. Taking this into account, should we be putting all the additional $2300/mo plus extra checks from 3 paycheck months, bonus, etc towards debt or at what point should we start increasing emergency fund?
Topic Author
Gronnie
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

Mortgage should decrease by $60/mo next October with removal of MIP. Agent also said insurance will go down a bit once I graduate college and start new job. Budget does not take either into account.

Here is the project monthly budget starting 1/1/2015 with no home equity loan (minimum payments on cards will increase as promos expire if I can't payoff in time) (Total: $5592):

Mortgage 1705
MN Energy (natural gas) 50
RPU (electric and water) 160
Garbage 25
Car 436
Insurance 114
Gas 300
Student Loans Her 760
Student Loans Him 600
Charter (cable/internet) 108
Food 400
Pine HVAC 16
Subscriptions 28
Cell 120
CC1 230
CC2 80
CC3 85
CC4 125
CC5 150
CC6 100

Here is projected budget if we take out home equity loan of $25k/6% interest/10 year repayment (Total: $5453):
Mortgage 1705
MN Energy (natural gas) 50
RPU (electric and water) 160
Garbage 25
Car 436
Insurance 114
Gas 300
Student Loans Her 760
Student Loans Him 600
Charter (cable/internet) 108
Food 400
Pine HVAC 16
Subscriptions 28
Cell 120
Home Equity Loan 280
CC1 85
CC2 150
CC3 100

Will easily be able to pay off remaining cards before promo expires and then move on to student loans.

Subscriptions breaks down as follows:
Sirius /XM 8
Amazon Prime 6.5
Astraweb (Usenet provider) 11
ESPN Insider 2.25
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retiredjg
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

I think your home equity idea is a good one with some caveats.

1) You don't indicate that the remaining CC payments will go up in your second example. Once the first CCs are paid off, take all the money that you have been using for debt and apply it all to the remaining CCs (other than the $280 that goes to the home equity loan). In other words an additional $275 needs to be sent to the worst CC left once the first 4 are paid off. When it is paid, an additional $275 will go to the next one. And so on.

2) Because of your graduation in December and upcoming new income, you are going to feel like celebrating during the upcoming holiday season. You really cannot afford to do this. Keep your giving extremely thoughtful and modest - absolutely nothing really nice or lavish. Just prepare yourself ahead of time and do it.

3) As mentioned before, make sure that home equity gets paid on time every month.

4) As soon as CC's are paid and only the very low cost student loans are left, send all that bill paying money to the home equity loan and get it paid off before 10 years. There might be a balance there since the home equity loan is deductible. If you are in the 25% tax bracket, the "either or" position would be student loans at 4.5%.


At some point, you do need to increase your emergency fund. Once the impending fires of CC debt are averted, you could send a small amount to the EF each month. In a true emergency, you can tap your 401ks without penalty. Keep that in mind.

It sounds like you are on the right track. Good luck!
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Gronnie
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

Awesome feedback, thank you.

The budget is only showing the minimum payment for debt. Income should be a couple of thousand over that, and I plan on sending all extra income towards debt until the point I decide I need to divert some of it to building up an emergency fund. I am still figuring out what that point is, probably after credit cards are paid off.
kazper
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by kazper »

If you are truly wanting to cut back, how much would internet only be for charter? I see you have prime, that offers some shows and movies. You Can subscribe to Netflix and still come out way ahead. If you really need tv, I recommend an over the air antennae for regular channels.

How much will this save you? Even if you shell out 30 for the antenna and 10 per month for netflix, I would guess your expenses would be reduced by roughly 300 per year, if not more. I'm guessing you'll save at least 40 per month, so 480 - 150 = 330. There , more money to put towards your debt for little sacrifice (and yes, we do everything I recommended...)
Lablover0505
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Lablover0505 »

You've gotten some good advice. Aside from a work match, all the rest needs to go towards debt repayment. As Mr. Money mustash would say...this is an emergency. Treat it as so.
MooseandBear
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by MooseandBear »

+1 to everything above. You've gotten some great advice.

In addition, perhaps you can refinance your car loan? Try Digital Federal Credit Union or Pentagon Federal Credit Union. If your wife's loans include some for graduate school (I think you said all of yours were from undergraduate), can she refinance them lower? Try Darian Rowan Bank or Common Bond. Any of these options could drop your monthly required payment, allowing you to use a bigger shovel against higher interest debt.
nelson1015
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by nelson1015 »

Personally, I wouldn't refinance the car loan or take out any additional debt. Honestly, the thought of refinancing a car loan makes me cringe. I think going forward you need to ingrain this in both of your heads and make a commitment to not run up any additional debt of any kind. Even if you think the debt is for a good reason (paying off other debt), I personally think it's a bad idea.
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retiredjg
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

nelson1015 wrote:Personally, I wouldn't refinance the car loan or take out any additional debt. Honestly, the thought of refinancing a car loan makes me cringe. I think going forward you need to ingrain this in both of your heads and make a commitment to not run up any additional debt of any kind. Even if you think the debt is for a good reason (paying off other debt), I personally think it's a bad idea.
Not sure I'd refinance the car loan either, but I'm curious why you think the home equity loan is a bad idea. It is lower interest rate and it is deductible. The current debt is (about to be) very high interest rate, revolving, and not deductible.

Why do you see the home equity loan as a bad idea?
nelson1015
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by nelson1015 »

retiredjg wrote:
nelson1015 wrote:Personally, I wouldn't refinance the car loan or take out any additional debt. Honestly, the thought of refinancing a car loan makes me cringe. I think going forward you need to ingrain this in both of your heads and make a commitment to not run up any additional debt of any kind. Even if you think the debt is for a good reason (paying off other debt), I personally think it's a bad idea.
Not sure I'd refinance the car loan either, but I'm curious why you think the home equity loan is a bad idea. It is lower interest rate and it is deductible. The current debt is (about to be) very high interest rate, revolving, and not deductible.

Why do you see the home equity loan as a bad idea?
The fundamental idea of "I'm going to take out a loan to pay my other loan" doesn't sit right with me at all. I also don't think taking out additional debt is teaching the OP to avoid debt. In other words he isn't learning his lesson by leverging his house to pay off his credit cards. His root problem is spending and the over utilization of debt. Spend less and don't use debt.

Say the OP takes out the home equity loan, pays off some credit card debt but doesn't curtail spending. 12 months form now he has the same if not more credit card debt & a home equity loan. Now he's in a worse position than where he started.

By the numbers taking out the home equity loan makes sense. Behaviorally to me it doesn't.

Anyone else with me? or am I out on a limb by myself here?
Twins Fan
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Twins Fan »

I'm with you, nelson.

I can see where the numbers make sense to take out a home equity loan for a better interest rate. But, OP and spouse have learned to rely on credit too much. Learning that one can take out loans to pay off loans, and new increases in salary, and...... I see that as a potential lifestyle creep issue.
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retiredjg
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

I'm with you, at least in theory, for a spend thrift or someone with no impulse control. You are absolutely right that it would not solve the problem and would likely lead to the loss of the home.

I think these people have already realized the error of their ways (not cutting back when one went back to school) and have changed their approach and will be pouring money into debt instead of lifestyle for several years.

If they do what they say they are going to do, they will come out the other end of this tunnel faster and with less paid out in interest by using the home equity loan.

But you are right...if they don't do what they say they are going to do....things might get very grim indeed.

But neither of us know them - and we may not even read what they have posted in the same way.
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Toons
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Toons »

Gronnie,,,,,Dave Ramsey for paying down and then paying off debt.Forget his investing advice though.
Keep it simple.Its a matter of behavior changing. :happy
In a Nutshell

http://www.daveramsey.com/new/baby-steps/
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
nelson1015
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by nelson1015 »

retiredjg wrote:I'm with you, at least in theory, for a spend thrift or someone with no impulse control. You are absolutely right that it would not solve the problem and would likely lead to the loss of the home.

I think these people have already realized the error of their ways (not cutting back when one went back to school) and have changed their approach and will be pouring money into debt instead of lifestyle for several years.

If they do what they say they are going to do, they will come out the other end of this tunnel faster and with less paid out in interest by using the home equity loan.

But you are right...if they don't do what they say they are going to do....things might get very grim indeed.

But neither of us know them - and we may not even read what they have posted in the same way.
We are pretty much on the same page just with a slightly different tilt.

-You see it as "I think these people have already realized the error of their ways (not cutting back when one went back to school) and have changed their approach and will be pouring money into debt instead of lifestyle for several years. "

-I see it as ...The OP has been staring down this mounting consumer debt for many years. He has had to address it by taking on additional promotional credit cards to keep the problem at bay. However, the debt train has been slowly moving forward and now is right in front of him. He can no longer afford to ignore it any longer. There's no more procrastination. So he outlines what he is going to do to fix it. Fundamentally, I believe saying what you are going to do and doing it are two different things. Simply posting here doesn't change many years of bad habits. They actually haven't taken any positive steps yet. Therefore, I wouldn't advise taking any additional debt.

You're seeing the best, I'm seeing the worst. I typically am conservative in nature and like to hedge against the worst possible outcome. In the end, the OP will decide for himself but at least they can make an educated decision.
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retiredjg
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

nelson1015 wrote:You're seeing the best, I'm seeing the worst.
I do interpret things in the best possible light until I see definite evidence otherwise. It works for me. :D
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Gronnie
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

Wow, this thread really picked up today. Thanks for all the wonderful feedback. I will have to think about the pros and cons of taking on the home loan.
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retiredjg
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

Gronnie wrote:Wow, this thread really picked up today. Thanks for all the wonderful feedback. I will have to think about the pros and cons of taking on the home loan.
If you can avoid any of the CC converting from 0% to high % for more than a month or 2, you may not need the home loan. I was just assuming since your job is just starting in January and the first one goes to 13.99% on 1/13/15 that it would not be possible to head those loans off at the pass.

On the other hand, maybe all you really need is a very small loan to deal with that first balance and you'll have enough to stop those other loans from converting to high interest.

It all depends on how much money you can direct toward loans. If you could avoid the home equity loan, that would be best because there are costs to borrowing money (usually some fee on the front end) and because if you don't take out the home equity loan that could be used as your back up emergency fund.

It's worth running the numbers to see if you can do it.
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Gronnie
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

I get my first paycheck 1/2/15, so I should have 3 paychecks that month and should be able to throw close to $4k towards the first card which will almost cut that balance in half. The next month should be able to put an extra $2100 towards it. Then in March my wife has 3 paychecks so will be able to take care of the remaining balance on card 1 and put a couple grand extra towards card two. I again have a 3 paycheck month in July and my wife in August. It looks like we could payoff cards 1-4 by end of August even without a loan, but would be paying full interest on one to three of them for several months. After cards 1 through 4 are paid off, it will be no problem paying off 5 and 6 before moving on to student loans.

This is all barring no emergencies of course.

One thing to consider is that if we do the home loan it is through my wife's work's credit union; and there are no closing fees, application fees, disbursal fees, etc. We would however have to pay about $2-300 for an appraisal.
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retiredjg
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

So you need to compare the cost of the appraisal against the interest. Hmmm.

What would it cost to get a personal loan of $5k or $8k? If you had such a loan, could you avoid all interest on all cards?

I'm not making suggestions. I'm tossing out ideas to research.
BeaverFood
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Re: Help Choosing Investments and Coordinating Debt Paydown

Post by BeaverFood »

Gronnie wrote:
Here is the project monthly budget starting 1/1/2015 with no home equity loan (minimum payments on cards will increase as promos expire if I can't payoff in time) (Total: $5592):

Mortgage 1705
MN Energy (natural gas) 50
RPU (electric and water) 160
Garbage 25
Car 436
Insurance 114
Gas 300
Student Loans Her 760
Student Loans Him 600
Charter (cable/internet) 108
Food 400
Pine HVAC 16
Subscriptions 28
Cell 120
CC1 230
CC2 80
CC3 85
CC4 125
CC5 150
CC6 100

Here is projected budget if we take out home equity loan of $25k/6% interest/10 year repayment (Total: $5453):
Mortgage 1705
MN Energy (natural gas) 50
RPU (electric and water) 160
Garbage 25
Car 436
Insurance 114
Gas 300
Student Loans Her 760
Student Loans Him 600
Charter (cable/internet) 108
Food 400
Pine HVAC 16
Subscriptions 28
Cell 120
Home Equity Loan 280
CC1 85
CC2 150
CC3 100

Will easily be able to pay off remaining cards before promo expires and then move on to student loans.

Subscriptions breaks down as follows:
Sirius /XM 8
Amazon Prime 6.5
Astraweb (Usenet provider) 11
ESPN Insider 2.25
I guarantee you won't have nearly this much "extra" for debt repayment because your budget is very incompletely. Are you never going out to dinner? Grabbing Starbucks? Going to happy hour with friends? Expect no medical costs out of pocket whatsoever? There is a lot of "fluff" in your current list of expenses that could be cut, too, to help you make progress much quicker. Try this list of common budget categories and look through your bank and credit card statements from the last 3-6 months to determine what you're truly accustomed to spending and what a realistic amounts to reduce these figures to.

Common Budget Categories




Budget Categories:

BILLS

mortgage/rent
garbage
cable/Netflix
phone
internet
cell phone
electric
gas
water
alarm
life insurance
car insurance
home insurance
daycare/preschool

DEBT

(list smallest to largest by total due, include monthly minimum)
car
student loan
medical bills
(add anything else you have here - credit cards, rent to own, whatever)

MONTHLY SPENDING

auto: fuel
charity
groceries/toiletries
eating out
blow money
entertainment
college savings
retirement savings
newspaper/magazine/online subscription

SINKING FUNDS

(Take the amount you expect to spend in a year, divide by 12 and set aside this amount each month in savings.)
clothing & shoes
haircuts
pet care
gifts, parties
school expenses
household/garden
Christmas/birthdays
home maintenance (1% of house value per year)
car maintenance/tags ($75/car recommended)
medical (rx, copays, contacts, dental)
kids classes/activities
adult classes/activities
tuition
property taxes (if not included in mortgage)
adult classes
travel
AAA, etc.
new car fund

I'd suggest downgrading your wife's Pilot. A big SUV like that is really more vehicle than a young couple need and requires a lot of gas. Sell it private party and get a reasonable, more fuel efficient sedan. If you aren't underwater on the Pilot, use what you get from its sale and limit any loan you take out to ensure this move overall reduces your debt load. I wouldn't look at anything that costs more than $10k-12k before your trade in or surplus from the Pilot. You'll save on the car payment and you'll save on the gas. It's a win-win.
Topic Author
Gronnie
Posts: 339
Joined: Sun Oct 19, 2014 2:08 pm

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

BeaverFood wrote:
Gronnie wrote:
Here is the project monthly budget starting 1/1/2015 with no home equity loan (minimum payments on cards will increase as promos expire if I can't payoff in time) (Total: $5592):

Mortgage 1705
MN Energy (natural gas) 50
RPU (electric and water) 160
Garbage 25
Car 436
Insurance 114
Gas 300
Student Loans Her 760
Student Loans Him 600
Charter (cable/internet) 108
Food 400
Pine HVAC 16
Subscriptions 28
Cell 120
CC1 230
CC2 80
CC3 85
CC4 125
CC5 150
CC6 100

Here is projected budget if we take out home equity loan of $25k/6% interest/10 year repayment (Total: $5453):
Mortgage 1705
MN Energy (natural gas) 50
RPU (electric and water) 160
Garbage 25
Car 436
Insurance 114
Gas 300
Student Loans Her 760
Student Loans Him 600
Charter (cable/internet) 108
Food 400
Pine HVAC 16
Subscriptions 28
Cell 120
Home Equity Loan 280
CC1 85
CC2 150
CC3 100

Will easily be able to pay off remaining cards before promo expires and then move on to student loans.

Subscriptions breaks down as follows:
Sirius /XM 8
Amazon Prime 6.5
Astraweb (Usenet provider) 11
ESPN Insider 2.25
I guarantee you won't have nearly this much "extra" for debt repayment because your budget is very incompletely. Are you never going out to dinner? Grabbing Starbucks? Going to happy hour with friends? Expect no medical costs out of pocket whatsoever? There is a lot of "fluff" in your current list of expenses that could be cut, too, to help you make progress much quicker. Try this list of common budget categories and look through your bank and credit card statements from the last 3-6 months to determine what you're truly accustomed to spending and what a realistic amounts to reduce these figures to.

Common Budget Categories




Budget Categories:

BILLS

mortgage/rent
garbage
cable/Netflix
phone
internet
cell phone
electric
gas
water
alarm
life insurance
car insurance
home insurance
daycare/preschool

DEBT

(list smallest to largest by total due, include monthly minimum)
car
student loan
medical bills
(add anything else you have here - credit cards, rent to own, whatever)

MONTHLY SPENDING

auto: fuel
charity
groceries/toiletries
eating out
blow money
entertainment
college savings
retirement savings
newspaper/magazine/online subscription

SINKING FUNDS

(Take the amount you expect to spend in a year, divide by 12 and set aside this amount each month in savings.)
clothing & shoes
haircuts
pet care
gifts, parties
school expenses
household/garden
Christmas/birthdays
home maintenance (1% of house value per year)
car maintenance/tags ($75/car recommended)
medical (rx, copays, contacts, dental)
kids classes/activities
adult classes/activities
tuition
property taxes (if not included in mortgage)
adult classes
travel
AAA, etc.
new car fund

I'd suggest downgrading your wife's Pilot. A big SUV like that is really more vehicle than a young couple need and requires a lot of gas. Sell it private party and get a reasonable, more fuel efficient sedan. If you aren't underwater on the Pilot, use what you get from its sale and limit any loan you take out to ensure this move overall reduces your debt load. I wouldn't look at anything that costs more than $10k-12k before your trade in or surplus from the Pilot. You'll save on the car payment and you'll save on the gas. It's a win-win.
Thanks for the feedback. Eating out and toiletries is included in the $400/mo food. We are homebodies so cable is basically our whole "entertainment" category. I had not considered gifts or home maintenance, so that will be an expense to account for. With how much more we make than our projected recurring expenses, I think it will be better to just cash flow the expenses in your sinking funds category. Otherwise that money will be sitting in savings when it could have paid off high interest debt. It is definitely something to think about though and I will need to make sure we have either enough cash flow or enough in savings so that we won't have to add on to the credit card debt. Also keep in mind "income" is the absolute minimum we will make. My wife usually receives 100-200 more in shift differential, and it looks like a lot of overtime will be offered in the coming months as they are very short on nurses.

I have talked to my wife about the Pilot previously, and I don't think she is willing to part with it. I think I am going to have to let her win on this one. She doesn't have a lot of other indulgences such as expensive hobbies or a shopping habit, and is willing to pick up overtime etc, so I will let her have this. It also allowed her to get to work several times last winter when most others called in.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

If you were asking about buying a new Pilot....you know what the answer would be. But the Pilot is already 6 years old. I have to say I'm surprised it is worth that much, but I'm assuming it is. She just needs to drive it for several years after it is paid off.

Once your bills are paid, put $440 a month into a car fund so you'll have cash or at least a big downpayment for your next one.
Topic Author
Gronnie
Posts: 339
Joined: Sun Oct 19, 2014 2:08 pm

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

I was responding to the previous poster who suggested selling the Pilot. KBB says it is worth about what we owe on it, maybe a bit less (within $500-$1000).

We plan on driving it for many years to come. One of my best friends is a mechanic and keeps both our vehicles in tip top shape for very cheap. Combine that with the fact they are Hondas, and I don't think we will be replacing either vehicle for hopefully a long time.
Topic Author
Gronnie
Posts: 339
Joined: Sun Oct 19, 2014 2:08 pm

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

Well, it looks like we should be able to avoid taking out the Home Equity Loan.

My wife has a ton of vacation saved up and it is open enrollment period to sell vacation for next year, so she is going to sell about 100 hours and we will get paid that on her first paycheck in January, should be a couple thousand dollars. I was also accepted for a Chase Slate card with 0% interest until February 2016 with no balance transfer fees. They only initially approved for $3.2k credit line, but it says you can call in at activation to see about getting a higher limit. Will transfer as much as I can to that. Between the extra $2k from selling vacation and the balance transfer, there should not hardly be any time where we have to carry a balance at the full interest rate as long as we don't have any emergencies and are diligent about paying off the cards.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

I'd say you lucked out. The new CC is a little concerning, but if it will help you get out of this mess it is probably cheaper than the Home Equity Loan.

Give us an update in a year or so!
Topic Author
Gronnie
Posts: 339
Joined: Sun Oct 19, 2014 2:08 pm

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

The credit card is not for spending, it is only for the 0% interest, 0 fee balance transfer it offers. I would much rather have it at 0% and unsecured than at 6% and secured by my home.

If I wanted to run up more debt, I have plenty of available credit to do so already.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

I get it.

There is often a problem with trying to solve a debt problem with more debt vehicles. For most people, it would just be more of the same mistake...again and again. I don't think that is what you are doing. In this case, it seems very reasonable to me.

But...only your behavior, not your intentions, will determine if this is a good or bad decision.

My 11th grade teacher made a big deal out of the quote "The road to Hades is paved with good intentions". In the 11th grade, it sort of made sense but I didn't see why she made such a fuss over it. As I've grown older and hopefully wiser, the meaning has gotten much deeper and more complex.
Topic Author
Gronnie
Posts: 339
Joined: Sun Oct 19, 2014 2:08 pm

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by Gronnie »

Things are looking pretty good. With the help of a couple new balance transfers, my wife getting a bit of OT, and me deciding to liquidate my poker bankroll (about $6k, going to focus on new job and pursue poker when debt is under control), it looks like we won't have to carry any balances at full interest and if all goes well the cards will be paid off by October!

Current situation is as follows:

Discover IT $11,290.32 0% 5/10/2105 Then 15.99%
Citi Forward $5,320.75 0.99% 6/1/15 Then 17.49%
Citi Simplicity MC $5,463.57 0% 7/22/15 Then 13.99%
Chase Slate Visa $3,040.00 0% 02/2016 Then 22.99%
US Bank Visa $5,300.32 0% 02/2016 Then 16.99%
Discover More $7,440.85 5.99% 04/20/16 Then 15.99%
Citi Dividend $6,251.37 0.99% 10/01/16 Then 28.99%
Total: $44,107.18

Estimated credit card debt 1st Feb 2015: $29,XXX
Estimated average amount to be put towards cards monthly starting Feb '15: $3k (more in 3 paycheck months 4x a year, less other months, but averages to $3k)

According to my calculations, I should be able to pay the Discover IT in full at the end of January, along with an extra 1-2k towards the Citi Forward. I will keep this thread updated with progress.

I also plan to either post in this thread or start a new one once I receive a list of the funds in my 401k (through T. Rowe Price.). Will have to figure out how to invest between my wife's 403b (Fidelity, excellent choices and low ERs, but only 50% match on first 4%) and my 401k (higher ERs, 100% match on first 5%). Will only be investing up to the match in both until we are debt free except our mortgage.
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retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by retiredjg »

So if you keep it up, it looks like you will manage to pay off everything before any significant interest kicks in. That's encouraging. Just think how enjoyable poker will be when you can actually afford to play it. :happy
sailfish2
Posts: 82
Joined: Sat Aug 16, 2014 9:32 am

Re: Help Choosing Investments and Coordinating Debt Paydown

Post by sailfish2 »

The other day, I listened to a Dave Ramsey episode which humorously illustrated the nonsense of Home Equity Lines of Credit/second mortgages to pay off consumer debt, saying that by taking out one, you're financing a steak dinner over 15 -30 years.

While this was a funny and impactful depiction that will make an impression on people, the real issue is that if you file for Chapter 7 bankruptcy, you generally cannot get rid of second mortgages, home equity lines of credit (HELOCs), or home equity loans. Instead, you're likely to lose your house.

OP is wise to avoid a HELOC.

The OP has recognized that he has a spending problem, so that's the first step. I strongly recommend buying and using YNAB religiously to create a budget and input EVERY expenditure. It is a psychological tool for changing behavior, in addition to a financial planning tool.
Topic Author
Gronnie
Posts: 339
Joined: Sun Oct 19, 2014 2:08 pm

Update: Debt Free (except the house) and Baby on the Way

Post by Gronnie »

Hello all,

Just wanted to update this thread with a thank you to everyone! I am turning 31 in a couple months and wife just turned 32.

As of today we are debt free (except about $20,000 left on the student loans that her parents pay). Income is now ~95k me, ~75k her.

Also have two almost new paid for cars (a 2015 Honda CRV EX-L and a 2016 Kia Forte5 EX).

Balance sheet looks pretty good:
$16k cash / emergency fund
~7.7k HSA
~9k his Roth IRA
~7.2k her Roth IRA
~30.8k his Traditional 401k
~26.9k her Traditional 401k

~201k owed on house worth ~260k (about 6 months into a 10/1 ARM at 3.125%, we refi and used some equity to pay off some of the much higher interest student loans)

Baby girl is on the way in July, so far now putting 5% in 401ks to get the match and piling up cash, after which we plan to start maxing out the IRAs again and putting more in the 401ks, as well as trying to have the house paid off by the 10 year adjustment on the ARM.

Future looks bright now that we are out of the grip of all that debt!!!
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