Expecting 1st Child - Pay Down Debt or Increase Savings?

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Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby PreemieNurse » Thu Apr 04, 2013 1:02 pm

We are thrilled to have recently learned we are pregnant, so now I come to you once again for some financial advice. We have a chunk of credit card debt and unfortunately, a small savings account (infertility treatment with no insurance coverage is very expensive but we felt it was worth it in the big picture). Now that we aren't spending a fortune in medical care, we will typically have about $1000 extra a month leftover after all expenses and 403b contribution are covered.

Do you think it would be more prudent to stop paying extra on our credit cards or increase our rainy day fund, or a mix of both? I'm due in late November so we have a decent amount of time to save money. I will have 6-8 weeks of paid maternity leave but they only pay 75% of my normal pay. I'm mainly concerned about having enough money for bills if I have to leave work early and go on bed rest (my job is physically demanding and working from home is not possible). On the other hand, the APR on credit card debt is so much higher than what we earn in a savings acct.

I also contribute $200/mo to an IRA in addition to my 403b. Should I stop that this year and use that money instead for debt reduction or additional savings? I feel like I have many competing priorities for our money and am having a hard time deciding on the best strategy.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby Old Guy » Thu Apr 04, 2013 1:05 pm

Retirement comes first
Pay down debt
Save for college
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby tyrion » Thu Apr 04, 2013 1:13 pm

Sounds like you are saving for retirement already (good!) but have to do some short term restructuring.

I'm assuming your husband also works. If one of you is out of work, how do the finances look? Can you survive on one salary? If not, time to really work on increasing the emergency fund.

Do you get a match on your 403b? If not, I would pay off credit card debt and increase emergency funds. If so, contribute up to the match.

Scrap the IRA contribution for now. Again, emergency fund and pay off credit card debt.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby Grt2bOutdoors » Thu Apr 04, 2013 1:14 pm

How much debt on CC do you have left?

Congrats on the baby!
My vote is to take the extra $1K per month - send half to the CC on top of your normal payment and send half to your EF.
Yes, retirement savings comes first, but if you are paying 11% and higher, sorry, but no retirement fund will be returning that for the foreseeable future. Get rid of the CC debt, and try try not to fall into that trap again! You will have enough expenses when your baby arrives.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby JamesSFO » Thu Apr 04, 2013 1:17 pm

I would do a mix, make sure you have a 6-12 month emergency fund and then aggressively pay down the debt. Given that you have ~9 months and thus $9K to "play" with here, I would prioritize the emergency fund quite honestly because you may need to tap it when the baby comes.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby retiredjg » Thu Apr 04, 2013 1:24 pm

Credit card debt is usually very high interest - 8% to 20%. I think paying that down aggressively is top priority, with maybe some money going to your emergency fund as well.

If necessary, I would even reduce retirement savings to pay off high interest credit card debt. It does not make sense to me to be paying out 10% on the credit card if you cannot guarantee at least a 10% return on investments (you can't).
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby T_in_ATL » Thu Apr 04, 2013 1:30 pm

I definitely agree that paying down high-interest CC debt should be a priority, and also that having funds on hand when the baby arrives is also important. Thus, the "mix" approach that others have suggested seems reasonable (at least given the limited information we have to go on).

One person suggested that you not contribute to the IRA right now. I would suggest that you might continue making those contributions if:
1. it's a Roth IRA that you are contributing to, AND
2. you already have some some reasonable amount of cash in your emergency fund (you'll have to determine what "reasonable" is for you)

Here's why: Contributions (not earnings) you make to a Roth IRA can be withdrawn without penalty (see link below). So, if you're in a position where you have some cash accessible,it may not be necessary to build your emergency fund to the often-recommended 3-12 months of living expenses. You might consider accumulating $X in liquid cash that you can easily dip into if needed, and then sending the rest of your "emergency fund" contributions to the Roth IRA in the hopes that you won't need to pull it back out. (Disclaimer: having never pulled money out of a Roth IRA, I don't know how long it would take between the time you made the request and when the $ was available to you if you did have to withdraw...)
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Last edited by T_in_ATL on Thu Apr 04, 2013 1:36 pm, edited 1 time in total.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby YttriumNitrate » Thu Apr 04, 2013 1:36 pm

PreemieNurse wrote:Do you think it would be more prudent to stop paying extra on our credit cards or increase our rainy day fund, or a mix of both? I'm due in late November so we have a decent amount of time to save money.


My answer would depend the interest rates you are paying on the credit cards, how confident you are of the credit card lines of credit being available in the event of a rainy day, and your risk tolerance.

If the credit cards are at 18% and you two have rock solid job security, it might be reasonable to put 80% towards paying off the cards and 20% towards the emergency fund.

If the cards are at 5% and you think you might get laid off soon, then putting just about everything toward the emergency fund would probably be a good idea.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby PreemieNurse » Thu Apr 04, 2013 2:15 pm

Here are some more details:

Job Security - my husband works for his parents and I'm an RN. My job is constantly understaffed and they beg me to come in and work overtime constantly, so our jobs are quite stable. We both work full time.

Credit card debt - $10k at 14.99% APR (it pains me to type that out)

My retirement - I contribute to my 403b to get the maximum match. My IRA is traditional, but I suppose I could put those contributions on hold and we could open a Roth IRA in my husband's name and funnel the extra rainy day money there. It would probably earn more money there than in our savings too.

We both have very generous credit lines (~$40,000 in available credit between us both right now) so that's why we were putting most of our extra money towards debt reduction and our savings is meager, knowing that we could fall back on our credit cards for things like food, gas, etc should an emergency arise.

I'm leaning towards dropping my $200 IRA contribution, paying down as much credit card debt as possible in the first couple of months, and then padding our savings (by way of opening a new Roth IRA in husband's name) as we get closer to delivery of baby. Once I'm feeling less exhausted, I may be able to pick up some overtime shifts to help accelerate our savings and accrue more vacation time for paid maternity leave.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby bungalow10 » Thu Apr 04, 2013 2:20 pm

Personally I'd pay that debt down ASAP. I'm guessing daycare costs are going to eat up most of the $1k you have available in your current budget. Get that debt paid off before the baby comes or you might end up carrying it around longer than you would ever want to.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby retiredjg » Thu Apr 04, 2013 2:33 pm

PreemieNurse wrote:Credit card debt - $10k at 14.99% APR (it pains me to type that out)

At that rate, this takes priority over everything except contributing to the 403b enough to get the match. I'd split all the "extra money" to something like 70 -80% to the CC and 20% - 30% to emergency fund.


...we could open a Roth IRA in my husband's name and funnel the extra rainy day money there. It would probably earn more money there than in our savings too.

If this is your emergency fund, it should be invested in very low risk investments. So I doubt it will make a lot more.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby momar » Thu Apr 04, 2013 3:09 pm

Does your employer match per pay period (meaning if you dont contribute during a period, you dont get the match) or will they even you up for the year if your contributions are uneven? If the latter, I would stop contributions to pay off the debt and then make them up later in the year.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby PreemieNurse » Thu Apr 04, 2013 4:04 pm

Momar - good point about the 403b, I will have to look into that. I always assumed it was per paycheck rather than annually.

As for daycare, I expect that we would have very little need for it. As a nurse, I work 3 12 hour night shifts and this is considered full time. My husband works days 8-5, so one of us would always be available. On the days in between my night shifts, if I needed someone else to care for the baby while I sleep, my MIL already said she will watch the baby or I could elect to work weekends when my husband is off. At worst, it would be part time day care one or two days a week. As we pay down credit card debt, that would free up even more disposable income as well to compensate for increased spending on the baby.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby wageoghe » Thu Apr 04, 2013 4:18 pm

You might consider transferring your CC debt to a lower rate card with a good grace period for transfers. Some of the credit card companies appear to offer very generous terms (0% on transfers made in first 30-60 days for as long as 12-18 months). I got that information by going to http://www.bankrate.com and querying for Balance Credit Cards. This would give you the luxury of putting more towards your emergency fund rather than towards CC debt without incurring excessive interest. That could be valuable, because you might be better off building up a nest egg before paying off the CC debt. If you managed to get an 18 month grace period, then you could pay about $555 towards your debt every month and be paid off after 18 months without paying any interest.

I haven't ever transferred a CC balance, so I can't really comment on all of the possible ins and outs of doing so. I suspect that there are downsides, like what happens if you don't pay off your entire transferred balance before the grace period is over? I don't know.

If I were in your shoes, I think that I would rather have money in my pocket as my first priority, so I would focus on increasing the EF.
If you can transfer your CC debt, pay it off at a rate such that you minimize the amount of interest you have to pay, but use the grace period to your advantage.
If you get an employer match, consider continuing to contribute the minimum required to get the match. It won't kill you to stop your contribution until you have your CC debt straightened out and your EF beefed up, so I don't think I would sweat it too much.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby AustenNut » Thu Apr 04, 2013 7:00 pm

With a 14.99% interest rate on the cc debt, I would pay that off first. I second the recommendation of looking into a credit card with a good balance transfer option. We did that with a Citicard cc that offered 0% interest with a 3% transfer fee. We transferred my husband's car 9.9% car loan on to it, and definitely saved money. Just make sure you pay it off before the promotional rate expires. Most of those balance transfer cards charge 2-3% on the balance transferred, but once I did hear about a card with a 0% transfer fee as well (don't remember what it was).

Congratulations on the pregnancy, and I hope it goes well for you.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby Calm Man » Thu Apr 04, 2013 7:14 pm

I would work as much as possible and take all the shifts you can get. It is a tough spot to have a first child with expenses that you do not even know are going to happen and have a negative net worth. Pay down the debt, You still have the credit line if needed but it sounds like you guys use it over the ability to pay it, which is not good. Good luck with the child.,
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby MathWizard » Thu Apr 04, 2013 7:23 pm

AustenNut wrote:With a 14.99% interest rate on the cc debt, I would pay that off first. I second the recommendation of looking into a credit card with a good balance transfer option. We did that with a Citicard cc that offered 0% interest with a 3% transfer fee. We transferred my husband's car 9.9% car loan on to it, and definitely saved money. Just make sure you pay it off before the promotional rate expires. Most of those balance transfer cards charge 2-3% on the balance transferred, but once I did hear about a card with a 0% transfer fee as well (don't remember what it was).

Congratulations on the pregnancy, and I hope it goes well for you.


Yes, transfer to another 0% interest card promotion, if you can, especially if you feel you can pay it off, or
just to a lower interest card if you can find one.

One other strategy if transfer is not an option is to stop charging on a credit card with a balance.
If you carry a balance, interest is charged from the moment you use it.

If you use a credit card, either use one you already have that has a zero balance, or get a new one, and
don't carry a balance on the new one. If you are normally charging $300 a month for the convenience of a CC, on
a card with no balance, you pay nothing for the convenience. If you do this on a card with a balance, you
pay 15% for that covenience.

I have a SIL who is an RN, and she likes to work most holidays, because she gets double pay on a holiday.
She then shifts the holiday celebration to another weekend. You may want to consider that even if you don't
take any overtime. If your husband is off on the holidays, you won't have to get daycare. This does not need to
be a permanent situation, just until you get the CC debt hacked down.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby Watty » Thu Apr 04, 2013 9:05 pm

If you have a paid off car that is worth a significant amount then one alternative to consider would be to get a low interest car loan and use the money to pay off the high interest credit card. PenFed has them for less than 2%,
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby WVUGuy275 » Fri Apr 05, 2013 8:51 am

Congratulations on the baby!!

PreemieNurse wrote:Credit card debt - $10k at 14.99% APR (it pains me to type that out)


I am not aware of any investment with ~15% guaranteed return. I suggest paying off the credit card debt first.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby PreemieNurse » Fri Apr 05, 2013 9:20 am

Thanks for all the advice. I just recently applied for a PenFed card so I don't want to get any new credit lines, but I logged in today to see that they are offering 4.99% fixed APR for balance transfer with no fees. That could help us pay off the credit card debt faster.

I will work as much overtime as I possibly can, but I have to balance that with my health and that of the baby. Working 12 hour night shifts as a nurse can be pretty fatiguing at the best of times. After we just spent ~$22k in out of pocket fertility treatments over the last 2 years to achieve this pregnancy, I'm not going to risk my pregnancy just to pay off the credit card a little faster, but will pick up extra shifts as my energy allows.

I'm hoping to set up my husband's Roth IRA with Vanguard. Can you recommend a good fund for our backdoor savings? Stability would be more important than return in this case.
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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby TomatoTomahto » Fri Apr 05, 2013 11:46 am

PreemieNurse,
If I remember correctly, on a different thread you said that you were concerned about the odds of your becoming pregnant. I would of course congratulate you regardless, but if my memory is in fact correct, I think you should be doubly congratulated.

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Re: Expecting 1st Child - Pay Down Debt or Increase Savings?

Postby retiredjg » Fri Apr 05, 2013 12:29 pm

PreemieNurse wrote:I'm hoping to set up my husband's Roth IRA with Vanguard. Can you recommend a good fund for our backdoor savings? Stability would be more important than return in this case.

Money market and/or short term bond index. It depends on how much you have outside the Roth as emergency fund.
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