I am trying to get my finances in order, and I am looking for some advice on prioritizing my options for my excess income.
I have seen a number of people say that paying PMI is a waste. I currently pay about $141 a month in PMI, and I'm $25k away from getting out of it (maybe $15k if the bank would agree that my home has appreciated). It will take about 3 more years to get that $25k in equity if I am making the minimum payment, which I currently do because I pay more on my student loans, which have a much higher rate.
I also have a defaulted loan that is about $20k that needs to be paid off in 4 years before my father-in-law's chapter 13 bankruptcy ends (he cosigned my wife's student loans and then filed bankruptcy without warning us).
Emergency fund: 3 months
$225,000 mortgage @ 3.75% with $141 pmi
$40,000 student loans @ 6.6%
$34,000 student loans @ 4.5% (not defaulted, but not required to pay because of the bankruptcy, although I pay every month because the interest is still accruing)
$20,000 defaulted student loans @ 4.5%
no other debt
His 401k: employer match up to 4% ($4,560)
Her 401k: employer match up to 6% ($3,480)
If make the minimum payments on my debt, I can allocate about $33,000 extra a year to reduce these debts and save for retirement. So, how would you allocate? I can update this post with additional information if it would help.
Prioritizing Finances
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Prioritizing Finances
Last edited by Gropes & Ray on Thu Jul 24, 2014 1:47 pm, edited 1 time in total.
Re: Prioritizing Finances
I'd vote for putting everything to the 6.6% student loan and have it paid off in a little over a year.
Re: Prioritizing Finances
I'd get the 401k match, then put all other available funds to the 6.6% loan. After that, pay down the mortgage to kill the PMI.
Re: Prioritizing Finances
Are the defaulted loans on your wife's credit report (in a derogatory way)? I'm thinking it might be good to get those out of the way first so that the timer will start running to have them age off your reports (I believe its 7 years since the date of last activity) - the sooner they are paid off, the earlier the "date of last activity" will take place, and the sooner the 7 years will be up. I'm not certain it works exactly like that but I've seen a few discussions at different sites about that tactic.
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Re: Prioritizing Finances
They are reported as a single charge off, but cannot be reported again until the bankruptcy ends. Her credit score dropped to about 700. Mine is about 810. I added her as an authorized user to my cc so that her credit rebounds asap. But I don't think we will need any new debt in the near future.
I think I am going to pay down the 6.6% student loans (after getting the 401k match). If I put off a few things I have been saving for, I think I can actually pay them off in 9 months. Then pay down the mortgage to eliminate the PMI or start funding the 401k? PMI is actually $141.
I think I am going to pay down the 6.6% student loans (after getting the 401k match). If I put off a few things I have been saving for, I think I can actually pay them off in 9 months. Then pay down the mortgage to eliminate the PMI or start funding the 401k? PMI is actually $141.
- Peter Foley
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Re: Prioritizing Finances
I agree with the approach Student Loan, then mortgage to eliminate PMI. Since you seem to be taking this approach, you can be a little more aggressive in your 401k plans (maybe as high as 80/20) if you feel you have the risk tolerance.