Help with paying off debt

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Help with paying off debt

Postby schutzk21 » Sat Jan 07, 2017 5:14 pm

Hello everyone,

This is my first post. I have been floating around the forums on this site for quite a while, and I figured now is the time to see if I can get some help.

My wife and I make about 88K per year- gross. This comes out to about $4700 take home pay each month. Our bills are as follows:

Mortgage- $1350 per month ($159K remaining on mortgage)- 30 year fixed- PMI will go away once mortgage balance hits 143K
Car payment 1: $255 per month with 36 months remaining (3.28% interest) 8k remaining balance
Car payment 2: $270 per month with 48 months remaining (0% interest) 13k remaining balance
Student Loan $6250 remaining (not being billed yet, as I am still in school.) Will start to be billed in about 4 months. Interest is at 3.6%
Only credit card debt is on a Best Buy card at 0% interest with a balance of $478 remaining

My wife contributes 6% to her 401k and I currently only have a fully funded pension I am contributing to at 4.5% each paycheck. I am currently just trying to pay off my cars and student loan debt before I start investing anymore. I do not have any other major payments except for phones at $150 per month, groceries, food, etc. We do not have any kids and we are 27 and 28 years old. We plan on trying to have a baby in about August-September.

So, my questions are, what is your advice on what debt to attack most? Should we concentrate on paying down our mortgage before throwing extra money at anything else? Any tips would be greatly appreciated. Thank you!

mortfree
Posts: 330
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help with paying off debt

Postby mortfree » Sat Jan 07, 2017 6:22 pm

First, set aside at least $1000 for EF. If you already have an EF, great.

Debt order:
Best Buy immediately.

Student loan

Start investing at this point if you haven't already*.

Car loan 1- I would pay $300/month when above debt is done.

Car loan 2- don't accelerate.

Mortgage - extra only so you can get rid of PMI.

*Are either or both of you eligible for a Roth? I would do some contributions now (2016 till April 18).

At this stage it is all about balance. Focus should be on retirement savings, EF, and debt.

brad.clarkston
Posts: 451
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Help with paying off debt

Postby brad.clarkston » Sat Jan 07, 2017 6:24 pm

I'd go with the simple Dave Ramsey Baby Step's snowball method.

Baby Step 1 – $1,000 to start an Emergency Fund
Baby Step 2 – Pay off all debt using the Debt Snowball
Baby Step 3 – 3 to 6 months of expenses in savings
Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
Baby Step 5 – College funding for children
Baby Step 6 – Pay off home early
Baby Step 7 – Build wealth and give!

#2 is a bit more complicated.

    2.1.) Make a paper budget where every dollar is assigned.
    2.2.) Make all minimum payments.
    2.3.) Take your extra money and pay off the smallest debt first. Then take that extra money and pay off the next smallest hence a snowball.

#4 is where Bogleheads and Mr. Ramsey parts company. He says to not save anything for retirement during steps #1-3 becouse you can pay the snowball off faster that way and get into #4 with the full weight of your money.

Bogleheads will tell you to at lest do your company 401k match while doing said snowball. I do agree mostly, do not over think your retirement plans if you have any debt beyond a mortgage. Put it into a balanced Target or Freedom fund and forget about it until your into Step #4 or more than $100k.

If you can company match a 401k and still snowball debt then great if you can't and keep adding to the debt then really get behind the Baby Steps until it's done. Mr. Ramsey's system is about behavioral modification not logic/math.

Mr. Ramsey is about debt payment that's fine to do but do not listen to closely to his investment strategy it's muddled at best. He's slowly changing his mind and his business model on investments but once your to step #4 this forum (bogleheads.org) starts to really shine.

brad.clarkston
Posts: 451
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Help with paying off debt

Postby brad.clarkston » Sat Jan 07, 2017 6:29 pm

mortfree wrote:First, set aside at least $1000 for EF. If you already have an EF, great.

Debt order:
Best Buy immediately.

Student loan

Start investing at this point if you haven't already*.

Car loan 1- I would pay $300/month when above debt is done.

Car loan 2- don't accelerate.

Mortgage - extra only so you can get rid of PMI.

*Are either or both of you eligible for a Roth? I would do some contributions now (2016 till April 18).

At this stage it is all about balance. Focus should be on retirement savings, EF, and debt.


I'll have to respectfully disagree it's the debt that are killing them that has to be rectified first. Balance is a logic/math issue while debt is a heart/emotion thing (I want!, I want!, I want!)

Once the debt is gone except for mortgage/rent then they can really start investing capital at a alarming rate. I know I did.

mortfree
Posts: 330
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help with paying off debt

Postby mortfree » Sat Jan 07, 2017 6:41 pm

brad.clarkston wrote:
it's the debt that are killing them that has to be rectified first.


$600 in consumer debt payments for someone at that age vs $4700 per month take home is not killing them. People need cars. One student loan at $6200. They are leveraging debt at this point where the max interest is in the low 3%.

I would need more budget details to know that they are drowning. Also a timeline for when the student loan could be paid off.

Roth contributions could be small, say $150/month early on. Need to establish that now and not lose the time. Something is better than nothing

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Sat Jan 07, 2017 7:42 pm

I totally failed to mention that we have about 19k in cash. We had about 8k in the bank until we recently received a life insurance benefit from a family member that passed. I think what we have in our account will be kept as our EF.
I opened a Roth Ira on vanguard for myself a few months ago but haven't contributed to it yet. I was thinking about buying Vanguard ETF's since its free to trade. Simply just
Invest in 4 different ETF's. Is this okay to do? I will be opening a roth ira for my wife soon.

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Sat Jan 07, 2017 7:46 pm

brad.clarkston wrote:
mortfree wrote:First, set aside at least $1000 for EF. If you already have an EF, great.

Debt order:
Best Buy immediately.

Student loan

Start investing at this point if you haven't already*.

Car loan 1- I would pay $300/month when above debt is done.

Car loan 2- don't accelerate.

Is there a reason why you reccommend only investing in a roth from only 2016-2018?



Mortgage - extra only so you can get rid of PMI.

*Are either or both of you eligible for a Roth? I would do some contributions now (2016 till April 18).

At this stage it is all about balance. Focus should be on retirement savings, EF, and debt.


I'll have to respectfully disagree it's the debt that are killing them that has to be rectified first. Balance is a logic/math issue while debt is a heart/emotion thing (I want!, I want!, I want!)

Once the debt is gone except for mortgage/rent then they can really start investing capital at a alarming rate. I know I did.

mortfree
Posts: 330
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help with paying off debt

Postby mortfree » Sat Jan 07, 2017 7:52 pm

Sorry that is shorthand. Means you can add 2016 contributions in your ROTH until April 18, 2017. Then begin adding 2017 contributions after April 18th.

Continue to do a ROTH for as long as you're allowed. Max is $5500 for you plus $5500 for your wife.

Novine
Posts: 1164
Joined: Mon Nov 17, 2008 9:07 pm

Re: Help with paying off debt

Postby Novine » Sat Jan 07, 2017 7:53 pm

What's the interest rate on the home loan? How much are you paying per month in PMI?

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Sat Jan 07, 2017 8:03 pm

Novine- Our interest for the home loan is 4.375% and our PMI is about $95 each month.

fpr4
Posts: 190
Joined: Mon Jun 13, 2016 8:47 pm

Re: Help with paying off debt

Postby fpr4 » Sun Jan 08, 2017 12:05 am

schutzk21 wrote:I totally failed to mention that we have about 19k in cash. We had about 8k in the bank until we recently received a life insurance benefit from a family member that passed. I think what we have in our account will be kept as our EF.
I opened a Roth Ira on vanguard for myself a few months ago but haven't contributed to it yet. I was thinking about buying Vanguard ETF's since its free to trade. Simply just
Invest in 4 different ETF's. Is this okay to do? I will be opening a roth ira for my wife soon.


If you have $19k in savings then I would pay off Best Buy, car #1 and the student loan. Then you have $4k left over for an emergency fund and it's a new year so you can immediately start investing. Max out your roths and then have your wife invest up to the match in 401k.

Second option for me would be to max both roths at $11k, pay off best buy tomorrow and then spend the rest of the year getting rid of the student loan and car #1.

Since you are relatively young, I would recommend option #1. Setup a vanguard account for each of you and then set the auto-debit to come out the days you are paid. The website has an option to max out contributions over whatever interval you want. So if you are paid biweekly, it will calculate what you need to contribute biweekly to max. Estavlishing these habits early can be crucial. Then it's like the money was never even there to spend.

brad.clarkston
Posts: 451
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Help with paying off debt

Postby brad.clarkston » Sun Jan 08, 2017 12:32 am

fpr4 wrote:
schutzk21 wrote:I totally failed to mention that we have about 19k in cash. We had about 8k in the bank until we recently received a life insurance benefit from a family member that passed. I think what we have in our account will be kept as our EF.
I opened a Roth Ira on vanguard for myself a few months ago but haven't contributed to it yet. I was thinking about buying Vanguard ETF's since its free to trade. Simply just
Invest in 4 different ETF's. Is this okay to do? I will be opening a roth ira for my wife soon.


If you have $19k in savings then I would pay off Best Buy, car #1 and the student loan. Then you have $4k left over for an emergency fund and it's a new year so you can immediately start investing. Max out your roths and then have your wife invest up to the match in 401k.

Second option for me would be to max both roths at $11k, pay off best buy tomorrow and then spend the rest of the year getting rid of the student loan and car #1.

Since you are relatively young, I would recommend option #1. Setup a vanguard account for each of you and then set the auto-debit to come out the days you are paid. The website has an option to max out contributions over whatever interval you want. So if you are paid biweekly, it will calculate what you need to contribute biweekly to max. Estavlishing these habits early can be crucial. Then it's like the money was never even there to spend.


+1 on Option #1.

User avatar
BL
Posts: 6777
Joined: Sun Mar 01, 2009 2:28 pm

Re: Help with paying off debt

Postby BL » Sun Jan 08, 2017 1:15 am

There is a lot of good reading in the Wiki, especially "Getting Started".
There are also some recommended books; pick one or two.
In the meantime here is an excellent pdf to get your started, written especially for new investors:
https://www.etf.com/docs/IfYouCan.pdf

If you can save up $1,000 for the Roth IRA, you could buy a well-balanced Target Date fund. You can add smaller amounts to that automatically from your bank or savings account.

Not that I recommend doing it, but it is good to know that contributions only to Roth can be withdrawn without penalty, so it could be considered a backup EF in a serious emergency.

Carl53
Posts: 1367
Joined: Sun Mar 07, 2010 8:26 pm

Re: Help with paying off debt

Postby Carl53 » Sun Jan 08, 2017 6:11 am

Your PMI is raising your effective home loan interest rate to about 5%. Generally I would go along with most of the other suggestions made here, but in your case plunking down 16k and knocking out the PMI saves $95 per month. This is considerably more than the sum total of monthly interest in all of your other loans. Review the details of your loan before doing so in case there are timing issues such as PMI only resetting on the first of the year (just missed it) or on the loan anniversary. Another possibility would be refinancing but interest rates have crept up and you would be at the mercy of an appraiser deeming you have 20% equity in your home after applying any value growth and possibly much of the 19k savings and you would incur several k of refinancing costs.

mortfree
Posts: 330
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help with paying off debt

Postby mortfree » Sun Jan 08, 2017 7:06 am

A word of caution on going crazy using EF to payoff a lot of debt. As a homeowner you could face expensive repairs so having that 19k cash is helpful. The little bit of interest that you are paying on the cars is an insurance policy. If you have an emergency where are you going to be able to borrow money at 3-5%?


Do you know what your monthly savings rate is? That may help to determine your debt plan.

And if you haven't already you should have an amortization schedule for the mortgage, two car loans and the student loan. Great tool for modeling accelerated payments.

User avatar
new2bogle2
Posts: 373
Joined: Sun Dec 29, 2013 12:49 pm

Re: Help with paying off debt

Postby new2bogle2 » Sun Jan 08, 2017 12:54 pm

schutzk21 wrote:
My wife and I make about 88K per year- gross. This comes out to about $4700 take home pay each month. Our bills are as follows:

Mortgage- $1350 per month ($159K remaining on mortgage)


Great questions .
A good rule of thumb is 1/4 take home pay should equal a mortgage payment. You're just a tad over but it won't be much of a difference after PMI, so that's good.

You said you're still in school -- what are you studying? Will you work more hours or get more pay or be qualified for a new job after the schooling? How much longer will you be in school?

User avatar
Toons
Posts: 11602
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Help with paying off debt

Postby Toons » Sun Jan 08, 2017 1:00 pm

Car payment 1: $255 per month with 36 months remaining (3.28% interest) 8k remaining balance
Student Loan $6250 remaining (not being billed yet, as I am still in school.) Will start to be billed in about 4 months. Interest is at 3.6%
Car payment 2: $270 per month with 48 months remaining (0% interest) 13k remaining balance
Mortgage- $1350 per month ($159K remaining on mortgage)- 30 year fixed- PMI will go away once mortgage balance hits 143K


Pay them off in that order.
One by one.
Focus.
Make it Happen. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Sun Jan 08, 2017 9:03 pm

So my degree is in Business Administration with a Concentration in Finance. I have one more semester left and I will have my Bachelors Degree. My employer has been paying for all tuition the last two years. I have the $6250 loan from before I started with this employer. I plan on going further with my education and getting a Masters in either Finance or Management Information Systems. The crappy thing is that I am not sure what I can really apply my degree towards. Any ideas? I really appreciate all the responses on here. This is helping a ton. Thank you!

Danzangdc
Posts: 62
Joined: Sun Oct 13, 2013 7:59 am

Re: Help with paying off debt

Postby Danzangdc » Sun Jan 08, 2017 9:59 pm

Carl53 wrote:Your PMI is raising your effective home loan interest rate to about 5%. Generally I would go along with most of the other suggestions made here, but in your case plunking down 16k and knocking out the PMI saves $95 per month. This is considerably more than the sum total of monthly interest in all of your other loans. Review the details of your loan before doing so in case there are timing issues such as PMI only resetting on the first of the year (just missed it) or on the loan anniversary. Another possibility would be refinancing but interest rates have crept up and you would be at the mercy of an appraiser deeming you have 20% equity in your home after applying any value growth and possibly much of the 19k savings and you would incur several k of refinancing costs.


+1 Kill PMI immediately.

Carl53
Posts: 1367
Joined: Sun Mar 07, 2010 8:26 pm

Re: Help with paying off debt

Postby Carl53 » Mon Jan 09, 2017 5:18 am

Danzangdc wrote:
Carl53 wrote:Your PMI is raising your effective home loan interest rate to about 5%. Generally I would go along with most of the other suggestions made here, but in your case plunking down 16k and knocking out the PMI saves $95 per month. This is considerably more than the sum total of monthly interest in all of your other loans. Review the details of your loan before doing so in case there are timing issues such as PMI only resetting on the first of the year (just missed it) or on the loan anniversary. Another possibility would be refinancing but interest rates have crept up and you would be at the mercy of an appraiser deeming you have 20% equity in your home after applying any value growth and possibly much of the 19k savings and you would incur several k of refinancing costs.


+1 Kill PMI immediately.


Another way of thinking of it is that 16k applied to your loan now saves you 4.375% interest on that amount plus $95/month ($1140 per year) equivalent to another 7.1%. Not much else out there that has a north of 11% guaranteed return.

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Mon Jan 09, 2017 9:50 am

Carl, that is a great point. I never thought of that.

*So just an update. I took everyone's advice into account, and it seems like the most common advice was to pay off the Best Buy card completely. I just made a payment for the full amount this morning, so that is now GONE and it feels great. I am going to try and knock out the school loan as quick as possible over the next 5-6 months. I really like the idea of holding on to the extra cash I have just to insure myself if there are any repairs that I may need on my house. If there any other suggestions out there, go ahead and fire away. I am so glad I came on and posted on the forum. I am so ready to pay off all my debt and invest as much as possible.

What is everyone's thought on the car payments? Should those just continue to be paid the regular monthly amount? Maybe the house and PMI should come first since my interest rates on the cars aren't too high.

retire57
Posts: 183
Joined: Fri Oct 28, 2016 3:03 pm

Re: Help with paying off debt

Postby retire57 » Mon Jan 09, 2017 10:09 am

schutzk21 wrote:Carl, that is a great point. I never thought of that.

*So just an update. I took everyone's advice into account, and it seems like the most common advice was to pay off the Best Buy card completely. I just made a payment for the full amount this morning, so that is now GONE and it feels great. I am going to try and knock out the school loan as quick as possible over the next 5-6 months. I really like the idea of holding on to the extra cash I have just to insure myself if there are any repairs that I may need on my house. If there any other suggestions out there, go ahead and fire away. I am so glad I came on and posted on the forum. I am so ready to pay off all my debt and invest as much as possible.

What is everyone's thought on the car payments? Should those just continue to be paid the regular monthly amount? Maybe the house and PMI should come first since my interest rates on the cars aren't too high.


Pay off the cars before your mortgage. The point is to get rid of your consumer debt. The way to wealth is to get out of debt and STAY out of debt. Find an investment calculator and see how that money you are currently sending to stores, banks, Best Buy etc ... will compound over the years.

Here's a simple one: http://www.bankrate.com/calculators/sav ... -tool.aspx

Maverick3320
Posts: 327
Joined: Tue May 12, 2015 2:59 pm

Re: Help with paying off debt

Postby Maverick3320 » Mon Jan 09, 2017 10:28 am

In your shoes I would probably leave the 0% car payment as is. 3.28% is a bit higher, but not the worst thing in the world; I would probably just pay ahead on that. Same for the student loan.

With kids in the near future, I would establish a decent emergency fund - at least 5,000, depending on your health insurance and job stability. After that, start beefing up the retirement savings.

mortfree
Posts: 330
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help with paying off debt

Postby mortfree » Mon Jan 09, 2017 10:37 am

schutzk21 wrote:
*So just an update. I took everyone's advice into account, and it seems like the most common advice was to pay off the Best Buy card completely. I just made a payment for the full amount this morning, so that is now GONE and it feels great. I am going to try and knock out the school loan as quick as possible over the next 5-6 months. I really like the idea of holding on to the extra cash I have just to insure myself if there are any repairs that I may need on my house.

What is everyone's thought on the car payments? Should those just continue to be paid the regular monthly amount? Maybe the house and PMI should come first since my interest rates on the cars aren't too high.


glad to see you paid off best buy - congrats!

Your cars will be paid off long before your mortgage is - even at the normal car payment. Like I said earlier, if anything round up that payment on the car loan with interest to $300/month if it doesn't interfere with other debt repayment OR retirement savings.

I think you will get the most bang for your buck if you can get the mortgage down to where PMI goes away - I've heard that isn't automatic either so you will have to contact the lender and remind them to remove it when it gets to 80%.

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Mon Jan 09, 2017 11:10 am

So would you recommend doing $300 on car loan #1, and then attack the student loan along with starting investing? I want to do 15% of my gross income, but I feel like I should at pay off my student loan and get my PMI out of the way before I do the full 15%.

User avatar
JupiterJones
Posts: 2463
Joined: Tue Aug 24, 2010 3:25 pm
Location: Nashville, TN

Re: Help with paying off debt

Postby JupiterJones » Mon Jan 09, 2017 11:18 am

brad.clarkston wrote:I'd go with the simple Dave Ramsey Baby Step's snowball method.


Seconded. At least as far as Step 2 is concerned.

There are many points on which Mr. Ramsey and I disagree, but the "snowball" approach* is what I would do if I were the OP.



* List all non-mortgage debts in order, smallest-to-largest balance. Pay minimum payments on everything but the smallest. Throw everything you have at the smallest until it's paid, then move to the next-smallest.
Stay on target...

mortfree
Posts: 330
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help with paying off debt

Postby mortfree » Mon Jan 09, 2017 11:33 am

schutzk21 wrote:So would you recommend doing $300 on car loan #1, and then attack the student loan along with starting investing? I want to do 15% of my gross income, but I feel like I should at pay off my student loan and get my PMI out of the way before I do the full 15%.


I think my overall point is trying to balance everything. You are in a decent position; just need to be aware that life will always bring expenses. People say they will start investing after debt is paid but then something else pops up. for instance, child care is on your horizon.

Focus on the student loan - I believe you said that could be paid off in 5-6 months. then the PMI/mortgage. Maybe your retirement savings could be 7-8% now.

I see the $45 extra on the car payment as not breaking the bank but if you need to put it towards student loan, retirement or mortgage then do that.

Your debt payoff and savings strategy will change over time. Always a good idea to continually evaluate your plan

User avatar
new2bogle2
Posts: 373
Joined: Sun Dec 29, 2013 12:49 pm

Re: Help with paying off debt

Postby new2bogle2 » Mon Jan 09, 2017 11:43 am

schutzk21 wrote:The crappy thing is that I am not sure what I can really apply my degree towards. Any ideas? I really appreciate all the responses on here. This is helping a ton. Thank you!


Maybe this is an old man talking but why spend time, money and energy to get a few pieces of paper that don't offer you more future income? May I suggest this isn't the ideal path if your focus is getting out of debt......a small part time job replacing the hours of class and study you have each week will get you out of debt quite quickly. An even better idea is to increase your future employment value - learning a skill or being educated in such a way that will increase future income will be an investment far better than getting a price of paper or two which doesn't fill a need to figure employers.

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Mon Jan 09, 2017 12:06 pm

new2bogle- I understand your point here. I am just not sure what skills/training I can get towards investing in myself. It seems like employers want experience in a certain field before anything else. I currently work for a pension fund and would like to do something along the finance field, whether its accounts payable, an analyst type position, etc. Do you suggest any type of skills or possibly programs I can learn to better myself and possibly increase my income?

mortfree- Your advice has been very helpful, and you are right about expenses constantly coming up. It is so frustrating to work towards paying off one debt while another expense comes up right after. Just have to stay focused and continue to not make any stupid decisions with spending large amounts of money.

Carl53
Posts: 1367
Joined: Sun Mar 07, 2010 8:26 pm

Re: Help with paying off debt

Postby Carl53 » Mon Jan 09, 2017 1:13 pm

Ramsey's snowball plan is generally ok, but in this case most of these loans are very low interest rates. The OP is not short of funds to make payments just contemplating what is best. I equate best as with what will generate the most money in his pocket. Getting rid of the PMI first is way more important than throwing extra funds on zero and very low interest rate loans. It is a real $95 per month that paying for one month more is taking $ out of the OP's pocket forever.

User avatar
new2bogle2
Posts: 373
Joined: Sun Dec 29, 2013 12:49 pm

Re: Help with paying off debt

Postby new2bogle2 » Mon Jan 09, 2017 8:29 pm

schutzk21 wrote:new2bogle- I understand your point here. I am just not sure what skills/training I can get towards investing in myself. It seems like employers want experience in a certain field before anything else. I currently work for a pension fund and would like to do something along the finance field, whether its accounts payable, an analyst type position, etc. Do you suggest any type of skills or possibly programs I can learn to better myself and possibly increase my income?


As we aren't in the same field I'm not even sure the difference between your listed areas of interest. But, as it relates to most fields, you may be better served spending your time on interviews .... they will tell you what you lack or give you the job(your goal). You may be able to shadow someone or take someone out to lunch and pick their brain .... a person who has your dream job. All the time you're studying and hours you spend in class aren't helping your goal. You're better off just spending that quality time with your wife and enjoying your life a bit. There are only so many hours in a day and spending those hours betting yourself is a great use of them, as is spending time with family, but I personally wouldn't use those hours for something that offers neither unless you simply enjoy the studying as you would a hobby, which is fine since you're not paying.

Congrats on the CC Debt going away!

I agree with the posts above who rank pmi as the next goal. You're on a nice path, keep it up!

User avatar
darkhorse346
Posts: 110
Joined: Sat Jan 10, 2015 5:53 am

Re: Help with paying off debt

Postby darkhorse346 » Mon Jan 09, 2017 8:31 pm

Toons wrote:Car payment 1: $255 per month with 36 months remaining (3.28% interest) 8k remaining balance
Student Loan $6250 remaining (not being billed yet, as I am still in school.) Will start to be billed in about 4 months. Interest is at 3.6%
Car payment 2: $270 per month with 48 months remaining (0% interest) 13k remaining balance
Mortgage- $1350 per month ($159K remaining on mortgage)- 30 year fixed- PMI will go away once mortgage balance hits 143K


Pay them off in that order.
One by one.
Focus.
Make it Happen. :happy



+1

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Tue Jan 10, 2017 10:26 am

Another update- my wife and I have decided to hold the rest of our cash for now and start paying extra towards my student loan, PMI, and car payment number 1. After all my budgeting, we probably can take $1000 each month and put it towards debt and investments.

Car payment 1: $255 + $45= $300 each month
Car payment 2: $270 per month- no extra
Mortgage: extra $300 each month
Student Loan: $550 each month
Roth IRA's: $150 each month 'til student loan is paid off. When this is done, ramp up investments each month along with killing PMI.

It certainly would be nice to just pay off one chunk of something in one day, but I don't want to not have a good cushion for an EF. Owning a house, repairs can come up at any time. I believe someone mentioned earlier that our interest rates are relatively low, so it may be okay to hold onto the cash for now just for insurance if something in the house were to break down. Thanks again for all of your advice.

new2bogle= Thank you for your kind advice. You are right, maybe spending more time with family is better off for me now. I am going to finish my degree this semester, and maybe after that just find skills that I can learn that won't take so much of my time.

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Tue Jan 10, 2017 11:16 am

I apologize for the double post, but does anyone know if there is a way I can get my PMI removed? I know some people are able to negotiate and not have the PMI at all before they get their mortgage. Is there a way you can do this after it has already been put into place? Or is the only way getting to 80% LTV?

spammagnet
Posts: 495
Joined: Wed Apr 27, 2016 9:42 pm

Re: Help with paying off debt

Postby spammagnet » Tue Jan 10, 2017 1:28 pm

While the subject of your degree might not be immediately valuable, the fact you have a degree probably will enhance your future career opportunities. It may be unfair but many jobs require a Bachelor's degree, even if there's no apparent rationale.

Your choices seem reasonable, including keeping cash on hand. That's particularly valuable since you hope to have a child soon. I'd wait until the child arrives and all seems well before move that to cover debt.

Should you choose to use your cash to pay down some debt, how long would it take to get your mortgage principal down to 20% equity? It seems to me that getting rid of your PMI is the efficient way to be able to redirect cash flow to other debt. But, if paying down $10K means you'd still have to pay another 5 years before your PMI goes away, you're better off directing that $10K to your other loans. You be able to pay those off faster, freeing up cash to apply to the mortgage.

surfstar
Posts: 1377
Joined: Fri Sep 13, 2013 12:17 pm
Location: Santa Barbara, CA

Re: Help with paying off debt

Postby surfstar » Tue Jan 10, 2017 1:40 pm

Knock that PMI out with one chunk! ($16k if that's what's needed)

That is your most expensive "debt" and will be the biggest return, as pointed out by previous posters. You'll "earn" more on your money by doing this vs any other debt payments or Roth investing, etc.

Then save up some cash in your EF again, then start paying more towards the other debts.

Jack FFR1846
Posts: 4820
Joined: Tue Dec 31, 2013 7:05 am

Re: Help with paying off debt

Postby Jack FFR1846 » Tue Jan 10, 2017 1:51 pm

schutzk21 wrote:
Car payment 1: $255 + $45= $300 each month
Car payment 2: $270 per month- no extra
Mortgage: extra $300 each month
Student Loan: $550 each month
Roth IRA's: $150 each month 'til student loan is paid off. When this is done, ramp up investments each month along with killing PMI.


I'd suggest a couple changes to maximize. First, stop contributing to the Roth until that PMI is gone.
Next, stop the extra on car payment 1 until that PMI is gone.

Otherwise, I'd agree. I'm also NOT a Dave Ramsey fan. His snowball method is appropriate for people whose motto is "money ain't gonna spend itself". I don't think you qualify. PMI and then highest effective interest rate*
*figure out your mortgage interest rate based on your tax savings.
Bogle: Smart Beta is stupid

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Tue Jan 10, 2017 2:05 pm

Jack- you suggest not contributing to the Roth even though I have zero in that account now? Granted, I have my employer's pension fund with about 6K into that and my wife contributes to her 401(k). I can't wait for all of this to be gone!

COBRA86
Posts: 13
Joined: Wed Nov 23, 2016 9:44 am

Re: Help with paying off debt

Postby COBRA86 » Tue Jan 10, 2017 2:20 pm

schutzk21 wrote:I apologize for the double post, but does anyone know if there is a way I can get my PMI removed? I know some people are able to negotiate and not have the PMI at all before they get their mortgage. Is there a way you can do this after it has already been put into place? Or is the only way getting to 80% LTV?


Having just recently refinanced, my wife and I were looking for the same results you are. We purchased our first home in January 2014 with 30yr 5% down which is not ideal. It worked due to it being cheaper than rent and home prices near us recovered that spring. We looked around and found the answers here:
http://www.bankrate.com/finance/mortgages/removing-private-mortgage-insurance.aspx
We ended up refinancing as the rate was 1.5% lower and went to 15 year saving us a considerable amount of interest. We considered getting an appraisal done through the bank to get to the 80% LTV which would have costed around $400-500 in our area, but went with the refi to shorten the length an decrease interest paid. The other way is to pay a lot to get to 20%.

Carl53
Posts: 1367
Joined: Sun Mar 07, 2010 8:26 pm

Re: Help with paying off debt

Postby Carl53 » Tue Jan 10, 2017 2:39 pm

schutzk21 wrote:Jack- you suggest not contributing to the Roth even though I have zero in that account now? Granted, I have my employer's pension fund with about 6K into that and my wife contributes to her 401(k). I can't wait for all of this to be gone!


I expect Jack's response to be YES. With no PMI, the $95/month saved will virtually fund one of your Roth's.

As BL points out money deposited in the Roth can be considered part of your EF until you can fund it otherwise.

BL wrote:There is a lot of good reading in the Wiki, especially "Getting Started".
There are also some recommended books; pick one or two.
In the meantime here is an excellent pdf to get your started, written especially for new investors:
https://www.etf.com/docs/IfYouCan.pdf

If you can save up $1,000 for the Roth IRA, you could buy a well-balanced Target Date fund. You can add smaller amounts to that automatically from your bank or savings account.

Not that I recommend doing it, but it is good to know that contributions only to Roth can be withdrawn without penalty, so it could be considered a backup EF in a serious emergency.


OP, is there a possibility that you will receive a bump in position or salary once you have completed your degree?

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Tue Jan 10, 2017 2:52 pm

Carl- there is a chance that my salary can be bumped a bit, just because having a degree MAY open up some new jobs. I am currently waiting to hear back on a position that would pay 7-9K more yearly. I interviewed, and just waiting to hear from them. As far as my current employer, it opens up other jobs in the future, but none of those jobs that require degrees are available right now.

Having just recently refinanced, my wife and I were looking for the same results you are. We purchased our first home in January 2014 with 30yr 5% down which is not ideal. It worked due to it being cheaper than rent and home prices near us recovered that spring. We looked around and found the answers here:
http://www.bankrate.com/finance/mortgag ... rance.aspx
We ended up refinancing as the rate was 1.5% lower and went to 15 year saving us a considerable amount of interest. We considered getting an appraisal done through the bank to get to the 80% LTV which would have costed around $400-500 in our area, but went with the refi to shorten the length an decrease interest paid. The other way is to pay a lot to get to 20%.[

Question for above: When you refinanced to 15 year, did you still owe PMI before the point of refinancing? I thought you needed 80% LTV before you can refinance to a 15 year mortgage. Boy, was I wrong. We have been in the house for about 3 years now.

Tamarind
Posts: 431
Joined: Mon Nov 02, 2015 2:38 pm

Re: Help with paying off debt

Postby Tamarind » Tue Jan 10, 2017 3:57 pm

schutzk21 wrote:So my degree is in Business Administration with a Concentration in Finance. I have one more semester left and I will have my Bachelors Degree. My employer has been paying for all tuition the last two years. I have the $6250 loan from before I started with this employer. I plan on going further with my education and getting a Masters in either Finance or Management Information Systems. The crappy thing is that I am not sure what I can really apply my degree towards. Any ideas? I really appreciate all the responses on here. This is helping a ton. Thank you!


You say that you have a job in your field and want to continue in your field of finance.

A bachelor's is critical as an entry ticket, so good job getting one while working! However, since you want to go into a line finance job (like accounts payable), rather than pursuing the consulting or management side (or getting your CPA), I don't think you need a Masters at this time.

You'd be better served by looking for a new job in finance where your degree will be useful. It'll be billed as "entry level", AP or AR processing, for example, but you will garner better wages because of the relevance of your degree.

You should put 5 years in and then consider if there's a path you want to take that is closed without a higher degree. Only then pursue a Masters. Once you have a bachelor's in finance, a few years of job experience will do much more to increase both your marketability AND your understanding of where you want to go next.

I'm telling you this as a specialist in MIS and business systems with a bachelor's degree (in something unrelated), absolutely no classroom learning in finance, but 8 years of hands on with real businesses, real data, and real users.

Saving$
Posts: 1417
Joined: Sat Nov 05, 2011 8:33 pm

Re: Help with paying off debt

Postby Saving$ » Tue Jan 10, 2017 10:13 pm

1. You stated you are most comfortable keeping most of the EF. That is reasonable. The place to keep it is in Roth IRA's. Take $11k of that EF and immediately put it in Roth IRA's for 2016 ($5500 for each of you). Once you lose your 2016 Roth IRA space, it is gone forever. Don't lose it. If you ever really need your EF money you can take if out of the Roth tax and penalty free, so you would be no further behind than if you had put it in a high yield savings account and withdrawn. But if you don't end up needing your EF money, having it in a Roth will put you much further ahead.

You now have $7k of EF money left, and per your post above, $1k month extra. That is $19k to work with for 2017.

2. Check into getting rid of that PMI - when you can do it, what you need to do, refi options, etc. If you cannot refi to get rid of PMI, but if you have confirmed you can get rid of PMI by getting down to 80%, which you said would cost $16k, I would pour the next $16k towards that. It is by far the highest return. Let's say with your cashflow situation it takes until October to save the $16k to totally get rid of PMI: $7k from emergency fund + $1k/m.

3. Starting in October, you save an extra $100/month because you got rid of PMI, so let's round it up to an extra $1k for the year, which gives you a total of $20k to work with for 2017. You spent $16k getting rid of PMI. You have another $4k to work with for 2017:
- If you feel most comfortable bringing your emergency fund back up to the $19k you have now, but that $4k into a 2017 Roth, bringing your Roth to $15k, and continue in 2018 at the $1100/month rate until you get the emergency fund where you are comfortable.
- If you are ok with an $11k emergency fund, take your $1100/month savings and start paying off the highest interest debt first

JGoneRiding
Posts: 619
Joined: Tue Jul 15, 2014 3:26 pm

Re: Help with paying off debt

Postby JGoneRiding » Tue Jan 10, 2017 10:20 pm

On pmi. You really need to speak to your lender. As long as you are NOT a fda loan they are usually 3 options, 1: it is removed after x number of on time payments (though you still may need to request it) mine is 5ish years 2: you pay it down to 80 or 78% of original LTV 3: you get an appraisal for enough for them to remove. your might be able to combine 2 n 3 together so it might not take 16k to get rid of.

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Wed Jan 11, 2017 10:33 am

Saving$- this is VERY useful information. Thanks so much for that. My only question is, as I am new to Roth IRA's, you mention to put my EF into that. By simply transferring the EF money into the Roth, does that work? Do I have to invest that money in anything, or can it just sit in the money market account through Vanguard? It would be a bit worrisome if I had to invest that money and there was a crash in the market, which would destroy my EF.

Novine
Posts: 1164
Joined: Mon Nov 17, 2008 9:07 pm

Re: Help with paying off debt

Postby Novine » Wed Jan 11, 2017 10:51 am

"Do I have to invest that money in anything, or can it just sit in the money market account through Vanguard?"

It doesn't have to be "invested". It technically isn't a "money market account" but you can put it into a "safe" fund like Vanguard's Money Market Fund (VMMXX). The Roth is just the bucket where you put the money. How you allocate those dollars is up to you.

Keep in mind the rules about how a Roth IRA works. You are allowed to take out the contributions to the account without a tax penalty. Generally, withdrawals of your earnings before the age of 59 1/2 will be taxed and you'll pay a penalty.

mortfree
Posts: 330
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help with paying off debt

Postby mortfree » Wed Jan 11, 2017 10:57 am

schutzk21 wrote:Saving$- this is VERY useful information. Thanks so much for that. My only question is, as I am new to Roth IRA's, you mention to put my EF into that. By simply transferring the EF money into the Roth, does that work? Do I have to invest that money in anything, or can it just sit in the money market account through Vanguard? It would be a bit worrisome if I had to invest that money and there was a crash in the market, which would destroy my EF.


His advice looks good on paper, but it doesn't take into account the "life happens moments". You have to weigh all the advice against your comfort level.

If you put the money in the vanguard money market fund, there will be fees

Ace$
Posts: 32
Joined: Wed Jan 11, 2017 11:07 am

Re: Help with paying off debt

Postby Ace$ » Wed Jan 11, 2017 11:26 am

I'm a Dave Ramsey guy like some here.

While not necessarily optimum in terms of dollars and cents, those that only make the math argument typically forget to mention risk. Debt = Risk regardless of interest rate, payment amount, or something being "good" debt. They also neglect to mention that debt payments destroy your greatest wealth-building tool -- your income. This is why Ramsey teaches to eliminate all consumer debt payments (quickly - the typical follower is done within 18-24 months), then build the emergency fund to 3-6 months worth of expenses, then begin investing for retirement, saving for college (if applicable), and paying off the mortgage simultaneously.

Money success comes from good financial behavior which is why he developed the steps the way he did. Attempting to focus on too many things at once and diluting disrectionary funds is often why people fail.

IIWY, I'd take that emergency fund down to an amount you can be comfortable with and payoff the remaining debts in order of smallest to largest. That will just leave a little bit on the one vehicle which you should be able to payoff relatively quickly. Then build the EF back up and get to investing. You can probably accomplish all that within 12-18 months if you're diligent.

Finally, have you explored the possibility of refinancing that mortgage to eliminate PMI?

schutzk21
Posts: 86
Joined: Sat Jan 07, 2017 5:03 pm

Re: Help with paying off debt

Postby schutzk21 » Wed Jan 11, 2017 1:36 pm

Ace$- Thank you for the advice. I will definitely take this into consideration. As far as refinancing, I would want to refinance to a 15 year loan and not start back up at 30. We have been in our house for about 2.5 years now so I am unsure if the value of our house has gone up enough to avoid the PMI. When I refinance, the LTV has to be 80%, correct? Is there a way to refinance down to a 15 year mortgage and get rid of PMI even if the LTV may still be above 80%?

Ace$
Posts: 32
Joined: Wed Jan 11, 2017 11:07 am

Re: Help with paying off debt

Postby Ace$ » Wed Jan 11, 2017 4:17 pm

schutzk21 wrote:Ace$- Thank you for the advice. I will definitely take this into consideration. As far as refinancing, I would want to refinance to a 15 year loan and not start back up at 30. We have been in our house for about 2.5 years now so I am unsure if the value of our house has gone up enough to avoid the PMI. When I refinance, the LTV has to be 80%, correct? Is there a way to refinance down to a 15 year mortgage and get rid of PMI even if the LTV may still be above 80%?


You're welcome.

I don't disagree with going the 15-year route; that's the max I've done in recent years since embracing the Ramsey teachings. The LTV will need to be 80% in my experience (it's been several years since I was in mortgage lending or took out a mortgage loan). Whether or not you're at 80% will depend on how much you originally put down, the current balance, local market conditions, etc.

If you look at the fine print in your loan documents, it should lay out what the requirements are for removing PMI. It may require a new appraisal indicating a 78-80% LTV and/or it may require a minimum number of payments having been made on the original note.

Finally, it never hurts just to speak with a mortgage broker and see what they can do. Good luck.


Return to “Personal Finance (Not Investing)”

Who is online

Users browsing this forum: asdf1, awval999, Bing [Bot], Eric76, Fripp, JPH, lemme think, letsgobobby, nolesrule, NYR11_Mess, OnceARunner, plannerman, RetireGood, saladdin, TheTimeLord and 125 guests