jkscott
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Post by jkscott on Dec 29, 2010 10:55:43 GMT -5
Assets: Checking: $3,100 Savings: $900 Mutual Funds: $7,800 2009 Car: $22,000
Liabilities: 2009 Car: $22,100 @ 5.55% Student Loan: $7,000 @ 2.67%
I have $2,000 (in checking and savings) designated as my baby emergency fund. I have been paying off debt for about 2 years now and am happy to report that I do not have .01 of credit card debt! Sheesh am I tired of paying off debt! I learned such an important (and expensive) life lesson! Stay out of debt!
Now, I would love to pay off everything and only worry about food, shelter, and utilities but that seems so far away. Would you continue paying off these debts ($1,000 per month) or would you start funding a ROTH? Would you refinance the car at a lower payment/rate? I have made about 24/60 payments on the car @ $620 per month. My credit is excellent 750+. I feel like selling the car would be a bad move considering I have already paid off the front end (high interest) part of the loan. It is extremely reliable and I wouldnt mind driving it for the next 10 years.
If more information is needed, just let me know. I have been a lurker for some time now but figured with the switch to the new boards, its about time I introduced myself and my situation. Thanks for your help and wisdom!
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The J
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Post by The J on Dec 29, 2010 11:00:58 GMT -5
I'd start putting money into a roth.
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HoneyBBQ
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Post by HoneyBBQ on Dec 29, 2010 11:03:20 GMT -5
You really haven't posted enough of your financial picture to get good advice, but here goes:
I'm not sure what your income is, but a car note of $620 a month makes me gasp, honestly. Will they let you refinance? Have you considered selling?
Do you have a baby? What is the baby emergency fund for?
I would fund a Roth and pay down my car as quickly as possible (if I decided not to sell), pay the minimum on the student loan.
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Gardening Grandma
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Post by Gardening Grandma on Dec 29, 2010 11:04:27 GMT -5
Is it even possible to refi the car at a lower int rate? And if so, what would the costs be? You'd have to figure out whether the savings in interest was greater than the costs of refi'ing. How old are you (age range)? Have you started any kind of retirement savings? 401K at work? I'm very debt adverse, so for me, paying off the car loan asap would be my priority.
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haapai
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Post by haapai on Dec 29, 2010 11:07:26 GMT -5
The balance sheet that you have provided is only part of the story. Where's your income statement (budget)? Yes, it's a lot harder to produce and requires a lot of typing, but if you've been lurking on YM, you know it's a necessity.
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thyme4change
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Post by thyme4change on Dec 29, 2010 11:11:59 GMT -5
5.55% is most likely the best you will get. Since you have already been paying the $620 per month, plus the $1000 per month, I would let it ride. If you can use that $1k a month to build up savings and investing, you can make some good progress fairly quickly. I would make sure you are putting something away for retirement and continue to increase your cash reserves.
If in a couple years you realize you have quite a bit of savings and the car payment is driving you crazy, you can make one big payment and be done with it.
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quotequeen
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Post by quotequeen on Dec 29, 2010 11:19:43 GMT -5
What is your income?
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jkscott
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Post by jkscott on Dec 29, 2010 11:21:00 GMT -5
Thank you for the answers so far.
I am 27 years old. Married, with a 1 y/o son.
My wife works part time, together we pull in 70k/year.
The mutual funds are through a 401k plan.
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jkscott
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Post by jkscott on Dec 29, 2010 11:24:39 GMT -5
Also, my min payments are 620/mo for the car and 130/mo for the student loan. However I have been paying 380/mo on the student loan.
We pay 1k/mo for rent.
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HoneyBBQ
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Post by HoneyBBQ on Dec 29, 2010 11:30:32 GMT -5
Divert the extra $ from your SL to your car immediately! It makes no sense to prepay a 2.67% loan when you have a 5.55% loan!
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jkscott
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Post by jkscott on Dec 29, 2010 11:36:58 GMT -5
You are 100% right honeybbq. I have been subscribing to the "Dave Ramsey" plan where I pay off the lowest balance first. Thats the only reason why I have been paying the SL.
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Gardening Grandma
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Post by Gardening Grandma on Dec 29, 2010 11:47:08 GMT -5
Divert the extra $ from your SL to your car immediately! It makes no sense to prepay a 2.67% loan when you have a 5.55% loan!
That's my first reaction as well. While I understand the Dave Ramsey approach, it really isn't a good idea in your situation. I'd pay the min on the SL and put everything you can on the car loan since you do have some retirement savings started.
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phil5185
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Post by phil5185 on Dec 29, 2010 11:58:20 GMT -5
130/mo for the student loan. However I have been paying 380/mo on the student loan. Wow - if I could get 2.67% loans I would max the amount and keep it for life!! Retain the use of that $7000 as long as you can. Sheesh am I tired of paying off debt! I learned such an important (and expensive) life lesson! Stay out of debt! Good job on paying off the consumer revolving debt. But your emotions may be giving you the wrong 'take away' - or you are reading the wrong books. Wise use of debt is an important financial tool - and most often it is the key to wealth.
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HoneyBBQ
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Post by HoneyBBQ on Dec 29, 2010 12:14:17 GMT -5
Yeah, I don't think Dave Ramsey fits your needs. You don't have tons of different revolving debt, you just have one obvious bill that needs to be paid. Like Phil said, 2.7% is pretty cheap, he'd probably advise against prepaying your car, too, but I am debt adverse.
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Post by suzwantstobefree on Dec 29, 2010 12:29:30 GMT -5
I would pay off the car first and then start increasing the savings. Since you are so young and already have something going to the 401K, I wouldn't add to that until the car is paid off.
The student loan would be the last thing paid off and I wouldn't pay extra to that either. You are really in good shape financially, you should be proud of yourselves.
My order for debt is this - make sure you have an EF of at least $1000.00, pay off any credit card debt, pay off car debt, save 5-6 months of living expenses, then pay off mortgage or other long term debt (or in your case the student loans).
Once you have paid off the car, I would increase the retirement funds at that point and then worry about the student loans last!
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Deleted
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Post by Deleted on Dec 29, 2010 12:39:32 GMT -5
DO NOT prepay 2.6% ... (that you can WRITE OFF)... if you want to, you can put it on the car, and drive that car for as long as you can. I'd use the extra to 1) beef up EF, if you have a child, and then split between car payoff and retirement (maxing anything you might get a match for first...)
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jkscott
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Post by jkscott on Dec 29, 2010 13:02:07 GMT -5
Thank you everyone for your replies. Some great points were made.
I really appreciate all of the help.
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haapai
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Post by haapai on Dec 29, 2010 13:17:04 GMT -5
I'm gonna play bad cop here. Someone has to.
I really think you should post a budget. I'd love to be wrong, but what you have posted so far indicates that you have relatively little discretionary income and that most of your debt reduction has come from making the minimum payments of $750 a month plus an extra $250 a month toward the student loans. You also have been putting something into retirement, but it appears to be a relatively small amount.
If this is the case, you are making some progress, but it is very slow progress. It is quite likely that the automobile is depreciating at pretty much the same rate that you are paying down principal.
My God, I hope that I am wrong about your income statement. I've been in a situation where 80-90% of my gross income was spoken for and it was no fun. I wouldn't wish that on anyone!
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jkscott
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Post by jkscott on Dec 29, 2010 13:28:13 GMT -5
Here ya go Haapai:
Income December: $6000 (Salary + bonuses)
Expenses Student Loan: $380 Car: $620 Rent: $745 (usually 1000) Utilities: $285 Auto Insurance: $120 Food: 965 (This includes cleaning supplies, dog food, etc. WAYY TO HIGH) Gasoline: $200 Clothing: $75 Diapers/food: $170 Medical: $20 Misc: $150 Child Care: $150 Entertainment: $20
We spend way to much on food. We had a birthday party for my son and I had to feed 10 people but even without it, our food bill is usually around 750-800/month.
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haapai
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Post by haapai on Dec 29, 2010 13:57:19 GMT -5
There is approximately $2k unaccounted for. Where is it going?
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jkscott
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Post by jkscott on Dec 29, 2010 14:05:38 GMT -5
It went to savings
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haapai
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Post by haapai on Dec 29, 2010 14:09:21 GMT -5
That's reassuring. Was December a typical month on the income side, or was there an annual bonus?
I'd be very relieved if it was a typical month.
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jkscott
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Post by jkscott on Dec 29, 2010 14:18:58 GMT -5
1k bonus in December. However its more than annual. I will get a 1.5k to 2k bonus in February. My debt to income ratio isnt a problem. I never feel squeezed, and I dont live paycheck to paycheck. I could sell the car to carmax and be done with it tomorrow if things got that bad. My student loan is prepayed into June 2011.
What is your end point? Are you looking for funds to add to min payments?
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Plain Old Petunia
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Post by Plain Old Petunia on Dec 29, 2010 14:36:12 GMT -5
Does your wife work too?
If I were you, I would want more cash in my savings account. I would build that up some before I paid extra on the auto loan. In your first post you listed "mutual funds" with your checking and savings, but that's not liquid. That's retirement money which you would have to borrow out or cash out at great expense. You need more liquid assets.
Do you want to buy a home someday? Start saving for that.
How much percentage-wise are you contributing to your 401k?
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jkscott
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Post by jkscott on Dec 29, 2010 14:39:08 GMT -5
6 percent goes to 401k. My company matches .50 on the dollar up to 10%.
lol, Stop yelling .. I know i know.. up my contribution to 10%.
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haapai
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Post by haapai on Dec 29, 2010 14:40:20 GMT -5
Not really. That's usually what I am fishing for, but in this case I agree with thyme4change. With the car loan at 5.5% and the SL at less than the expected rate of inflation, I'd probably be sticking extra money into savings for at least a bit longer. It won't make anything there, but it could head off credit card debt at a rate far higher than 5.5%.
I'm really relieved to find out that you're not scraping by with $250 a month in discretionary income plus whatever you could scrape up by discontinuing 401(k) contributions. That's a dangerous way to live.
Could you advance the next due date on your auto loan by making payments of $1240 a month? If you can, that would have an effect similar to putting $620 a month into a savings account that yielded 5.5% after taxes.
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hcj
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Post by hcj on Dec 29, 2010 15:00:11 GMT -5
Like others said, I would up the 401K and not pay anything extra towards the student loan. I know the urge to eliminate all debt can be consuming after you have lived through getting out of toxic debt, but if you can fight that for the time being and allocate the extra you have been paying towards savings you'll be a lot better off. Trust me, when you get to the point of maxing your 401K and it starts growing, you will have a much better feeling of security.
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jkscott
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Post by jkscott on Dec 29, 2010 15:04:59 GMT -5
Thats a great point hcj.
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Wisconsin Beth
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Post by Wisconsin Beth on Dec 29, 2010 15:10:58 GMT -5
"Trust me, when you get to the point of maxing your 401K and it starts growing, you will have a much better feeling of security."
DH and I are having fun again watching our 404k/457b increase. Someone (I think Phil) has said that once you hit the first milestone in your savings, the next ones come easier/faster.
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thyme4change
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Post by thyme4change on Dec 29, 2010 15:54:39 GMT -5
"Trust me, when you get to the point of maxing your 401K and it starts growing, I can't wait until that happens. I hope it is before I die.
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