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Post by Deleted on May 29, 2011 1:51:22 GMT -5
to accelerate debt paydown and saving for a house downpayment. Would you do it?
Current plan will do the following: - credit card paid off by 2012 - car note paid by 2013 - purchase a house between 2013-2015
But I am thinking if we reduce our 401K contributions from 25% to 6% (just enough to get the company match), that would free up a little over $1,050/month (after taxes). This will alllows us to do the following:
- pay credit card by the end of 2011 - pay car note by 2012 - save every penny towards the house downpayment (2013-2015)
So this plan would allow us to a) get out of debt quicker b) save a bigger downpayment for the house purchase / have more money for emergencies in case something were to happen.
I like both plans and both have pros/cons. Also, purchasing a house is not set in stone for 2013-2015, it is just a goal.
Also if it does matter : - Credit card balance $6,880 at 0%. Currently paying $600/month - Car note balance is $13,996 at 6.2% and currently paying $500/month
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bobosensei
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Post by bobosensei on May 29, 2011 5:15:47 GMT -5
How old are you and the DW and how much do you have saved for retirement?
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zibazinski
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Post by zibazinski on May 29, 2011 6:44:26 GMT -5
You are very young but also have to think about once you start this lower contribution, you won't stop. Because after everything gets paid off and you get that house, the babies will start. Unless your MIL plans on giving you free daycare, you have that issue. I STILL doubt your DW will work after the baby no matter what you think given what you write about her so I am sure you will get convinced that its better financially for her to stay home. Now if MIL pays off her school loans, that may be the case until the kids get to school. I think you should stay the course, add what you are saving in less rent toward debt and keep your mouth shut about ANY extra money to your DW.
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8 Bit WWBG
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Post by 8 Bit WWBG on May 29, 2011 6:57:36 GMT -5
Anyone else... maybe.
You and Mrs. Cawiau... hell no. At the VERY least, not as aggressively as 25% to friggin' 6%.
Think this through very carefully. You JUST had this battle and got her on board with increasing from 20% to 25%, and recall you posted how disappointed she was that her check didn't go up or whatever it was.
Now you suddenly want her to have $500 more (I'm assuming based on an even split of $1k)... That buys a lot of shoes and purses.
...:::"once you start this lower contribution, you won't stop. Because after everything gets paid off and you get that house, the babies will start.":::...
I'm starting to believe that the end of the world is real, because I've been agreeing with Zib far too much lately. She is spot on here. Life will start to happen, and you'll always need that money.
I too fell victim to the "I'll increase my contribution later, but I need it all now" mentality. I was also on a track with yearly grade increases, and I kept thinking "once I get the next one, my problems will be over". Well by the time the next one came, the problems (mismanagement was the only REAL problem) were larger and I needed every penny of the increase to stay where I was.
Do NOT do this. The money won't go where you want it to go. Despite your best intentions, there will always be SOMETHING. Your plan is pretty good as it is. 2012 isn't that far away, and when you are 60, you'll thank us.
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zibazinski
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Post by zibazinski on May 29, 2011 7:00:19 GMT -5
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zibazinski
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Post by zibazinski on May 29, 2011 7:00:44 GMT -5
That must feel like agreeing with MU or PBP!!!!
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zibazinski
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Post by zibazinski on May 29, 2011 7:03:02 GMT -5
I know the new apt is smaller and she isn't happy with it which translates to you not being happy but suck it up and do the right thing. There will be no social security for you even though you will have paid into it and unless you want to keep working until you are 75 or die whichever happens first, keep on doing what you are doing.
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8 Bit WWBG
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Post by 8 Bit WWBG on May 29, 2011 7:13:25 GMT -5
I do hope a lot of the decor she bought for the current place works out in the new place. He is in a tough position. I don't believe she is trying to sabotage them or anything. I just think she likes what money buys (most people do) and she isn't giving due priority to the benefits of being debt free.
Cawiau, can you show her what your cash flow will be once the CCs and car are paid off? Just from what you've posted, I see $1,100/month being freed up by no longer making those payments.
I hope you've also built in a fudge factor of a few months so you can keep "making the payments" but putting them into savings. $1,100 is a lot of money.
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zibazinski
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Post by zibazinski on May 29, 2011 7:20:28 GMT -5
She's young and when I was young, I didn't think of the future, either. By the time I was thinking of it, I couldn't save much for it, either, because I was supporting 3 people on a teachers salary and flipping houses to make things nicer for us all. I am playing catch up now and it is way too late to do it successfully. If it weren't for DF and his smartness and planning ahead, I'd outlive my savings for sure. Remember that when you want to spend that extra grand now that it will mean so much more when you are old.
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Post by Deleted on May 29, 2011 7:55:28 GMT -5
Like everyone else, I don't think you should decrease your retirement - it's going to be really tough to increase it back later.
And while paying off the car and the cc are good things, if you guys are moving now, I wouldn't be in a big hurry to speed up your house timeline. Moving is expensive - from the truck to the packing materials to the new stuff you end up buying to make the old stuff work in the new space. You want to make sure you are there long enough to make all of that worth it.
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giramomma
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Post by giramomma on May 29, 2011 8:28:52 GMT -5
Absolutely not.
Honestly, it would be better if you cut out your spending 300+ (or however much you posted) during a weekend once a month, you are already a third of the way there.
Or one or both of you get a second job on the weekends. Not only would the second job prevent you from spending a ton of money out, but you'll also have more money coming in. It also might force your wife to really think if spending ad nauseum is really worth the amount of work it takes to pay off debts...We're not even talking about getting ahead yet.
Put another way. You know you are facing spending problems. You don't want to have spending and savings problems.
You also may want to also re-consider what you consider an emergency. Replacing your car's brakes are not an emergency. That's normal maintenance.
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Peace77
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Post by Peace77 on May 29, 2011 10:56:10 GMT -5
I would compromise. Cut the amount going to the 401(k) to 18% or 20%.
Pay off the credit card before the 0% expires.
Then, continue to pay the car payment + the $600 that was going to the credit card. Put the remainder into the EF.
Don't plan to buy a house the same year as you pay off the car. I suggest saving for at least a year. You will need funds for earnest money, down payment, moving costs, closing costs, redecorating and buying things that homes need such as lawn mower, lawn & garden supplies, patio furniture, outdoor trash cans, etc.
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Post by BeenThere...DoneThat... on May 29, 2011 11:00:29 GMT -5
...I wouldn't change course unless I found definitive math to show me that the opportunity cost of the reduced 401K contributions is far outshadowed by the 0% cost of retiring your CC debt at the current pace... ...on a side note, have you considered planning your next vacation in Appalachia? ...for education purposes, it would be very valuable...
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DVM gone riding
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Post by DVM gone riding on May 29, 2011 12:33:28 GMT -5
1 ? Have you discussed it with the wife? You have said she spends money that is there and won't if it isn't. I have often thought your savings was a bit excessive considering your age, your wife, your need to get established, and your debt load. I would most likely split the difference, save 10-15%, put the extra straight to the CC/car and to house, I wouldn't worry about the SL yet---they are a long road and really most of them are your wifes problem.
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maraqxa
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Post by maraqxa on May 29, 2011 12:35:28 GMT -5
From 25% to 6% is very agressive, maybe dial it down to 15% but that is it.
At the same time, I agree with the other posters. it is not a matter of would it be ok to do it? it's a matter of Can cawiau do it and ensure that the money goes to paying off debt and save for a house?
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DVM gone riding
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Post by DVM gone riding on May 29, 2011 12:40:37 GMT -5
When does the 0% expire, with the money you are saving with the move will you be able to retire that debt before that expires?
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phil5185
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Post by phil5185 on May 29, 2011 12:45:16 GMT -5
a) get out of debt quicker b) save a bigger downpayment for the house purchase Your two goals have flaws - (1) never prepay a 0% loan, use that capital elsewhere. (2) my rule is save for a bigger house DP but then DON'T use it for that, make a minimal DP. And the price tag on your plan is high - $12k/yr for 2 years cuts almost a million out of your 401k at age 60. I would (and did) put my priority on the million, not on prepaying $20k of consumer debt.
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Post by Deleted on May 29, 2011 12:49:29 GMT -5
Thanks for some of the responses.
a) We are currently in the process of moving into our new apartment and it has depleted our EF (deposit/first month/last month, moving costs, etc) So for the next couple of months the 500/month we will be saving on rent will be going towards increasing our EF and house downpayment savings.
b) I did discuss with my wife and she likes option 2 because it does get us out of debt quicker, at least consumer debt.
c) That is one of the cons of Option 2 : -> will we have the discipline to go back to saving that money once it's done. -> will we have the discipline to actually direct that money towards debt or just increase our spending.
d) The student loans are not part of the equation. Unless we can finance them at a lower rate, I have made my peace with it and understand they will be paid off in 10 years. So sticking to that payment plan.
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Post by Deleted on May 29, 2011 12:54:54 GMT -5
When does the 0% expire, with the money you are saving with the move will you be able to retire that debt before that expires? The 0% expires next April 15, 2012 and the goal is to have it paid off by then. The goal is to re-direct that $600/month towards the car loan and house downpayment if we go with option 1. If we go with option 2 we will be done paying it at the end of this year (1600/month) and re-directing that money next year towards the car loan / house downpayment.
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Post by Deleted on May 29, 2011 12:59:56 GMT -5
a) get out of debt quicker b) save a bigger downpayment for the house purchase Your two goals have flaws - (1) never prepay a 0% loan, use that capital elsewhere. (2) my rule is save for a bigger house DP but then DON'T use it for that, make a minimal DP. And the price tag on your plan is high - $12k/yr for 2 years cuts almost a million out of your 401k at age 60. I would (and did) put my priority on the million, not on prepaying $20k of consumer debt. a) I don't think the plan is flawed in the sense I don't care from jumping from 0% to 0% to 0%. I just want that debt gone. Might be stupid to some but the 0% credit rate game is not for me. b) I intend to save as much as I can for the house downpayment but we don't intend to use it all (my wife does but I don't). I want to give as downpayment as little as I can get away with and save the rest in case of something needs fixing, emergencies, etc. c) 12k/year for 2 years is a million at 60?
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Post by BeenThere...DoneThat... on May 29, 2011 13:21:15 GMT -5
a) I don't think the plan is flawed in the sense I don't care from jumping from 0% to 0% to 0%. I just want that debt gone. Might be stupid to some but the 0% credit rate game is not for me. ~~~~~~~~~~~~~~~~ ...while you did not direct this question to me, I'd like to interject... ...I agree that the 0% game isn't for everybody and I agree that sometimes you have to go with the emotional payoff rather than the fiscal one... ...but I would encourage you to view this particular CC balance as "debt that's gone" because at 0% for long enough for you to retire it, it's like you already paid it off and are just replenishing your bank account month-by-month...
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phil5185
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Post by phil5185 on May 29, 2011 13:33:11 GMT -5
c) 12k/year for 2 years is a million at 60? It is when you present age is 25. I just want that debt gone. option 2 because it does get us out of debt quicker You mentioned 'debt free' as a goal several times. 'Debt free' is not a goal, high net worth is a goal. Think - when you are 40 or 50, would you prefer to be debt free, no SL's, paid for cars, and a few thou in the bank? Or, have a $200k 30 yr loan and a NW of a couple million? Most of us would prefer the $2M.
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zibazinski
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Post by zibazinski on May 29, 2011 14:18:54 GMT -5
If downsizing has made your DW so miserable that you are going to have to hear about PLUS change the course of your actions with major repercussions, then perhaps you should have thought of this before.
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dancinmama
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Post by dancinmama on May 29, 2011 14:27:24 GMT -5
cawiau: NO, NO, NO - do not decrease your 401k savings. Yes, you might have to delay other things, but as you get raises, promotions, etc. you will not miss the money.
You might have to delay paying off other things or buying a home, but IMHO that is the right way to do it.
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DVM gone riding
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Post by DVM gone riding on May 29, 2011 15:01:13 GMT -5
Well regardless of what You do I would NOT even think about paying the CC in such a manner that it was paid off BEFORE the 0% ran out.
Figure out what you need to pay each month so that the last payment is made 15 days before you think it will re-set (I don't trust CC and like some cushion) Them pay that amount every month and don't worry about it besides that. (if you need to slightly decrease the 401k to make this fit in the budget do but otherwise don't worry about this debt)
Then I would figure out when I want the car paid off and figure out how much now, how much once I can redirect the CC payment etc. The car rate seems a little high to me so I would be doing what I could to get that gone.
I think you are messing with the numbers to much and now that you have the numbers working on auto-pilot you are bored and want to figure out something else, I have done this too and let me tell you I made a HUGE mistake bec of it that is going to cost me about 600/yr for the next 15 years. If I had just left it alone on auto it would have taken care of itself in time. So now I am trying to find peace with my plan and not "fiddle" with it so much. BUT I don't save anywhere near what you do, my plan has me at about 2.5 mil at retirement age and I am happy with that number. so you just have to decide your priorities and then let them come to pass with time.
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DVM gone riding
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Post by DVM gone riding on May 29, 2011 15:10:38 GMT -5
in like 3-4 months you will have an extra 500/mos, I would put 100/mos of that twds the CC-that should get you paid off on time a little early and make you feel better, and then give your wife an extra 100 to spend on the condition that nothing more gone on the CC (you got to keep her happy esp since she is agreeing to move and you brought up the whole idea of deceasing cont to retirement accts!!) and then put 200/mos to the car and 100/mos twds extra savings!! There now you are doing everything you want, paying debt, saving for house, and huge retirement con't amounts!! (and keeping the wife happy
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Post by Deleted on May 29, 2011 15:19:40 GMT -5
If downsizing has made your DW so miserable that you are going to have to hear about PLUS change the course of your actions with major repercussions, then perhaps you should have thought of this before. Actually she loves the new place: - in the city - granite counter tops - stainless steel appliances - hardwood floors Also she is using the money she received for her birthday to redecorate as she pleases, so not going to cost us a dime. The only issue is the washer/dryer that we will go without. I guess I got lucky ;D My mom and aunt are buying from us the 2nd bedroom set, dining room set and patio set. We already got the money and just have to deliver it to them on Friday when we rent the Uhaul truck.
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Post by Deleted on May 29, 2011 15:28:39 GMT -5
Think - when you are 40 or 50, would you prefer to be debt free, no SL's, paid for cars, and a few thou in the bank? Or, have a $200k 30 yr loan and a NW of a couple million? Most of us would prefer the $2M. And I agree with you. I guess I should have been more specific: I don't want any consumer debt as in credit card debt. I want to go back to the old days of using it and paying it off every month. As for the car, if I can refinance it at a lower rate, I would. I guess I am just too lazy to go thru that process now. The only reason I want to pay it off now/quicker is because I feel 6.2% is a bit high. I do understand how borrowing money can work in your favor (student loans, home loans) and for now the student loans are the only loans I feel are worth keeping around for the next 10 years.
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Post by Deleted on May 29, 2011 15:35:11 GMT -5
I think you are messing with the numbers to much and now that you have the numbers working on auto-pilot you are bored and want to figure out something else. I think you are right lol! I set up everything on auto pilot, have a plan and now I am just trying to figure if there is another option that might be better than the one I am following right now. But I guess the best plan for now is the current one I am following: - 25% to 401K - $500/month towards EF and house downpayment - $600/month towards the credit card (end of March will make a big final payment to pay it off). - $500/month towards the car loan
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zibazinski
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Post by zibazinski on May 29, 2011 15:44:05 GMT -5
My DS does not have a washer/dryer at his apt but he farms it out to a laundry and it is so worth it. Don't stress DW with going to a laundromat or yourself.
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