Help me decide what to pay first?

[Anonymous]

My family's New Year resolution is to get rid of our debts. Although, our HHI is not too high we are committed to make this happen sooner rather than later.
We are a family of three: HHI Gross: 102K, net after deductions (self-employed taxes, health insurance, flexible spending accts health and dependent care, 401k): $5,200.

$3500 credit card debt which will be paid off in the next three months by using a combination of disposable money that we usually use to cover unexpected expenses or as savings although it sits in our checking account
$660 on a personal loan which will be paid off in March
$183K mortgage loan, 4.5% interest. Because we put only put 5% down, we need to pay PMI $182.
$18K student loan, 6.8% interest. In a repayment plan in which payments increase every two years. Currently at $206 (about $100 goes to interest)
$12k car loan, 3.5% interest. $238 (55 payments left)
Retirement: Husband does not have retirement fund, I started my 401k contributions two years ago and is at $12k (I took out a $4k loan which will be repaid in two years).
Savings: starting this month we are setting aside $800 to savings, by December will have $9,600 saved

After putting $800 to savings, we will have left about $300 to $400 monthly to either keep to pay for unexpected expenses or to put towards paying some of our debts.
What to pay first?

Pay more towards the principal of the mortgage loan so that I can get rid of PMI faster and freed up $182 usd per month?
Increase Student loan monthly payment to pay loan faster?
Increase payment on car loan?
Open an IRA account for self-employed husband?
Put everything in the savings account?


Thanks in adavance for your advice!

[Anonymous]

OP, what are the rates on the first two that you listed?

So if I understand you correctly, you do NOT currently have anything in savings? But will be contributing $800/month from here on out?

Here is what I would do (just me), loosely based on DR
1. Save up $1k or so in savings. It looks like you could do this in 1 month.
2. Then take everything you HAD been contributing to savings and throw it at either:
-the debt with the smallest balance (woo hoo, it feels good to eliminate something)
-the debt with the highest rate (saving you the most in the long term)
while continuing to make minimum payments on everything, of course. Personally - w/o knowing all the details - I would do the personal loan first, then tackle the cc.

3. once those two lines are gone, continue to make minimum payments on car, student loan, and mortgage, while saving up 3-6 mos of living expenses in savings. PUt this somewhere "safe" and not immediately accessible.
4. Once that's done, start a savings acct... maybe 5k. to cover car repair, appliance replacement, new couch, vacation, whatever you're comfortable with and would like to never, ever put on a cc again.
5. then student loan - car - mortgage. Some people would probably say student loan and car loan before #4.

[Anonymous]

I would tackle the student loan (after personal loan and credit cards). In fact, that's how I did it. It has a higher interest rate than a car loan, and cannot be discharged in bankrupcty which may not be a likely scenario, but puts it in a higher-risk category.

[Anonymous]

OP here!
Thank you PP.

To answer your questions:
Correct! starting january, I will be saving $800 a month,
I do not currently have a savings account per se, just extra-money in my checking acct which I will use to pay 4 CC's with APRs ranging from 10%-21%. So the CCs and the personal loan $660 total ($220 per month), will be paid off by march, while at the same time contributing $800 towards savings.

then my debts left will be car loan, student loan, Mortgage payment (i would really like to get rid of the PMI as it feels is money thrown away),

thanks for your input!

[Anonymous]

I would pay off the student loan because that's alot of interest racking up.

$660 on a personal loan which will be paid off in March:
After this is paid off, start your husband's retirement using this 'extra' money you have. And half of it towards the payment of the student loan.

If you ask me, that's quite a big chunk of credit card debt. Try to make big purchases when they are on sale. If the purchases are related to kids extra cirricular activities or health related, that would be tough to cut but you can still monitor how the $ is spent.

[Anonymous]

Don't pay off your low interest mortgage. Put money that would have gone toward paying it off in a total stock market index fund. You'll make money in the long run.

[Anonymous]

Anonymous wrote:Don't pay off your low interest mortgage. Put money that would have gone toward paying it off in a total stock market index fund. You'll make money in the long run.

She's only talking about paying it down to get out from under her PMI. That extra payment would eat up a lot of the extra money she might make from investing.

[Anonymous]

I agree with the pps who said to tackle the student loan first, after credit card and the personal loan. The interest rate is higher and it's not the kind of debt you want around your neck. Plus, that payment is going to keep increasing and will eventually eat into your "extra" 300-400 anyway. Make sure you understand how to apply extra payments to principal too. It used to be that unless you specified that the money went to principal, the lender could choose to apply it to interest. I don't know if this is still the case. But, make sure you check with your lender on the proper way to submit extra principal payments. Anyway, if you pay 500 per month on the student loan, you should be done in about 3 years. At that point, knock out the car loan.

The PMI, well, I totally get how you feel about that. It seems like such a colossal waste of money. It's not always that simple to get rid of those though. Do you know what the terms of your PMI are? I don't remember the details, but we ended up having to re-fi to get rid of ours two years ago. (We got a better interest rate, so it was fine.) You may just be stuck with it. I would definitely tackle it last.

In the meantime, just keep packing that savings away until you have 6 months to a year in expenses saved. At that point, redirect the $800 savings to the IRA for your husband.

[Anonymous]

How old are you and your DH, OP? How far away from retirement age?

[Anonymous]

Pay off your credit card and personal loan. Then I would tackle the student loans. Can you refinance your rate on your student loans? 6.8% sounds awfully high for a student loan.

I would continue just paying the normal monthly payments for your car and house. Anything you have left, save.

[Anonymous]

How much is your house worth? If your house has appreciated you may be able to get rid of PMI.

You need to pay off CC , personal loan 1st. I think you know that.

Then student loan.

You need 3-6 months in savings. So if you live off $5k a month you need $15k-$30k in savings. That depends on how secure your jobs are and if you have disability and sick leave.

Then you need a retirement account for husband.

Pay you car down if you can but the payment is pretty low.

Don't pay the mortgage faster.

[Anonymous]

Anonymous wrote:Don't pay off your low interest mortgage. Put money that would have gone toward paying it off in a total stock market index fund. You'll make money in the long run.

You have to calculate the real interest rate on your mortgage because of your PMI.Then line up your debts according to interest rates.

[Anonymous]

Anonymous wrote:I agree with the pps who said to tackle the student loan first, after credit card and the personal loan. The interest rate is higher and it's not the kind of debt you want around your neck. Plus, that payment is going to keep increasing and will eventually eat into your "extra" 300-400 anyway. Make sure you understand how to apply extra payments to principal too. It used to be that unless you specified that the money went to principal, the lender could choose to apply it to interest. I don't know if this is still the case. But, make sure you check with your lender on the proper way to submit extra principal payments. Anyway, if you pay 500 per month on the student loan, you should be done in about 3 years. At that point, knock out the car loan.

The PMI, well, I totally get how you feel about that. It seems like such a colossal waste of money. It's not always that simple to get rid of those though. Do you know what the terms of your PMI are? I don't remember the details, but we ended up having to re-fi to get rid of ours two years ago. (We got a better interest rate, so it was fine.) You may just be stuck with it. I would definitely tackle it last.

In the meantime, just keep packing that savings away until you have 6 months to a year in expenses saved. At that point, redirect the $800 savings to the IRA for your husband.

Thanks for your input! We recently purchased our home and as per the PMI terms, we have the right to reuest its cancellation "the date the principal balance of the loan is first scheduled to rach 80% of the original value of the property, or the primcipal balance actually reaches 80% of the original value of the property"... satisfying certain condictions such as submittin written cancellatiin, having good payment history etc.

To the post that suggested to refinance the students loan: thanks! i have nit actually considered that, but i will search online. my loans are unsubsidized federal loan though. I am not sure if a private lender will refinance though.

[Anonymous]

Anonymous wrote:How old are you and your DH, OP? How far away from retirement age?

We are 31 and 30 respectively. my husband migrated to the US two years ago, and we both graduated from college in 2008 and entered in the workforce un 2010-2011. . The good thing is that he did not have any debts when we married, but no savings. On the contrary, i had 24k in students loans and 10k in credit cards(which we paid off in a two years oan). Currently the student loan debt is down to 18K now and the 3500 CC debt was recently acquired, but will be paid off by march.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I agree with the pps who said to tackle the student loan first, after credit card and the personal loan. The interest rate is higher and it's not the kind of debt you want around your neck. Plus, that payment is going to keep increasing and will eventually eat into your "extra" 300-400 anyway. Make sure you understand how to apply extra payments to principal too. It used to be that unless you specified that the money went to principal, the lender could choose to apply it to interest. I don't know if this is still the case. But, make sure you check with your lender on the proper way to submit extra principal payments. Anyway, if you pay 500 per month on the student loan, you should be done in about 3 years. At that point, knock out the car loan.

The PMI, well, I totally get how you feel about that. It seems like such a colossal waste of money. It's not always that simple to get rid of those though. Do you know what the terms of your PMI are? I don't remember the details, but we ended up having to re-fi to get rid of ours two years ago. (We got a better interest rate, so it was fine.) You may just be stuck with it. I would definitely tackle it last.

In the meantime, just keep packing that savings away until you have 6 months to a year in expenses saved. At that point, redirect the $800 savings to the IRA for your husband.

Thanks for your input! We recently purchased our home and as per the PMI terms, we have the right to reuest its cancellation "the date the principal balance of the loan is first scheduled to rach 80% of the original value of the property, or the primcipal balance actually reaches 80% of the original value of the property"... satisfying certain condictions such as submittin written cancellatiin, having good payment history etc.

To the post that suggested to refinance the students loan: thanks! i have nit actually considered that, but i will search online. my loans are unsubsidized federal loan though. I am not sure if a private lender will refinance though.

DO NOT refinance with a private lender. Private loans are TERRIBLE - federal student loans have options in case your income goes down, the rates would likely be higher, interest is not tax deductible, etc. 6.8% is the standard student loan rate nowadays.