Savings Vs Debt Pay off? free advice please?

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ventouxbob_IHB

ventouxbob_IHB

New member
I am a recent newlywed. Jan 2007. We have been trying to get the financial house in order. I do agree with many things IR says about finances etc.ie. Not over spending. We have some debts we don’t like and have been paying them off.

Since the wedding we have paid off 9K in CC debit. No Cc debit now. I we just paid off my wife’s last student loan. 2,200.

Now all that remains is Mini payments 16,800 Principal at 7.75%, and my student loan 6,000K at 6%.

Basically we have 3-4K a month Disposable income. This money is earmarked for Paying off debts or Savings.

Right now we have only 4K in savings. I was planning to pay 3K a month to pay off mini By April then pay of student loan in May.

What do you people think should I put a bit more in savings first? Then pay off MINI? I could save 16K by April then pay down Cooper. In 5 month time.

Thanks.

BOB
 
<p>Rule of thumb. Move debts from high to low rates; move assets from low to high rates.</p>

<p>1.) Pay off the car as soon as you can. Pay as much extra per month as you can w/o burdening yourself.</p>

<p>2.)The interest payments on your school bills are tax deductible so you want to pay that off 2nd. </p>

<p>3.) Save 10% of your gross paychecks by putting it into your 401k to maximize tax savings every month. </p>

<p>4.) Use your after tax take home pay to eliminate your debt. It does not make sense to save money at an interest rate below 6% if all your debts are at or above 6%.</p>

<p>5.) Once you have your car paid off, start paying extra on your school bills. Once that's paid off start saving as much after tax income that you can. </p>
 
6 percent on student loans? Seems high. . . was it a private loan. If not, you should consolidate at a lower fixed rate. The federal portion of my student loans is below 3 percent. . .(never paying it off).
 
I cannot refi my student loan at a lower rate. any how its not much 6,000 I pay what 360 in intrest in a year. Im Paying it off real soon.
 
<p>7.75% on the mini seems kinda high... you can probably get a lower rate than that. at the very least, or try to qualify for 0% financing for short term and save your self the interest.</p>

<p> </p>
 
<p>Whats the income limit to be able to deduct your student loan interest? I obviously don't remember exactly what it is...but I thought that it's not too high (?)</p>

<p> </p>
 
-Vicstah. WE bought a 2004 MINI CooperS Used. for 25K My wife was the primary buyer I cosigned. She has an avg FICO Score of 798. I dont see how we can get a better rate. Besides I did check with our bank. they did not offer a better Rate. I plan to pay this car off in 6 months. So we will pay it off 3 years early. only 2 years total. I cannot fathom where I could finance it for 0% its a used Car? Granted it is A MINI :) and they are the best.



- Laing_Lies you are correct I have been unable to deduct student loan intrest due to being over the income limit. But thats the kind of problem I want. LOL.

any how its not much at this point im paying 300-400 a year in intrest CHUMP Change.



The real issue is not intrest Rates im sitting on 22,800 in Debt on depreciating Car and old student Loan. So im just questioning if I should as I planned Pay those suckers off asap or save a bit more. Im happy with 4k in the bank. and two steady incomes.



-Pay a car loan and student Loan off Early "Hey What a Concept!!" LOL.
 
I Hate Car Payments!!!!! God^%&% Leeches!!!



Same goes for Mortgages. There is no Effen Way I will pay for a bloddy house for 30 years. hell Ill be dead by then. I plan to buy cheap. and pay off early.
 
<p>I agree with EVA! If you spend most of your money paying off your debts instead of building up a nice cushion and an emergency happens, you may have to borrow funds at a much higher interest rate for the emergency.</p>

<p> </p>
 
well thats the question. I was planning to save 1,000 a month and 2400 a month to the debt. That pretty good. really. then in 7 months. the car is paid off and still.

11k in savings. Not enough? So you think I should save 6 months expenses? that would be= about 24,000. take about 8 months at savings of 3k a month.

So is it better is kiss off 2500 in intrest savings in order to Build a nest egg. of 24K. thats the question? Maybe pay the car off in 3 years instead of 2 problem is that damn loan is amoritzed so more payments earlyer help alot.

monthly expenses run about 4,000. 520 of that is the debt in question.



any other input?
 
You just never know when you or your spouse are going to be subject to some jerk for a boss, sexually harassed, be victims of a horrible car wreck, or have some other unanticipated and random thing happen. I've had a boss go nuts almost overnight, and it was nice to have FU money in the bank.
 
Perhaps I can find a nice compromise. like pay more for car say 200 extra a month and also save alot.HMMM.

well This may be best advice? I think I will find a middle ground. Plus I need to get Going on that down payment 20% right IR? 50k needed minimum.
 
I agree with pretty much all of the advice here. I had 3 months cushion and no debt when I got laid off and it has been helpful but...approaching 3 months now T.T. If you're working in mortgage lending or a homebuilder I would really build up your cushion.
 
<p>I"m going to contradict others here. Pay off the car payment at 7.75% as early as possible, but in my opinion not at the expense of saving 10% of your income per month. Do that first, and then put the rest into paying that car off. But that's personal preference, given the interest rate is not too high above savings rate. I would rather have the savings cushion for that premium.</p>

<p>On the student loan, however, I would pay minimum on that. After tax deduction, your effective apr should be around 4-4.5% assuming 25-35% tax rate, which is below what you can save at, around 5% at ING, e-trade, etc. Whatever extra you want to pay on your student loan, put it in savings instead, it works out to higher rate of return at your current rates. As your savings rate falls below the 4-4.5% after-tax borrowing rate, then I would begin paying more off on the loan.</p>
 
I think most financial advisors suggest a 3-6 month cash cushion so in my opinion you should work towards achieving that first. If the loan interest hurts you, put extra monthly into your car payments. Obviously you should leave the student loan payments for last as the rate is lower than almost anything else you'd get nowadays, and if your income should suddenly drop, would become eligible for tax deduction.





Oh, and congratulations on your marriage and paying off some off your debts.
 
<p>Ok, Im making an executive desition here. I will save a bit more. Not in the interest of making a huge Profit. In the interest of having extra Cheddar. FU money. not having to use the CC ever again. Buy my next car cash. etc. I wil pay extra on the MINI. A double Payment. 900 a month. all extra to savings. Then when I hit a Milestone of 10K in Savings I will Lower the saving rate a bit and ramp up the MINI Payment. </p>

<p>I agree a bit of extra money is good Idea. Cash Is King. even if I pay a bit for interest on the Car. </p>

<p>I have heard it repeatedly have 3-12 months expenses saved So I'm Going to have to work on that. Paying Intrest on Used Cars is not Prudent But living Check to Check is even Less SO.</p>

<p>It's not like im not working on my debts I have eliminated 11K of houshold Debt in 9 months. All I can Say Is Thank God I only Have 1500. In Rent right now not some crazy A$$ 3k Mortgage and 1K in Tax HOA and Mello-R</p>

<p>BOB.</p>
 
<p>Bob,</p>

<p>Since you are a newly wed your next car should have 4 seats for the little one. Plan ahead and you would not have to sell or move. Biggest mistake for newly weds is buying a house that is not suited for the family growth. Keep that in mind when you get there. Good luck in saving for your down payment. </p>
 
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