Author Topic: A bird in the hand or... thoughts?  (Read 950 times)

ilmedi

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A bird in the hand or... thoughts?
« on: June 11, 2019, 10:04:34 AM »
Well, I'm a long time reader and lurker, but first time posting in the forums, and I need some advice.  Should I use my savings to pay down all the debt and get a 'fresh start' from zero?  Or should I continue the slow burn down and leave my savings alone?

Debt is ~ $5K credit cars, $8K in auto loans.  I have $14K in liquid savings that I would use.  I've got another $20K between IRA, 401K, and HSA (none of which will get touched, obviously I suppose).

I'm finally getting my spending under control in an attempt to move towards a more Mustachian lifestyle.  I could use the fresh start, but curious what everyone thinks, should I do this or leave it all untouched?

use2betrix

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Re: A bird in the hand or... thoughts?
« Reply #1 on: June 11, 2019, 10:11:36 AM »
What is your interest rate on all these debts? That determines 99% of the solution.

ilmedi

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Re: A bird in the hand or... thoughts?
« Reply #2 on: June 11, 2019, 11:55:00 AM »
Well, I think it's pretty decent for the auto loans, $5K at 2.75, and the other $3K at 3.99.  The credit card is ridiculous though, at 20.49 APR.  I'm back of the napkin calculating, does this mean I should leave the auto loans alone and pay off the credit card at least?

walkwalkwalk

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Re: A bird in the hand or... thoughts?
« Reply #3 on: June 11, 2019, 11:56:58 AM »
Well, I think it's pretty decent for the auto loans, $5K at 2.75, and the other $3K at 3.99.  The credit card is ridiculous though, at 20.49 APR.  I'm back of the napkin calculating, does this mean I should leave the auto loans alone and pay off the credit card at least?
Yea, just the credit card would be good, assuming the rest of your savings after you do this is 3-6 months of expenses.

Lady SA

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Re: A bird in the hand or... thoughts?
« Reply #4 on: June 11, 2019, 12:00:25 PM »
I always break out the investment order thread in cases like these.

https://forum.mrmoneymustache.com/investor-alley/investment-order/

0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.           
3. Max Health Savings Account (HSA) if eligible.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if
    - 401k fees are lower than available in an IRA, or
    - you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
    - your earn too much for an IRA deduction and prefer traditional to Roth, then
    swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.   


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So in your case, I would pay off the ccs with your savings, but then I would not pay off the cars.
I would look into whether or not it makes sense to sell your cars instead and buy sensible used replacements for cash. If not, ok, those rates and balances aren't outrageous and if you plan to keep those cars forever, then I would just keep paying the minimum on them.

ilmedi

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Re: A bird in the hand or... thoughts?
« Reply #5 on: June 11, 2019, 12:27:58 PM »
I always break out the investment order thread in cases like these.

https://forum.mrmoneymustache.com/investor-alley/investment-order/

0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.           
3. Max Health Savings Account (HSA) if eligible.
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if
    - 401k fees are lower than available in an IRA, or
    - you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
    - your earn too much for an IRA deduction and prefer traditional to Roth, then
    swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.   


----------------

So in your case, I would pay off the ccs with your savings, but then I would not pay off the cars.
I would look into whether or not it makes sense to sell your cars instead and buy sensible used replacements for cash. If not, ok, those rates and balances aren't outrageous and if you plan to keep those cars forever, then I would just keep paying the minimum on them.

Thanks, great thread.  I'm gonna do some math on what it would look like to max each of those items out every month.  I guess I need to pay down the credit cards and then figure out how to cut back on the b.s. spending that is getting in the way.  I'm going to pay down the cars as what we owe on each is less than what I could get for the same level used (at this point).  Thanks for the advice!

Bird In Hand

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Re: A bird in the hand or... thoughts?
« Reply #6 on: June 11, 2019, 01:16:52 PM »
Given the options, I would go with a Bird in Hand.

ilmedi

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Re: A bird in the hand or... thoughts?
« Reply #7 on: June 12, 2019, 08:16:21 AM »
Given the options, I would go with a Bird in Hand.

\ (•◡•) /

Villanelle

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Re: A bird in the hand or... thoughts?
« Reply #8 on: June 12, 2019, 09:01:20 AM »
Pay off the CC today.  For the rest and how to proceed from there, much of that decision is going to depend on how you feel about your situation and need for emergency savings.  But in general, I'd not worry too much about the other debts, other than to remind yourself to never again buy a car on credit.

ctuser1

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Re: A bird in the hand or... thoughts?
« Reply #9 on: June 12, 2019, 10:02:17 AM »
Do you still have the credit cards? Please consider cutting them out for now!!

I'm not a 100% Dave Ramsey fan. However, the behavioral components of his suggestions make a whole lot of sense when you are starting out. (Just ignore anything he says about investing and come to this forum, or to bogleheads).

There must be some reason why you got into the CC debt, and the car loan etc. Those things strongly indicate you are likely not yet disciplined about living below your means, saving for long term needs (e.g. buying a car) and for emergencies.

This is not a smack on you. I was just this for a long time - years. Only since 2016 did I start paying attention to my budget and figured out just how much mindlessly was I spending on my CC.

Get back to a couple of good reward credit card after you have lived frugally for at least six months. By that time, you would have got into a habit of what to spend on and what not!!

ilmedi

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Re: A bird in the hand or... thoughts?
« Reply #10 on: June 17, 2019, 09:24:26 AM »
Do you still have the credit cards? Please consider cutting them out for now!!

I'm not a 100% Dave Ramsey fan. However, the behavioral components of his suggestions make a whole lot of sense when you are starting out. (Just ignore anything he says about investing and come to this forum, or to bogleheads).

There must be some reason why you got into the CC debt, and the car loan etc. Those things strongly indicate you are likely not yet disciplined about living below your means, saving for long term needs (e.g. buying a car) and for emergencies.

This is not a smack on you. I was just this for a long time - years. Only since 2016 did I start paying attention to my budget and figured out just how much mindlessly was I spending on my CC.

Get back to a couple of good reward credit card after you have lived frugally for at least six months. By that time, you would have got into a habit of what to spend on and what not!!

Yeah this is good advice, thank you!  I've fluctuated in and out of good behavior over the last decade.  No one taught me anything, so I had to figure it out with real world experience.  For a long time I was paying off the CC every month, but then... well you know this story, something "important" came up, that wasn't really important at all.  I'm going to pay down the CC at the end of this month, and start living off whatever cash I've got (meaning debit card).  I think I may just be one of the people who needs to stay away from the CC all together.  The cycle is very difficult to break!

GizmoTX

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Re: A bird in the hand or... thoughts?
« Reply #11 on: June 17, 2019, 10:20:22 AM »
Pay off all your CC debt immediately. Confirm with the issuer what the payoff amount is before the next closing date.
Don’t close the account, just put your card somewhere inaccessible. This helps your credit score.
If you do charge anything, have the money saved to pay it off first.
Be careful where you use a debit card; there’s no recourse like a credit card has.
Use an app like YNAB (You Need A Budget) or Every Dollar Counts to allocate all income BEFORE you spend it, plus easily categorize your spending. YNAB has good videos on its website.

ilmedi

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Re: A bird in the hand or... thoughts?
« Reply #12 on: June 18, 2019, 10:59:43 AM »
Pay off all your CC debt immediately. Confirm with the issuer what the payoff amount is before the next closing date.
Don’t close the account, just put your card somewhere inaccessible. This helps your credit score.
If you do charge anything, have the money saved to pay it off first.
Be careful where you use a debit card; there’s no recourse like a credit card has.
Use an app like YNAB (You Need A Budget) or Every Dollar Counts to allocate all income BEFORE you spend it, plus easily categorize your spending. YNAB has good videos on its website.

I actually use YNAB.  I mean, the only reason I'm not totally in the gutter financially is because of YNAB.  I've used it since 2011, way before nYNAB, back when software got installed on your computer.  I totally understand on the credit versus debit, I am setup for auto-pay with my credit card on a lot of bills, and I'll still use my credit card for gas station visits, but big purchases (which shouldn't really happen at all going forward) have got to be debit card from now on!