Author Topic: What order do I pay things off in?  (Read 3761 times)

PJR202

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What order do I pay things off in?
« on: November 03, 2017, 08:59:12 PM »
Wife and I are gonna start getting more serious about saving and investments. We need to pay things off first, I presume, before sacking away cash in investments?

What order should this stuff go away in? Debt snowball or avalanche? Something else?

105k mortgage at 3.6%
25k auto at 5.9%
29k auto at 1.7%

3k on Lowes card at 0% (comes due soon. It'll be going first and we have the cash)

1k on Best Buy card at 0% (emergency refrigerator purchase. still have 11 months at 0% remaining)

1,600 at 3.9% on a HELOC. Had an emergency roof repair.

30k student loans. No idea on the interest rate. My wife has been throwing 200/month at them for many years. I can probably find out the rate easily enough though.

Aside from the expiring 0%, what order should we pay this off in? My thought is highest interest first, which I believe would be vehicle 1.

Thanks for reading!



MDM

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Re: What order do I pay things off in?
« Reply #1 on: November 03, 2017, 09:42:49 PM »
Wife and I are gonna start getting more serious about saving and investments. We need to pay things off first, I presume, before sacking away cash in investments?
Depends on the interest rates.  See Investment Order.

Quote
What order should this stuff go away in? Debt snowball or avalanche? Something else?
When and if you do decide to pay faster than required, avalanche will save you money.

You could go to http://www.vertex42.com/Calculators/debt-reduction-calculator.html, scroll down a bit to find (note: not the obnoxious "fromDOCtoPDF" download ad) this (or similar-looking section):


Download that spreadsheet, enter your loans, and see how much difference it makes among various pay-off strategies.

PJR202

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Re: What order do I pay things off in?
« Reply #2 on: November 04, 2017, 09:20:44 AM »
Cool. Thanks!

Catbert

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Re: What order do I pay things off in?
« Reply #3 on: November 04, 2017, 10:46:24 AM »
I would pay enough on the Best Buy card so that it "automatically" paid off when the 0% interest is finished.  The car loan would be your next priority, unless some of the SLs are a higher interest rate.

Cranky

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Re: What order do I pay things off in?
« Reply #4 on: November 05, 2017, 04:52:21 AM »
So, how is your emergency fund looking? Next time an appliance dies or something leaks, will you be able to cover it? Because if you've got a house, it will need fixing. (Ditto, cars.)

PJR202

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Re: What order do I pay things off in?
« Reply #5 on: November 05, 2017, 07:50:28 AM »
I would pay enough on the Best Buy card so that it "automatically" paid off when the 0% interest is finished.  The car loan would be your next priority, unless some of the SLs are a higher interest rate.

That's generally what we do. If for some reason we don't pay it off early it's already on a regular schedule to be done on time.

I found out the Lowe's is 3,600 (been paying on it almost a year) and the interest isn't actually due until May. 1,600 in interest has built up. It's really eye opening to see that as a total vs it being sneaked in as a minimum payment.

The HELOC is something we took out for a bathroom remodel a few years ago. We did our first bathroom with cash but I didn't want to do that twice and our renovation guy was looking for a full time job elsewhere. He had done a great job for the most part and people like that are hard to find so we wanted him to do the second one before he found other employment. Each one was about $6,000 and the second was paid for a few months later.
« Last Edit: November 05, 2017, 07:52:47 AM by PJR202 »

YttriumNitrate

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Re: What order do I pay things off in?
« Reply #6 on: November 05, 2017, 08:09:04 AM »
While mathematically it makes sense to pay off debts based on the interest rates, I think there Dave Ramsey approach of smallest to largest irrespective of interest rates is better for maintaining motivation. So, I would tackle the Best Buy debt first, then the HELOC, then Lowes.

PJR202

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Re: What order do I pay things off in?
« Reply #7 on: November 05, 2017, 08:16:53 AM »
So, how is your emergency fund looking? Next time an appliance dies or something leaks, will you be able to cover it? Because if you've got a house, it will need fixing. (Ditto, cars.)

It's decent. I have auto drafts for emergency fund, Christmas club, and vacation money so at any given time we could throw together at least 10k, plus I have the HELOC. You're asking yourself why I didn't use the cash for the incidentals, right? I sometimes do as well, but it seems like a better idea to me to use someone else's money at 0% or the 3.9% HELOC and keep my cash for something like job loss, union strike, etc, whenever there's an opportunity to do so. We've done 0% for a couple laptops, mattresses, furniture, a $5,000 basement remodel (did that one ourselves), and a couple others I can't recall. None of them went past the promo period. We did $1,600 on the HELOC for the roof knowing we'll pay it off in a few months with our tax return. We should have paid for that one outright though.

Is this all a good idea? I really don't know, but I like seeing I still have cash in savings. It also gives me some credit activity. I downloaded mint yesterday and got it all organized and ran my credit, which cane back at 790.

What we're trying to do now is get financially free and start putting some stuff in betterment for the kids to help with college expenses (7 and 9 years from now) and toss some in index funds and things. Still working on the plan. We waste a lot of money day to day, and especially on food. Just eyeballing my statenet I can see at least $600 a month I can free up.

We're in our late 30's. We bring in about 130k a year combined. My wife has a state pension (for now. KY is a huge mess right now) coming and I have $205,000 in my 401k currently and a pension that (if it stays as-is) should be a cash value of at least 500k when I become eligible in 12 years. I know we can do better on our income. We talk about it a lot and now we're ready to make some serious changes.

PJR202

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Re: What order do I pay things off in?
« Reply #8 on: November 05, 2017, 08:30:09 AM »
While mathematically it makes sense to pay off debts based on the interest rates, I think there Dave Ramsey approach of smallest to largest irrespective of interest rates is better for maintaining motivation. So, I would tackle the Best Buy debt first, then the HELOC, then Lowes.

Thanks for the input. It's not that I wouldn't do the snowball approach (and still may) but Dave Ramsey makes my skin crawl. I found this site specifically because I was trying to find a solid alternative source of information to whatever he's selling.

nereo

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Re: What order do I pay things off in?
« Reply #9 on: November 05, 2017, 08:42:14 AM »
Quote
105k mortgage at 3.6%
25k auto at 5.9%
29k auto at 1.7%
3k on Lowes card at 0%
1k on Best Buy card at 0% (emergency refrigerator purchase. still have 11 months at 0% remaining
1,600 at 3.9% on a HELOC. Had an emergency roof repair.
30k student loans. No idea on the interest rate. ...

In light of another thread here, I've got to throw some cold water/tough love your way...

your situation smells strongly of a much deeper, systemic problem - namely you have a debt problem. 
EXCLUDING the mortgage you have almost $90,000 in credit card and student loan debt. 
If I had to guess most of those student loans are at/above 6% (depends on year and terms, but many are 6.5-6.8%).  No excuses for not knowing those interest rate(s)
The fact that you categorize and funded both a refrigerator and roof repair as 'emergency expenses' suggests you are not prepared for these speedbumps that come with life (e.g. no emergency fund, no surplus cash each month). 
With your debt load a fridge replacement should have been a used-model from craigslist, never a new fancy $1,000+ appliance.  Holy cow that's inappropriate.
Your auto-loan is also clown-car crazy.  5.9% is crazy high, and combined you have $54,000 remaining on your auto loans. Absolutely unacceptable - if you are as deeply in debt as you are then you simply cannot afford those cars.

...sorry, but someone here had to say it.  Pay off the loans with the highest rates first, consider selling those clown-car and replacing them with something far more sensible (~$10k each will buy you a low-mileage used car with good fuel efficiency right now, particualrly since these are on sale given our low fuel prices).

Bracken_Joy

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Re: What order do I pay things off in?
« Reply #10 on: November 05, 2017, 09:24:04 AM »
I gotta pile on a little bit with nereo here. Yes, figure out what order to pay these off. But more importantly, figure out how to prevent this from ever happening again. The "emergency" words stood out to me, too. No, maintenance on a house is not an emergency. The house flooding or being blown away by a hurricane is an emergency. An appliance failing is expected- just because you don't know *exactly* when it will happen, doesn't mean you shouldn't be ready.

And why are you paying $6k a pop for bathroom remodels when you have $30k in student loans that you don't know the rate on?? Unless they were unlivable and unusable, you should have waited until your debt emergency is under control.

Required reading around here: https://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

boarder42

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Re: What order do I pay things off in?
« Reply #11 on: November 05, 2017, 09:45:02 AM »
Agree with nereo.

PJR202

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Re: What order do I pay things off in?
« Reply #12 on: November 07, 2017, 09:40:17 AM »
I really, genuinely appreciate everyone's replies here whether I agree or disagree. I probably didn't think this through well enough prior to posting here. I was going to just not post again, but I didn't want those who replied to think their input wasn't read and appreciated. I hate when people disappear on forums after I put some work into my replies.

That said, I think I'm probably on the wrong forum for what I'm doing. I don't think a money mustache is what I'm after. We have a very happy life and aren't drowning like some of the poor souls I've read about on here. about 15 years ago I was in serious debt during/after an ill advised marriage and it made me sick to my stomach on the regular. Currently we aren't struggling to pay our bills or keep up, and although I'd rather not owe the whole world money, I'm not going to buy a fridge off craigslist used for a hundred bucks when the average life of any new fridge these days (factually) is about 5 years, I got it with 0% and it'll be paid off in time, and if one of the comments above (which again I do appreciate) had priced them recently they would see $1,000 for a new fridge these days isn't even a MID TIER price. We also bought the display model for a couple hundred bucks off, and got the extended warranty thrown into the deal for no extra charge. I don't waste money on refrigerators that have a web browser and cameras in them. That's just goofy. All I required was that it matched the rest of the kitchen and that it dispenses water and ice because we use it all the time.

Both our vehicles are worth more than we owe, so calling that credit card debt isn't exactly accurate. Credit cards are unsecured. If you buy a car sensibly (usually at least two years old) on credit and opt for gap insurance you can pretty safely stay ahead of the interest. In the long term are you paying more for the vehicle? Yes. But getting into that line of thinking is why I'm researching and looking for ways to use our unallocated (unless eating out counts as allocated..haha) funds to grow them into something better. Getting all this going soon, I hope to start paying for them mostly or in-full with cash.

As it stands now, the student loan interest is tax deductible and due to a payoff program that comes and goes, my wife can't necessarily refinance for risk of losing out in participating in that. I wasn't fully aware of that when I initially posted here. She already missed out on a sizable chunk being paid off by the state when she consolidated about 15 years ago. For the cars, even at a 10% stock market average I likely can outpace the accrued interest on those loans with the amount I've got to work with. And honestly, we like our vehicles and neither of us are even remotely in a position to take a bike to work, nor can we relocate.

The roof repair was a real emergency, trust me. The framework under it was completely rotted due to years of water damage that never manifested itself as a spot on the ceiling drywall. It was dripping perfectly into the framing and eventually soaked the drywall enough that the paint started to bubble. We were very lucky the wall didn't collapse. I do 100% agree I should have just paid for it in cash but the cash wasn't in checking and the HELOC checks were handy at the time. Again though, everything we have out between the fridge, HELOC and the Lowes account will be gone by March or so if not sooner. After some more research, neither of the 0% balances will hit the interest mark before June of next year. The HELOC being the active interest account, I'll probably go pay it this week. We've had a lot of issues with her bank not sending the payment on that thing and if it wasn't such a hassle she would probably have already dumped the bank entirely. I just have this "thing" about getting into my actual cash when I can find another way to do it and know that I can pay it off pretty quickly. I only put that repair bill on the HELOC in late august. It was paid off prior to that. Again though, I had the cash and just don't like looking at the bank balance change in big chunks. That's a me problem though, and I need to get over it. I try to (and do) always have $10k for an emergency (the definition of an emergency is broad), because that can reasonably cover a complete roof, any appliance, a busted transmission or engine, etc. For some reason I just don't like actually spending that money in one shot. That 10k could also cover the missing portion of our expenses for several months if one of us suffered a job loss. And again, our actual expenses are far enough below what we earn that we could make it quite a while or even indefinitely on one income + unemployment or a lesser paying job.

I initially WAS here with the mindset of just throwing money at all the debt and getting "free," but I have no desire to take it to the extreme that many of you have done. That's just not me or her. Aside from my beloved Mustang I waited 20 years to buy, if you were to look at our house outside or inside, we don't have a perfect yard, I have an 11 year old riding mower and 10 year old push mower, our house cost 129k with an $800 mortgage including tax/PMI, all our TV's are older, our PC and primary laptop are both old, cell phones are only purchased about every three years, 12k for two complete bathroom remodels is a bargain compared to what most people spend plus we went from 1.5 baths with a horrendous, duck taped shower as the only bathing option to two full baths (increased home value), our kitchen cabinets were refinished for $250 and 40 hours of work instead of replaced for $5k, floors in the house are laminate instead of wood, etc. We really are NOT the Joneses for people who are far above the national average income. I know many people who earn far less and have a lot more material things. We're very similar in that way, and I think it's a big reason we don't argue about money and maintain separate accounts without any conflict. We're generous with each other and we don't put any concerted effort into deciding who pays for most things or if we're even-steven on how much we each pay for. People really give me an eyebrow raise when I tell them we don't operate from a joint account (our names are both on each though) but it's never been an issue in the least. We have access to each other's statements and that's about it. I made it clear early in the relationship that I can't have someone else spending out of my account again and surprisingly she was warm to the idea. In the first marriage that was an absolutely endless source of stress for me, watching it go negative and having so little control over it.  I honestly wonder if we would actually HAVE conflict if we tried to get all penny pinching serious. That whole "you spent on that but told me not to" kind of thing, or whatever.

I do think that as I get going on this, it'll turn into a game and we'll be looking for more ways to cut expenses and grow what we have. Even though I'm deciding not to head down the full mustache road, I think this thread has really helped me clarify what kind of financial life we're after. She just told me to up my life insurance so she can knock me off when retirement comes along since her state pension disqualifies her for social security (aside from her entry level jobs) so I guess that's her ultimate fall back plan..haha

Thank you all again. You definitely helped.

boarder42

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Re: What order do I pay things off in?
« Reply #13 on: November 07, 2017, 10:08:22 AM »
sad you're leaving there is a lot that can be learned here ..

PJR202

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Re: What order do I pay things off in?
« Reply #14 on: November 07, 2017, 06:11:48 PM »
sad you're leaving there is a lot that can be learned here ..

I'm not leaving leaving. Just gonna be doing more reading than posting. He has a lot of good articles.

ixtap

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Re: What order do I pay things off in?
« Reply #15 on: November 07, 2017, 07:42:26 PM »
sad you're leaving there is a lot that can be learned here ..

I'm not leaving leaving. Just gonna be doing more reading than posting. He has a lot of good articles.

I do not think that there is a finance forum that is going to give your the answers you want to hear. The reason is that every responsible homeowner should be budgeting to replace appliances and the roof, much less for home renovations.

You are still in the defensive stage of learning something new. It happens to everyone. Keep reading. If you do not share goals with MMM, try bogleheads. Be aware that they would not approve of most of your debt, either, though.