Author Topic: Case study-Which debt to pay off first?  (Read 2238 times)

MsWillow

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Case study-Which debt to pay off first?
« on: September 20, 2014, 03:59:57 PM »
My husband will be laid off in two months.

Income: $8400/month currently, will become $6400/month
expenses
-mortgage $1500/month
-electric/gas $150
-phones (2) $100, mine is used for work and partially deducted on taxes
-car payment $381
-student loan $250
-fuel $220
-preschool/kids care $500
-water/trash $100
-food (mostly organic) $600
-clothing $100
-Internet $60
-insurance (car/house) $150
                                          Total: $4111
Assets:
-home $225,000
-1st car $10,000 paid for
-2nd car value $15,000

-Teacher retirement account $100,000 8% from my gross, 8.5% match from employer
-annuity $13,500
-Roth IRA $1200
-529 $8000
-savings/emergency fund .8% $10,000
                                                         Total $132,700
Liabilities: Amount - rate - description
-home mortgage 1.9% adjustable rate currently $-225,000
-car $8000 @ 1.9%
-student loan $10,000 @ 4.8%

Specific Question(s): We have been throwing $2500 or more at the student loan and car. Which debt should I attack first? How much savings & emergency fund should I hold on to?

The lay off is going to reduce our ability to attack the debt as quickly and opens up new questions.  His employer covers all health insurance and will continue to for at least 1 year past lay off. He may want to go back to school, which means we continue with pre school until May. If I have to get insurance at my employer, it will be minimum $1500/month. This will determine how much husband has to earn at a new job.
 
I found the blog at the beginning of the summer and have cut a lot out of the budget, which is reflected in the current numbers. It was amazing timing, thanks for any help you could offer.
« Last Edit: September 22, 2014, 06:53:49 AM by MsW »

former player

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Re: Case study-Which debt to pay off first?
« Reply #1 on: September 20, 2014, 04:22:04 PM »
You could get rid of the $8,000 car loan and its $381 per month payment altogether by selling that car for $15,000 and buying (if you really do need two cars) for $7,000.

I'm not seeing anything in your budget about retirement contributions or on-going contributions to other tax-advantaged savings? You don't say what your mortgage interest rate is? 

Student loan at 4.8% is relatively high, and paying it off it probably better than putting it in anything other than a tax-advantaged investment.

You only have two and a half months of expenses in your emergency fund, so I wouldn't reduce that.

I wouldn't let the cost of health insurance get in the way of your husband looking for a new job.  20 years in the same workplace will mean his job-getting skills are rusty and his confidence may be low after being made redundant.  Waiting a year to get a new job, or putting requirements on that job about health insurance, might make the job search harder and less likely to be successful than it need be.  If he really does need to have a job in one year's time which has awesome health insurance, his best bet for getting that job might be to take one with less awesome health insurance in the mean time and then look for that other job from a position of strength.

MsWillow

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Re: Case study-Which debt to pay off first?
« Reply #2 on: September 20, 2014, 04:39:33 PM »
Thanks for looking over my post. I will add the additional information above. Thank you!
« Last Edit: September 22, 2014, 06:55:08 AM by MsW »

 

Wow, a phone plan for fifteen bucks!