I haven’t posted much here before but I’ve been lurking for a while, and was hoping to get feedback on where to direct my excess income from some of you. I just graduated from grad school a few months ago, and accepted a position at a large tech company in the Bay Area.
I have a ton of debt. $381,195 worth of debt, to be precise. I currently have $35k in cc debt (down from $43k), $163k in student loan debt, and $183k in mortgage debt. I am struggling to decide how to approach paying off my debts after I take care of a small amount of high interest credit card debt.
Regarding the mortgage, I bought a house at the end of 2008, and moved away from the area (Mid-Atlantic) two years ago to go to grad school. My mortgage is $183k, of which $8.5k is “second principal” that will be forgiven if I sell or refinance with negative equity. Zillow is estimating that the property is worth about $130k at the moment. Taxable assessed value is $159k, to be re-assessed this Jan 1.
PI is $1,208/month. I’ve been lucky to have 100% occupancy since I left, and am currently renting at $1,350/mo. I net $1,196 after PM fees, and pay $468 in escrow for TI (high tax area). So, I’m paying $480/mo out of pocket for the property. Again, this is with 100% occupancy and not needing any major repairs over the last few years. I love this house and thought it could be a retirement home for me someday, but the carrying costs just aren’t worth it.
I paid off $9.5k in debt since starting my new job ($8k cc and a $1.5k medical bill), and will be able to pay about $1,600/mo from now through December above the minimums for all debts. I won’t have much extra income to pay above minimums in Jan & Feb, but should free up about $800/mo when I move in March. (Made an unmustachian housing decision when I arrived here, but will get roommates as soon as I can get out of this lease, at the end of Feb 2014).
Originally, my thought was to pay off all credit card debt first, then knock out the student loans, and then deal with the mortgage. However, the more I think about it, the more I begin to think that I should make paying down the mortgage my top priority.
My mortgage is not FHA, Fannie or Freddie, so I don’t qualify for HAMP or HARP or anything. My mortgage bank has basically said that they’re not interested in working with me on some sort of refinancing since I’m on time on payments. I don’t really think I’d be comfortable with “walking away” or anything like that. I will get some relief from that $8.5k principal forgiveness if I am able to sell for less than what I paid.
Here’s a summary of my debts.
Debt: Balance Rate Mo. Pymt Mortgage: $183,041 6.75% $1676 (net $481) SL #1: $106,544 5.99% $1130 (kicks in Jan 1) SL #2: $43,008 6.8% $506 (kicks in Jan 1) SL #3: $10,182 5% $85 (kicks in Apr 1) SL #4: $3,467 4.75% $50 CC #1: $3,447 19% $169 CC#2: $4,098 12.24% $86 CC#3: $11,269 11.99% $224 CC #4: $16,139 10.24% $220
Total: $381,195 |
My immediate plan is to finish paying off CC#1 and then payoff CC#2. I plan to get this done by the end of 2013.
So which debt should I go after next? If I deal with the mortgage next, I think that I’ll need to bring at least $50k to the table to be able to sell. Here, I wonder if I should pay down principal as I go, or set aside savings for this end. My preference would be to pay down principal, but would love to get thoughts on this.
On the other hand, I could free up a similar amount of monthly cash flow by paying down SL #2 or CC#3&4. The interest rates on these debts are higher than the mortgage rate. However, I am leaning towards getting rid of the mortgage first, since any vacancy or repair would be a bigger hit to my monthly cash flow.
I currently have $30k in a Roth IRA and $10k in a personal IRA (old 401k rollovers), and about a month of expenses in my checking account. I have 6% deducted from my pay for the company 401k match.