Getting Started - Debt and Car Questions

[kroozin]

I just discovered MMM about a week ago, and I've been diving in full force to try and come up with a plan for my current situation. Doing the math for my current debt situation, I'm trying to come up with a plan for hammering down my debt once and for all so I can start saving. One thing I'm struggling with is how to calculate payoff times with multiple debt sources. I'll provide some information to give context to what I mean. Apologies in advance for the longer post, but I figure having more information is helpful for my question.

Debt Sources:

• Bank Loan (8.74%)- Balance of about $1,900 that will be paid off this month thanks to a tax return
• Credit Card (0% - did a free balance transfer) - Balance of $5,500. The transfer allowed me to have 0% interest (instead of the ~19% I had previously) until the end of this year, so I'm paying $550/mo and it will be gone in December
• Student Loans - (4.37%) - Balance of $46,500
• Mortgage (4.125%) - Balance of $211,400. I also have a PMI payment of $147.50/mo on this balance

I've determined at this point that it makes the most sense to tackle this in this order: 1) Wiping out the bank loan, 2) Leaving the $550/mo Credit Card payments to wipe it out by December, 3) Use the money that was going to the bank loan (and credit card when that's paid off) toward my mortgage to get rid of PMI ASAP, 4) Pay off my student loans when PMI is gone, 5) Finally, start putting more towards my mortgage while I save.

If I go by the original home value, I need to pay another $37,400 on my mortgage to remove PMI, but according to Zillow (not very reliable, I know), my house has gone up in value pretty significantly in the short time I've owned it, so I'm hoping I may be able to remove the PMI even quicker.

First Question

Now for the question. What I'm struggling to calculate is the timeline for all of these goals. My use case has my payments to the various debts changing constantly as things are paid off. After this month the Bank Loan will be gone, and I'll be able to apply the ~$700/mo I've been throwing at it to my mortgage. In January of 2020, my credit card debt will be gone, and I'll be able to add another $550/mo to that payment. Given that I'm having trouble figuring out when I'll be able to remove PMI and apply that $1250/mo (plus the $147.50 from PMI) toward my Student Loans to calculate THAT payoff schedule...as you can see it gets pretty confusing. Is there an easy way to calculate this so I can get a timeline estimate for getting out of this debt?

Second Question

This one is a different question entirely, but I feel it is related, as it may be able to allow me to save more each month (and therefore pay down my debt faster). I am currently leasing a 2017 Toyota Corolla for $209/mo, and the lease goes until July of 2020. After reading MMM, I realize I'm just throwing away money so I'm trying to find a solution. I've learned their are websites that will help me find someone to take over my lease, but my problem comes from finding a car to replace it. Since I've been aggressively paying off debt, I don't have $5,000 saved to purchase a decent used car at the moment.

Should I reduce my debt payments for a few months to save up the cash for a car and get rid of the lease? Or does it make more sense to just start saving now to be able to purchase a car next July when my lease expires?

I know there's a lot here, so I greatly appreciate any and all help/advice. There's a lot to dive into here at MMM and I'm just starting to wrap my brain around it all!

[MDM]

kroozin, welcome to the forum.

Your loan payoff order looks good.  See http://forum.mrmoneymustache.com/ask-a-mustachian/which-loan-to-pay-extra-first/msg1307278/#msg1307278 for a link to a spreadsheet that will help with the specific calculations.

Whether to pay ahead on the student loans and/or mortgage is up to you.  See Investment Order for some thoughts.

I'll leave the lease/buy item for others.

Good luck!

[RWD]

You can calculate debt payment timeframes here: http://unbury.us/

I would probably try to save cash to buy a car when the lease is up.

[kroozin]

Thanks for the responses! Looking through those links now, and I'm also realizing most of the posts like these are in the "Case Studies" subforum. Either way, appreciate the help :)

[Goldy]

You don’t have any hair on fire debt which is great.  If it were me I would execute your plan as is except instead of paying the 700/mo to the mortgage i’d save that in an emergency fund until there was a few months of expenses in it.  Once I was happy with the EF I’d start saving 5k for a car.  Only once those two bins were full would I start looking at PMI.  With your debt rates in the low 4’s I would think pretty hard about starting to invest more instead of putting every penny towards the debt.

All in all you have a very manageable situation and a good bit of income to allocate.

[horsepoor]

It sounds like you could easily save up a pretty good emergency fund, plus enough to buy a used car by the time your lease is up.  I'd just shoot for that, since your mortgage and student loan rates aren't bad.

Remember that you don't have to have a specific schedule for making extra payments, so if you find that you have extra cash and want to take a chunk out of your SL, you can just do it all at once, like after your car situation is sorted out.

You don't mention investments, so if you don't already have at least retirement accounts, it is more important to start those than to pay down the mortgage and SL.  Returns on investments should average out to a higher % than your interest rates, and retirement investments can also reduce your tax payments.

[kroozin]

Saving for an EF and the car actually does make a lot of sense. I've been so laser-focused on getting rid of the debt just because I hate looking at it, but it probably makes more sense to knock those out first.

You don't mention investments, so if you don't already have at least retirement accounts, it is more important to start those than to pay down the mortgage and SL.  Returns on investments should average out to a higher % than your interest rates, and retirement investments can also reduce your tax payments.

Ah yes, I forgot to mention that. I started a new job about 5 years ago for a smaller company that doesn't offer any retirement plan options at all. While that obviously isn't ideal, I love the job and I didn't want to leave, so I set up a Roth 401k through Northwestern Mutual, transferring everything from my old job and contributing manually. I've been contributing $100 twice per month since then. I actually recently put a pause on those contributions because I wanted to focus on paying down my debt, but it sounds like it may actually make more sense to focus on the contributions there instead of trying to get rid of my PMI.

Edit: I also have a "Simple IRA" through Fidelity with a balance of $2,529. To be completely honest, I totally forgot that one existed until I started looking up my investments. I haven't contributed to it at all, and I'm not totally sure the difference between them. Looks like I have some research to do!

[MDM]

...I set up a Roth 401k through Northwestern Mutual....

- Is that a solo 401k or do you mean Roth IRA?
- Investing through an insurance company usually works out well for the insurance company and not as well for the investor.  Consider Fidelity, Schwab, or Vanguard instead of NW Mutual.
- Traditional accounts, especially for those with little retirement savings, usually are better than Roth accounts.

[kroozin]

Sorry yeah I meant a Roth IRA through Northwestern. I set it up because I had a friend who works there and he walked me through all of it ~6 years ago and I never really thought about it. I also have Disability insurance through them that is about $85/month (I'm likely going to cancel this now based on things I've read here, just have to call him to do it).

I'm excited to dig into this and take control now that I'm starting to learn it all, and it sounds like I've been doing it wrong for a long, long time!