Author Topic: Help w/ my debt repayment plan, please.  (Read 4551 times)

lackofstache

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Help w/ my debt repayment plan, please.
« on: February 12, 2014, 08:41:19 AM »
My wife and I have not always been great w/ money, however, after a terrible 2012 & first half of 2013, we've rebounded. Our decisions coupled with some insane medical bills/issues nearly broke us, but we've rebounded and are moving forward. Here's what we have, listed in the order I think we should take care of them. We have roughly an extra $1K/mo to throw at debt while saving for EF & matching on 401(k). I know PMI is killing us, but I'd like to get rid of the auto loan at least before tackling the mortgage, I want one small win before grinding it out on the mortgage for an extended amount of time.

Auto Loan: $5500 @ 8.95% (Payment is $224/mo, we're paying $1300/mo)
Wife's Student Loan 1: $952 @ 7.25% (12/mo)
Wife's Student Loan 2: $1228.22 @ 7.25% ($16/mo)
Wife's Student Loan 3: $5748.56 @ 6.75 ($72/mo)
Mortgage to get out of PMI w/ refinance: $82000 @ 4.625% ($600/mo w/ PMI & escrow, only $130 towards principal)
If we can get this to $78K, I know the appraisal will come back well enough for us to refinance.
Small Business Loan from my brother (MISTAKE): $7500@ 4% ($234/mo)
My Student Loan: $2500 @ 2.35% ($63/mo)

Frankies Girl

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Re: Help w/ my debt repayment plan, please.
« Reply #1 on: February 12, 2014, 08:55:22 AM »
I'd hit the debts in the same order you've listed them out. While the PMI is a concern, to me the high interest you're paying on all those loans is more important in my view to eliminate.

As soon as you have the car paid off, you shouldn't have to carry full insurance coverage (sometimes a mandate of the loan) so  look at reducing or dropping your comprehensive/collision coverages (at least raising your deductible to the limits) to get a better car insurance rate, and kick ALL of that extra money at the next on the list. If you're paying $1300 a month on the car, you should have that paid off in under 6 months, and then the first two student loans gone in the two months following that... and then you'll take out the 3rd one pretty fast.

At that point, I would hit the mortgage to get it down enough to drop the PMI. I don't know what your PMI actually is (do you?) but on my house when I had it, at roughly the same loan amount, it was $30/month give or take, so as long as you have a similar PMI, getting it removed in the next year is good, and with the money you free up from paying off the other stuff, it shouldn't take you too long.

The loan from your brother and your own student loan can definitely be paid on minimums until you get that other stuff taken care of.

Good for you for getting things in place and coming back from a bad situation. :)

Cheddar Stacker

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Re: Help w/ my debt repayment plan, please.
« Reply #2 on: February 12, 2014, 09:39:07 AM »
                               Annual     Monthly
 Prin             Rate     Interest   Payment
         
 $5,500.00    8.95%    $492.25     $224.00
 $952.00       7.25%      $69.02       $12.00
 $1,228.00    7.25%      $89.03     $16.00
 $5,749.00    6.75%     $388.06     $72.00
 $82,000.00  4.625% $3,792.50     $600.00
 $7,500.00    4.00%      $300.00     $234.00
 $2,500.00    2.35%       $58.75     $63.00
         
 $105,429.00           $5,189.61        $1,221.00

Sorry for the ugly formatting, I still haven't figured out how to drop a table in here properly. You didn't post anything related to income, so it's hard to look at this relatively, but I'd say this doesn't look that bad. You have $105K debt and 80% of it is mortgage at a fairly low rate, so good job.

You really didn't post enough info to analyze completely, so I had to estimate what I think your PMI is based on the table I made. You pay about $154/month for escrow plus PMI, so I'd bet about $70 PMI, which is $840/year. If that's the case, yes PMI is killing you. In fact, if PMI is higher than $41/month, it's your biggest monthly expense listed here other than mortgage interest ($492.25/12=$41.02).

If you really need a small victory, pay that $952 loan off this month. It doesn't make sense mathematically, but maybe psychologically. After that, hit the mortgage as hard as you can. You really only need 4-5 months to reach the $78K level on your mortgage principal, so you'll knock this out in June. Why go for a small victory when you can get the big one in 4 months?

After that go in the order you have above.

schimt

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Re: Help w/ my debt repayment plan, please.
« Reply #3 on: February 12, 2014, 09:52:22 AM »
See the file I attached, it is a debt reduction strategy spreadsheet that was created by vertex42.com. Very handy. I threw your info in it real quick and you can play with the different strategies and see the effect on interest. This spreadsheet does not take into account PMI, so you may have to play with the interest rate to account for that. But it's a nice sheet to play with, and quickly see how much or how little increasing your monthly debt payment will affect overall interest paid and time to pay off all debts.

The snowball/avalanche strategies assume that when you pay off the first loan, you will add that minimum and the extra you were paying to the next one you are working on. All the instructions are in the file.

And i assumed your total money you have available to pay debts per month is around 2400, since the minimums add up to $1,221 and you said you have a $1000 extra.

lackofstache

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Re: Help w/ my debt repayment plan, please.
« Reply #4 on: February 12, 2014, 10:03:15 AM »
Thanks for the replies. My PMI actually costs $32.80/mo. I can't just get to the 80% LTV to get it wiped away as my mortgage terms say it will be waived on the date that I was scheduled to reach 78% LTV. I will have to refinance in order to get rid of PMI, which means paying for an appraisal, etc.

In some ways I'd rather get rid of ~$400/mo of debt than the $33/mo PMI in case something else happens that's out of our control.

Schimt, I'll look it over, thanks!

lackofstache

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Re: Help w/ my debt repayment plan, please.
« Reply #5 on: February 12, 2014, 10:16:51 AM »
Will it go away when you reach 78% LTV or when you were scheduled to reach 78% with normal payments? Most people don't may more than the minimum so these dates would be the same for them and mortgages tend to be written up as if that is the case. Double check with your mortgagor on that since if it will go away when you actually reach 78% LTV then it wouldn't be worth the cost of the appraisals to get it gone at 80%.

It will go away when I'm scheduled to reach 78%. It says there are special circumstances that may be able to get rid of it sooner, but it's definitely not guaranteed to go away just because I pay extra on the mortgage. Since it isn't guaranteed, I think I'll focus on the others. Thanks again, everyone.

Bethersonton

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Re: Help w/ my debt repayment plan, please.
« Reply #6 on: February 12, 2014, 10:24:57 AM »
I know a lot of people don't like this, but I'm a fan of the debt snowball (paying off debts smallest to largest by loan amount). It's easier to keep momentum going when you can cross things off the list and toss more and more money at the higher debts.

I don't agree with anything non-financial that Dave Ramsey says, but his whole comment in response to paying things off by highest interest rate is: "If this were about math and numbers, you wouldn't be in debt in the first place." I think that's pretty spot on. Debt isn't just about the math.

Cheddar Stacker

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Re: Help w/ my debt repayment plan, please.
« Reply #7 on: February 12, 2014, 10:32:11 AM »
Thanks for the replies. My PMI actually costs $32.80/mo. I can't just get to the 80% LTV to get it wiped away as my mortgage terms say it will be waived on the date that I was scheduled to reach 78% LTV. I will have to refinance in order to get rid of PMI, which means paying for an appraisal, etc.

In some ways I'd rather get rid of ~$400/mo of debt than the $33/mo PMI in case something else happens that's out of our control.

Schimt, I'll look it over, thanks!

This is below the $41/month you are paying on the highest interest rate loan, so I agree you should pay the debts in the original order you proposed.

Frankies Girl

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Re: Help w/ my debt repayment plan, please.
« Reply #8 on: February 12, 2014, 10:49:24 AM »
Okay, I hope the PMI removal isn't going to be the same scenario I went through.

They would not remove the PMI if you threw extra money paying down the mortgage to get to below the 80% LTV. It will automatically go away when they originally had scheduled for you to hit that amount - so pre-paying means squat to them, they'll still hold you to the original amortization schedule. UNLESS you pay to have an independent top to bottom (in your house and poking all over) valuation estimate (which in my area was going to cost around $400 out of my pocket), and then as long as the house is worth at least or more than the proposed amount to equal you hitting the 80%... then they'll remove the PMI early.

I was pretty pissed that they couldn't just see that I paid on time/early and obviously paid more than required each month to remove the PMI when I hit and blew past the 20% to remove it (since PMI is just a protection against a bad homeowner defaulting on their loan, which I had demonstrated I wasn't over the 5+ years I'd been paying), so we went round and round for about two months, but then they "miraculously" offered me a no-fee refinance that removed the PMI as a side effect. Insert eyeroll here.

So basically, you're paying an extra $400 roughly a year for the PMI. If you can hit the mortgage hard enough to drop it and get them to take out the PMI, add in another $3-400 for a home estimate, and then they'll remove it, but it might take a few months.



« Last Edit: February 12, 2014, 10:52:25 AM by Frankies Girl »

lackofstache

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Re: Help w/ my debt repayment plan, please.
« Reply #9 on: February 12, 2014, 11:55:57 AM »
Okay, I hope the PMI removal isn't going to be the same scenario I went through.

They would not remove the PMI if you threw extra money paying down the mortgage to get to below the 80% LTV. It will automatically go away when they originally had scheduled for you to hit that amount - so pre-paying means squat to them, they'll still hold you to the original amortization schedule. UNLESS you pay to have an independent top to bottom (in your house and poking all over) valuation estimate (which in my area was going to cost around $400 out of my pocket), and then as long as the house is worth at least or more than the proposed amount to equal you hitting the 80%... then they'll remove the PMI early.

I was pretty pissed that they couldn't just see that I paid on time/early and obviously paid more than required each month to remove the PMI when I hit and blew past the 20% to remove it (since PMI is just a protection against a bad homeowner defaulting on their loan, which I had demonstrated I wasn't over the 5+ years I'd been paying), so we went round and round for about two months, but then they "miraculously" offered me a no-fee refinance that removed the PMI as a side effect. Insert eyeroll here.

So basically, you're paying an extra $400 roughly a year for the PMI. If you can hit the mortgage hard enough to drop it and get them to take out the PMI, add in another $3-400 for a home estimate, and then they'll remove it, but it might take a few months.

This is exactly what I'm expecting judging by the words they use, which is why I figured I'd wait to move on that one.

Weedy Acres

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Re: Help w/ my debt repayment plan, please.
« Reply #10 on: February 12, 2014, 12:36:58 PM »
If it was me, I'd pay off the wife's SL #1 and #2 in the next 2 months.  It would bug me to be writing $12 checks every month.  Mental and psychological decluttering.  Then go back to your normal order.  The difference in "extra" interest paid will be negligible.