Author Topic: In what order should we pay off these debts?  (Read 12403 times)

Peachfuzz777

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In what order should we pay off these debts?
« on: March 22, 2015, 03:21:45 PM »
My wife and I are just starting to grow our mustaches after years of me shaving both of our faces (i.e. she wanted to save, but I didn't...).  Now MMM and my wife finally have me seeing the light and realizing just how much money I have wasted which has really shocked me into action.  We've improved our cashflow by about $2,000/ month by various means, and now I am very focused on paying off some debts.  My problem right now is I'm not sure in which order I should pay off this debt.  Our positive cashflow each month will now be around $2,000-$2,500, and we are hoping to add to that through paying off the below debts (basically the snowball method, but not necessarily paying off the smallest ones first.

We have about $15,000 in savings and that should grow by at least $4,000 over the next month due to refinancing our mortgage (which means we'll be missing a mortgage payment plus getting back $2,000 in escrow)
With our new mortgage, we will owe about $278,000 for a monthly payment of just under $1,600 at 4.125% interest - we're doing a 30 year but planning on accelerating the payments on this once the other debts are paid off in the hopes of paying it off in about 10 years from today
We just refinanced my wife's car ($17,100 total for a 2012 Honda Civic worth much less) at 3.45% for 48 months for a $381 monthly payment
My wife has a 7 year 401k loan of $11,820 at 4.25% interest that has a bi-weekly payment of $111 (we have been planning on paying this off first since it is the smallest and now have the money saved up to do so) - also, it seems like paying off the 401k loan will have an 11% payback (4% interest savings plus 7% that money can now earn on average in the stock market)
I have a 30 year (I know...) 401k loan of $49,000 at 4% interest that has a monthly payment of $250 - this feels like slavery at this point because I am chained to my current job until this is paid off and so emotionally I want this paid off ASAP but the monthly savings is pretty small
I have a car loan payment of $505 month for a 2013 Nissan Altima (35+ mpg, so not terrible on that front) at 3.69% interest and still owe about $23,800 on it
We owe my parents about $4,700 at 4% interest over 7 years for a monthly payment of $68

Lastly, neither of us are fully funding our 401k's.  I believe we could do up to $18,000/year by law, but I did about $13,500 last year and she did $8,400.  My thought is we will keep roughly the same %'s for the next few years while we pay off the non-mortgage debts and then go up to the maximum in 3 years when the other debts are paid off. 

Sorry, but one more consideration - we are thinking about solar panels which would cost about $18,000 out of pocket (after tax credit) and even if we financed it would help us come out ahead by at least $50/month over our current electric bill averages.  After reading MMM, I am thinking maybe we need to save up that money before buying it, but it would probably mean waiting for 2-3 years to get solar by which time the tax credits will be gone (12/31/16 expiration) so it won't be nearly as good of a deal.  Would it be so wrong to finance this since it is generating positive cashflow?

Thanks in advance for your time to read this and give us some guidance!
Jeremy


ken

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Re: In what order should we pay off these debts?
« Reply #1 on: March 22, 2015, 03:46:42 PM »
I expect you are going to get some face punches and you deserve every one them. Worrying about what order to pay your debts is fine but not the priority. Stop buying shit! That includes solar panels. If your debts were paid off tomorrow through some good fortune, you would probably run them right back up. Do a full budget analysis and then see how you can eliminate debt like your hair is on fire. It is. I hope your wife is financially conservative as you say and that you are serious about making changes. The fact that both of you have expensive vehicles with loans, means you both have work to do.

Murse

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Re: In what order should we pay off these debts?
« Reply #2 on: March 22, 2015, 03:56:55 PM »
I don't like getting into the nitty gritty of these things, but I just want to say you are exactly the person this blog was made to help. Sounds like you have big incomes and big expenses, all that needs to be done is the expenses drop, and your net worth will hit light speed. My vote goes to posting a case study.

bacchi

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Re: In what order should we pay off these debts?
« Reply #3 on: March 22, 2015, 04:06:41 PM »
Wow.

Yeah, ixnay on the solar panels. It's a good ROI but you can't afford it right now. You have WAY too many loans.

The good news is that they're at all good rates. I agree -- pay off the wife's 401k. That will take 6 months. I'd then save for 2 months and pay the parental loan.

One goal might be to eventually get rid of one of the $$ cars and get a used Fit/Yaris. Unfortunately, that'll take some of the available cash. However, with your cash flow, you can probably save enough in 4-5 months. Sell the Altima, use $9k for a newish Fit, and now you have an extra $500/month. Drive that toward the Honda Civic loan.



TheNewNormal2015

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Re: In what order should we pay off these debts?
« Reply #4 on: March 22, 2015, 04:13:16 PM »
I would max 401k contributions (decreasing taxes), pay off cars, then parents (assume they would be more lenient than other debt sources if you missed a payment or were late?), then 401k loans, then mortgage in that order

The 401k loans are interest you pay to yourself

And forget the solar panels (can't believe that is even a consideration)

Catbert

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Re: In what order should we pay off these debts?
« Reply #5 on: March 22, 2015, 04:32:23 PM »
Pay off DWs 401k loan as soon as your re-fi is accomplished (don't deplete your savings while loan is in progress). 

Save up and pay off your parents next. 

Then start working away at your 401k loan.  Yeah, the interest rate and monthly payment is low but it ties to totally to your job.  What if you lose your job or get a great offer elsewhere.  The taxes and penalties will kill you.  I assume (?) that this 401k loan is tied to your house since I think that's the only way a 401k loan can exceed 5 years in duration.

EDIT:  Oh and forget solar.  Its that kind of thinking that got you so far in debt to begin with.   

justajane

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Re: In what order should we pay off these debts?
« Reply #6 on: March 22, 2015, 04:47:06 PM »
That's a lot of debt, but you seem to recognize this. Even at 2K a month, you're looking at years and years to repay it all. Any way you can increase the amount per month you can throw at it? I also suggest a case study.

No solar panels. Just no. We have them, and it takes years and years to break even. They also might not perform as well as you expect. Ours don't. Don't get suckered into them because of the tax credit. It really doesn't make sense if you are financing the panels, which it appears you are thinking of doing.

SaintM

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Re: In what order should we pay off these debts?
« Reply #7 on: March 22, 2015, 05:16:15 PM »
After the refi, I count $2915 in monthly debt payments.  $886 for the cars, 68 to the parents, and $1961 for the house.  I'm assuming the 30- and 7-year 401k loans were used to buy the house.

With the info you provided, it appears you owe a total of $338,820 because of the house.  Instead of downsizing the car, you should skip the refi and downsize the house.  In addition to a lower mortgage payment, you will save on property taxes, insurance, utility bills, cleaning costs, maintenance, and yard care.  If you move closer to work, you can reduce gas and other car expenses (or ride a bike?).

ShoulderThingThatGoesUp

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Re: In what order should we pay off these debts?
« Reply #8 on: March 23, 2015, 05:54:29 AM »
In most of the country that's a very fancy house. Not only does going to a smaller house reduce your mortgage, it reduces all your monthly/annual bills, too.

boarder42

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Re: In what order should we pay off these debts?
« Reply #9 on: March 23, 2015, 06:01:40 AM »


We have about $15,000 in savings and that should grow by at least $4,000 over the next month due to refinancing our mortgage (which means we'll be missing a mortgage payment plus getting back $2,000 in escrow)
With our new mortgage, we will owe about $278,000 for a monthly payment of just under $1,600 at 4.125% interest - we're doing a 30 year but planning on accelerating the payments on this once the other debts are paid off in the hopes of paying it off in about 10 years from today
not significant i would just pay the minimum til its paid off
We just refinanced my wife's car ($17,100 total for a 2012 Honda Civic worth much less) at 3.45% for 48 months for a $381 monthly payment
not significant pay minimum til its paid off
My wife has a 7 year 401k loan of $11,820 at 4.25% interest that has a bi-weekly payment of $111 (we have been planning on paying this off first since it is the smallest and now have the money saved up to do so) - also, it seems like paying off the 401k loan will have an 11% payback (4% interest savings plus 7% that money can now earn on average in the stock market)
PAY THIS OFF AS FAST AS YOU CAN AFTER PAYING BACK PARENTS
I have a 30 year (I know...) 401k loan of $49,000 at 4% interest that has a monthly payment of $250 - this feels like slavery at this point because I am chained to my
current job until this is paid off and so emotionally I want this paid off ASAP but the monthly savings is pretty small
PAY THIS OFF AS FAST AS YOU CAN AFTER PAYING BACK PARENTS
I have a car loan payment of $505 month for a 2013 Nissan Altima (35+ mpg, so not terrible on that front) at 3.69% interest and still owe about $23,800 on it
MINIMUM PAYMENTS YOU SHOULD ALSO CONSIDER SELLING BOTH OF THESE CARS AND GETTING OLDER MORE AFFORDABLE CARDS B/C YOU REALLY CANT AFFORD EITHER OF THEM
We owe my parents about $4,700 at 4% interest over 7 years for a monthly payment of $68
PAY THIS OFF FIRST AS FAST AS YOU CAN

Lastly, neither of us are fully funding our 401k's.  I believe we could do up to $18,000/year by law, but I did about $13,500 last year and she did $8,400.  My thought is we will keep roughly the same %'s for the next few years while we pay off the non-mortgage debts and then go up to the maximum in 3 years when the other debts are paid off. 

Sorry, but one more consideration - we are thinking about solar panels which would cost about $18,000 out of pocket (after tax credit) and even if we financed it would help us come out ahead by at least $50/month over our current electric bill averages.  After reading MMM, I am thinking maybe we need to save up that money before buying it, but it would probably mean waiting for 2-3 years to get solar by which time the tax credits will be gone (12/31/16 expiration) so it won't be nearly as good of a deal.  Would it be so wrong to finance this since it is generating positive cashflow?
WHY ARE YOU ADDING MORE DEBT YOU ALREADY HAVE 401K LOANS - THE WORST DEBT IMAGINABLE IMO

Thanks in advance for your time to read this and give us some guidance!
Jeremy
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YTProphet

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Re: In what order should we pay off these debts?
« Reply #10 on: March 23, 2015, 06:01:51 AM »
I'll give you some Dave Ramsey advice that you won't like and probably won't do but is definitely in your best interest - sell both the cars. You'll have to take a little cash out of your savings to make up for the difference between the sales price and what's owed, but you should do it. Those payments are really dragging you down. Selling those cars and buying two, $2000 beaters would decrease your debt by $40,000 and free up a lot of cash flow so that you can attack the other debts.

MDM

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Re: In what order should we pay off these debts?
« Reply #11 on: March 23, 2015, 07:30:07 AM »
Even assuming the solar panels work as well as you hope, $50 * 12 / $18,000 = 3.3%.  Your loans are costing you more than 3.3%.

Using the $18K to pay off loans is better than using it for solar panels.

Summarizing your overall situation in a case study, as has already been suggested, should help you help yourself and allow others here to provide more specific advice.  See here and here for specific suggestions on the case study itself.


alsoknownasDean

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Re: In what order should we pay off these debts?
« Reply #12 on: March 23, 2015, 08:05:00 AM »
First of all, the facepunch.

Excluding your mortgage, you've got $106,000 of consumer debt. Currently you're paying around $4k a year ($350 a month) in interest alone! That's some serious flamey hairy going on.

First step, is get rid of that Albatrosstima. Buy a ~$5K beater with cash (or just go the one car). If you're the one who's got you both into this shit, you've got to make some sacrifices first to get out of it. That fancy new car is a luxury you can't afford. Sell it and piss off the loan and you're immediately $500pm in front.

How much is the house worth? Could you refinance the mortgage and increase the balance to cover the 401k loans? Any kids? Would you consider selling up?

What else is in your house that you could sell? Got a fancy expensive TV and XBox?

Once that Altima is gone, pay off your parents (because owing money to family is no fun), and then aggressively focus on paying those 401k loans (why did you borrow $49k via them anyway?).

And don't you dare finance solar panels when you're in $106K of consumer debt.

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #13 on: March 23, 2015, 10:04:03 AM »
Appreciate everyone's input (especially from those with some finesse...).  There have been a lot of assumptions made, and I guess it's my fault for not filling in more details.  The 401k loans are tied to the house as has been correctly assumed by some, so we don't have 106K in consumer debt as assumed by one.  Those who think I would go back into this kind of debt if these were magically paid off are incorrect - as I said, I've seen the error of my ways.  I realize buying the new cars in the past was a bad idea, but I've already looked for suitable used cars, and I can't find anything here in the Phoenix area that would be reliable, affordable and have under ~100,000 miles on it.  My wife and I both drive a lot of miles, and (due to several reasons that are too much to outline in a post) we are going to be stuck driving a lot of miles until my wife is hopefully able to find a way to work from home.   We both have kids from our prior marriages, and our exes live a ways away from us (and each other), so there is no easy solution as far as moving closer goes.  Buying cars with more miles on them will lead to us replacing them sooner than the relatively fresh ones we have (which we are planning on keeping until at least 200,000 miles each - about 8-9 years old) which would eat into the savings you're envisioning.  $2,000 beaters just won't work.  We've also thought about selling and moving, but there is nowhere else that makes sense and gives us a significant (even somewhat significant) mileage advantage.  Perhaps a smaller house is something to be considered.  Regardless, I have read quite a few of MMM's posts and have already taken the facepunches from him about being car clowns and needing to be a Hasselhoff and sell our house, so I am really most interested in a strategy for paying off the debts in the best way.  I would have thought the snowball was a good idea so we could gain momentum to pay off debts faster, but I will definitely be thinking about the various recommendations.  And point taken on the solar, although I probably should have mentioned before I am in the Phoenix area, so a $400 electric bill in the summer is a common occurrence and there is no shortage of sun to generate electricity (and large credits) every day so it isn't quite as ridiculous as many have assumed.  But I get it - don't buy it. 

Anyone else? 

boarder42

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Re: In what order should we pay off these debts?
« Reply #14 on: March 23, 2015, 10:14:32 AM »
you can and should sell those cars NOW ... based on your added information ... only gives more reason to sell and go with more affordable options.. youre driving is depreciating the crap out of them. 

ShoulderThingThatGoesUp

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Re: In what order should we pay off these debts?
« Reply #15 on: March 23, 2015, 10:24:21 AM »
"Maybe a smaller house would help, but I've already considered that"

Pull up a spreadsheet and run some scenarios. Assuming you're not underwater, selling that house and buying one you can afford will eliminate an enormous portion of your debts and set you on a much faster path to responsible living. If you're not willing to even consider that, you're in trouble.

caliq

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Re: In what order should we pay off these debts?
« Reply #16 on: March 23, 2015, 10:27:51 AM »
Would it be possible for you guys to move to a smaller house closer to one person's work, and one person's kids?  You haven't given specifics on exactly how long these commutes are (to work and to kids) so I can't be sure if this is a reasonable suggestion or totally bonkers.  Anyways, if you did that, then you would have the house savings, plus the commuting costs savings, and could switch that person's car to a beater (or even just an older used car, doesn't have to be quite beater level to save lots of money) and only keep one of your current new cars for longer trips. 

You're paying more than half of my mortgage (PITI) payment in car payments...I can't even fathom that and it's making me nauseous thinking about it.  I hate my single $283 car payment enough, yours is terrifying!

neo von retorch

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Re: In what order should we pay off these debts?
« Reply #17 on: March 23, 2015, 11:24:08 AM »
Peachfuzz,

I've made a debt waterfall spreadsheet assuming you scrounge $2500 of positive cashflow to put towards debt each months. I put the debts mostly in order of highest interest to lowest with the exceptions of mortgage (pay it last) and parents (pay them first.)

In this model, you'll pay off your parents in two months, 7 year 401k loan in six months and 30 year 401k loan in 20 months. With those paid off, the cars would be gone in another six months and you can start hashing on the mortgage, or just investing the rest. If nothing else, I'd hammer at those first three loans and then reevaluate.

I drive a lot (18000/year) which is silly, but I traded a 2013 Mazda CX-5 in for a 2008 Honda Fit with 56k on it. My rough estimates are that I cut my "per mile" cost from over $0.30 to close to $0.20. If I hold onto this car until I approach 200k, that number should be much lower. What does that mean in the big picture? A difference over the lifetime of these two cars of $15,000. That's without considering either compounding interest costs on debt or opportunity cost of not investing the savings, but over the ~8 years it'll take to hit that many miles, those would be significant factors! A quick search on cars.com finds Honda Fits with just 50k on them in the $10k range. A car like that is "like new" and will easily last to 200k as easily as your $17k-23k cars. Buying two of these would reduce your car load from $40k to $20k. $20k is huge, especially during the debt paydown phase of your journey. And you could plug in those smaller debts and payments into the waterfall to see how much more quickly you'd be debt free.

Of course, this is your journey, and it's your day-to-day life. These are your decisions. Just consider the options you have and see if you can be flexible.

trammatic

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Re: In what order should we pay off these debts?
« Reply #18 on: March 23, 2015, 12:14:54 PM »
Personally,  I'd max out the 401(k)s first.  Then, go ahead and snowball.  Compound the tax savings with an estimated ROR higher than any of those interest rates by a significant amount.  Then snowball what's left, in order of interest rate.  I wouldn't ever plan to pay off the house with rates like that...

alsoknownasDean

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Re: In what order should we pay off these debts?
« Reply #19 on: March 24, 2015, 01:32:02 AM »
I realize buying the new cars in the past was a bad idea, but I've already looked for suitable used cars, and I can't find anything here in the Phoenix area that would be reliable, affordable and have under ~100,000 miles on it.  My wife and I both drive a lot of miles, and (due to several reasons that are too much to outline in a post) we are going to be stuck driving a lot of miles until my wife is hopefully able to find a way to work from home.   We both have kids from our prior marriages, and our exes live a ways away from us (and each other), so there is no easy solution as far as moving closer goes.  Buying cars with more miles on them will lead to us replacing them sooner than the relatively fresh ones we have (which we are planning on keeping until at least 200,000 miles each - about 8-9 years old) which would eat into the savings you're envisioning.  $2,000 beaters just won't work.

Then don't buy a $2000 beater, surely you can find something for $5k that's decent, especially in an area with unsalted roads. There's plenty of cars with 100-130k for about $5-6000 of 2005-2008 vintage on Craigslist in your area. Should have at least 70,000 miles left in them. By the time the cars are worn out, you'll be in a better financial possie and can buy something with cash. :)

But yeah, I'd be focusing on that $49000 401k loan, if only because getting rid of it will give you the freedom to change jobs if required, and reduce your stress levels somewhat :)

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #20 on: March 24, 2015, 11:52:20 PM »
Appreciate all the great ideas and time you've spent on this, everyone.  That debt waterfall spreadsheet was awesome! 

My wife and are are going to look at a 2004 Mazda3 Hatchback tomorrow to replace her 2012 Civic since she prefers the Mazda3 to her current car and is something we could buy tomorrow with cash as per some of the advice.  I'm looking for a replacement for my car as well, but I am not as sure I'll be able to find something that makes sense.  I need to fit 3 growing kids into the backseat and have a somewhat image-oriented job (Enterprise IT sales), so some cars just won't work for picking up an IT executive for lunch.  That said, I am going to keep looking to find something more sensible.  Also considering a smaller house, but preliminary searches haven't been overly promising (we bought a short sale in September, and I think we did pretty well overall in getting what we needed and a lot of what we wanted for a reasonable price).

boarder42

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Re: In what order should we pay off these debts?
« Reply #21 on: March 25, 2015, 05:29:32 AM »
there are many older cars that i think would be just as acceptable picking up a IT executive in as a nissan altima.  its not like you're driving a BMW or a Benz its a freaking altima

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #22 on: March 25, 2015, 11:04:44 AM »
Ok - what is wrong with some of you?  I come on here earnestly seeking advice and humbly admitting my stupidity in the past, and some of you take that as an open invitation to abuse me.  The assumptions that have been made about me are quite unflattering in many cases (in addition to being almost uniformly wrong), and the tone of many of you is fantastically condescending.  What have I done to you that would make you think verbally abusing me is warranted?  I understand Mr. Money Mustache uses that tone, but he is humorous and at least seems to genuinely care about his readers.  Many of you on the other hand have mimicked the tone and his pet words with none of the humor or concern. 

Boarder42 -  Can't win with you.  I used to have a nice BMW 535i, and if I still had that I would be getting mocked for having a luxury car.  Now that I have a basically new Altima that gets 35 mpg and is actually a nice car (and I do know what nice cars are...), and to you it's a "freaking altima [sic]".  Your comment was completely uncalled for.  You might be farther down the mustachian path than me, but your utter disrespect of others betrays a lot about who you are as a person.

boarder42

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Re: In what order should we pay off these debts?
« Reply #23 on: March 25, 2015, 11:10:09 AM »
there are many members here who have older BMWs that cost around 5k that dont get mocked.  You came here and posted a gross amount of debt and are making steps in the correct direction but keeping an altima of that year for the reasons stated is a poor waste of your resources esp. when family is owed money AND you borrowed against a 401k .

neo von retorch

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Re: In what order should we pay off these debts?
« Reply #24 on: March 25, 2015, 11:22:00 AM »
PeachFuzz777,

You really "can't win" with some - this is the Wild West / internet, and people that are often quite thoughtful and considerate in person can be completely different here. Doesn't matter - you decide how you react. You're here to learn and improve your habits, so do that. Don't get hung up on the potholes you hit along the way.

Given the new information you have in this thread, what new questions do you have?

Good luck!

- Jason

clarkm04

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Re: In what order should we pay off these debts?
« Reply #25 on: March 25, 2015, 11:29:23 AM »
In a second, I'll answer your question seriously, and sorry in advance for being so blunt, but you are being a baby. 

What did you think would happen by posting so many poor decisions to a MMM forum and having such poor reasoning for needing a house and cars you can't afford in your current situation and then asking about solar panels? 

Now seriously, I think it's great you are working to change things and are willing to ask help or what are priorities.  I agree you have a desire to change and a new outlook, which is awesome.

1) Parent debt to not have that over your head.  I've borrowed money in the past from my parents and grandparents and I worked ruthless to pay them back ASAP.
2) I'd lower your 401k contributions to hit the company match and then immediately plow every extra dollar into your 401k loans.  Everything holding you back is wrapped up in those loans.
3) keep your 15 K Emergency fund as is.
4) consider cheaper cars or moving.  I get the emotional attachments to your house and vehicles, but if you don't attack the lower hanging fruit to wipe out your 401k loans, you will remain chained to your work and have a shadow over your head.

Best of luck.

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #26 on: March 25, 2015, 11:33:15 AM »
Boarder42 - Older BMW's are a nightmare from a maintenance perspective.  Even the relatively new one I had (bought that one used at least) had ridiculous maintenance and repair costs.  I see where you are coming from (and appreciate the constructive part of your criticisms), but that is no reason to be a jerk.  Money is great and useful, but I'd choose character over money every time.

Jason - appreciate your perspective and also your thoughtful/ very helpful reply, earlier.  My wife has a Honda Civic with about 50K miles on it.  We are close to being able to pay off the $17K loan on it in cash (the loan is pretty upside down since she brought negative equity into it, so we'd have to pay $6 or 7K just to get back right side up on the loan if we decide to sell it). The Mazda3 she is considering is only $4,800 but has 131,000 miles.  So if we get the Mazda3, we'll maybe be $5K ahead, but we'll be 80K miles worse off and the gas mileage is much worse than her Civic (32 mpg vs. the 40 or so she gets now).  The insurance and registration will offset that mpg difference a bit, but I think it will basically be a break even with all of her driving.  So I'm wondering if it makes sense to get a much older car with 81,000 more miles (and probably a higher risk of breaking down on the side of the freeway in 118 degree weather this summer) to only save $5,000.  Does that really make that much sense?

Thanks!
Jeremy

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #27 on: March 25, 2015, 11:37:04 AM »
clarkm04 - Sorry in advance for being blunt, but you are being a dick.  That said, your actual content was very helpful, so thanks.

Bstarr

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Re: In what order should we pay off these debts?
« Reply #28 on: March 25, 2015, 11:51:25 AM »
What if she got the Mazda 3, you drove the Civic and ditched the Altima?
I get making bad decisions, time to move forward.

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #29 on: March 25, 2015, 11:55:22 AM »
Hmmm- that is an intriguing idea.  Just don't think the Civic would fit my 3 kids (2 have car seats and the oldest isn't big enough to sit in the front seat yet), but I like the fresh idea!

neo von retorch

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Re: In what order should we pay off these debts?
« Reply #30 on: March 25, 2015, 12:10:17 PM »
Jason - appreciate your perspective and also your thoughtful/ very helpful reply, earlier.  My wife has a Honda Civic with about 50K miles on it.  We are close to being able to pay off the $17K loan on it in cash (the loan is pretty upside down since she brought negative equity into it, so we'd have to pay $6 or 7K just to get back right side up on the loan if we decide to sell it). The Mazda3 she is considering is only $4,800 but has 131,000 miles.  So if we get the Mazda3, we'll maybe be $5K ahead, but we'll be 80K miles worse off and the gas mileage is much worse than her Civic (32 mpg vs. the 40 or so she gets now).  The insurance and registration will offset that mpg difference a bit, but I think it will basically be a break even with all of her driving.  So I'm wondering if it makes sense to get a much older car with 81,000 more miles (and probably a higher risk of breaking down on the side of the freeway in 118 degree weather this summer) to only save $5,000.  Does that really make that much sense?

Thanks!
Jeremy

Considering the value / age / miles on the Civic, it doesn't sound like it's "wildly" worthwhile to change up. When I traded down, I went from 36k to 57k... just 21k additional miles in exchange for $6000. I don't think I'd give up 80k miles for $5-6k. That's less than $0.08 per mile. Someone quoted MMM as valuing a "used car mile" at around $0.10 - if you can get $6000 in exchange for about 60k miles, it might be worth it, particularly if you keep gas mileage close and insurance close or improved. I mean, it's "$6000 today" which means "not paying debt interest on $6000 going forward." When you're trying to gain momentum, that can make a big difference.

charis

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Re: In what order should we pay off these debts?
« Reply #31 on: March 25, 2015, 12:13:01 PM »
Hmmm- that is an intriguing idea.  Just don't think the Civic would fit my 3 kids (2 have car seats and the oldest isn't big enough to sit in the front seat yet), but I like the fresh idea!

Then why don't you drive the Mazda3? 

I think the reason you are feeling attacked on this thread is that you are making a lot of excuses for not wanting to make the substantive changes that you would need to make to put out your fire.  In case you haven't noticed, that is never well received around here.  They don't call it a facepunch for nothing.

ETA that I have posted things that were also ill-taken on this forum, so I understand how you are feeling.
« Last Edit: March 25, 2015, 12:21:29 PM by jezebel »

JLee

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Re: In what order should we pay off these debts?
« Reply #32 on: March 25, 2015, 12:14:11 PM »
Appreciate everyone's input (especially from those with some finesse...).  There have been a lot of assumptions made, and I guess it's my fault for not filling in more details.  The 401k loans are tied to the house as has been correctly assumed by some, so we don't have 106K in consumer debt as assumed by one.  Those who think I would go back into this kind of debt if these were magically paid off are incorrect - as I said, I've seen the error of my ways. I realize buying the new cars in the past was a bad idea, but I've already looked for suitable used cars, and I can't find anything here in the Phoenix area that would be reliable, affordable and have under ~100,000 miles on it.  My wife and I both drive a lot of miles, and (due to several reasons that are too much to outline in a post) we are going to be stuck driving a lot of miles until my wife is hopefully able to find a way to work from home.   We both have kids from our prior marriages, and our exes live a ways away from us (and each other), so there is no easy solution as far as moving closer goes.  Buying cars with more miles on them will lead to us replacing them sooner than the relatively fresh ones we have (which we are planning on keeping until at least 200,000 miles each - about 8-9 years old) which would eat into the savings you're envisioning.  $2,000 beaters just won't work.  We've also thought about selling and moving, but there is nowhere else that makes sense and gives us a significant (even somewhat significant) mileage advantage.  Perhaps a smaller house is something to be considered.  Regardless, I have read quite a few of MMM's posts and have already taken the facepunches from him about being car clowns and needing to be a Hasselhoff and sell our house, so I am really most interested in a strategy for paying off the debts in the best way.  I would have thought the snowball was a good idea so we could gain momentum to pay off debts faster, but I will definitely be thinking about the various recommendations.  And point taken on the solar, although I probably should have mentioned before I am in the Phoenix area, so a $400 electric bill in the summer is a common occurrence and there is no shortage of sun to generate electricity (and large credits) every day so it isn't quite as ridiculous as many have assumed.  But I get it - don't buy it. 

Anyone else?

I live in Phoenix. There are used cars EVERYWHERE. I should know because I'm generally buying or selling one once a year... :P  If you would like a hand looking for something, let me know.

278k left on a house in Phoenix?  That's a LOT (Scottsdale? Tempe?).  Can you get a roommate to help decrease the monthly cost? My house was $140k and I'm renting two rooms out for a net positive cash flow.
« Last Edit: March 25, 2015, 12:16:15 PM by JLee »

FIPurpose

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Re: In what order should we pay off these debts?
« Reply #33 on: March 25, 2015, 12:15:39 PM »
You said that you will soon have about $19k in savings. I don't know what your job situation is like, but would it be possible to just staright up pay your parents back today? Perhaps consider lowering your savings account to about $1-$5k, and use the money to pay off your most dire loans.

If you leave that money in a savings account, you are basically losing that amount in interest by keeping it there instead of paying off your debt with it.


Bstarr

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Re: In what order should we pay off these debts?
« Reply #34 on: March 25, 2015, 12:19:31 PM »
You would be shocked at what you can fit in a Civic.
Our current big car is a 2009 Toyota Matrix, bought new, never really planned on it being a 3 car seat car.
We have a graco booster, a pumpkin seat and a britax marathon.
It ain't pretty, but it works.  The best seats for this are Radians, they are meant for small cars, but like I said, for now our current situation works. I also work in a car-centric industry with the majority of my coworkers driving benzes and bmws to work and talking in the lounge about the lambo and Ferrari in the garage.  I used to care and then I got over it.  There is a respectability to practicality. No one is going to not buy your product because of a Civic.  That is the "id" speaking.

kewper

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Re: In what order should we pay off these debts?
« Reply #35 on: March 25, 2015, 12:20:45 PM »


I think it sounds like you want to stay in debt! 

kewper

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Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #37 on: March 25, 2015, 12:31:58 PM »
flyingcircle - that is exactly what I'm thinking of doing (very minimal savings until I get the non-mortgage debts paid off).  Totally agree that savings interest is terrible.  I'm not as concerned about the loan to my parents as we have a great relationship and they are much easier creditors than some, but I am considering paying them off anyway since it is such a relatively small loan. 

JLee - can you please tell me where to find a house in a SAFE neighborhood that would hold 7 people (5 growing kids that are only getting bigger) and an office since I work from home and also be close to Goodyear and Arrowhead and Tempe for $140K?  You make it sounds like homes in Phoenix are cheap, but there are always trade offs when you go lower prices, and our large family makes us need a decent sized home and definitely in a good area.  We have strong incomes, so the house we have is already quite affordable for us by conventional standard and the 4.125% mortgage I am signing on today is a pretty nice rate. 

Ok - read the rest of your replies.  I guess I really do want to stay in debt. 


Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #38 on: March 25, 2015, 12:38:43 PM »
We have a 7 person family and 2 dogs, and I work from home. 1200 sq ft. homes like those on the under $150K Zillow list just aren't going to cut it.  Not to mention those are in terrible neighborhoods mostly.  I guess that is an excuse to some of you, but if it was your family and you weren't poor, I can't imagine all of you would be willing to live in slummy neighborhoods and have 5 kids in 2 bedrooms and an office in a kitchen to save money.  I could reuse paper towels, too, but not EVERY decision is all about money.  Maybe I'll come around eventually, but some of the solutions people are proposing just don't work in the real world.

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #39 on: March 25, 2015, 12:57:42 PM »
[MOD EDIT - references to stuff that needed to be removed]

Someone much earlier hit this on the head - MMM's blog most helps people with big incomes and big expenses get on the right financial track and that is exactly what it is doing for me.  You think I'm ridiculous, I know, but my social circles up to this point have had many people so many times more ridiculous than me that in comparison I am downright frugal.  I am making a ton of positive changes in my life and getting where I need to be.  I came on this site respectfully looking for advice, and keep getting facepunched by MMM wannabes and trolls.  My mistake for opening the kimono, but your mistake for being such a jerk.
« Last Edit: March 25, 2015, 12:59:19 PM by FrugalToque »

bacchi

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Re: In what order should we pay off these debts?
« Reply #40 on: March 25, 2015, 01:00:35 PM »
An Altima for $9000:

http://phoenix.craigslist.org/wvl/cto/4937876139.html

A newer one, a 2013 for $11k:

http://phoenix.craigslist.org/nph/cto/4888828107.html

Edmunds.com lists some low mileage dealership Altimas for $13k.

FrugalToque

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Re: In what order should we pay off these debts?
« Reply #41 on: March 25, 2015, 01:02:31 PM »
You think I'm ridiculous, I know, but my social circles up to this point have had many people so many times more ridiculous than me that in comparison I am downright frugal.  I am making a ton of positive changes in my life and getting where I need to be.  I came on this site respectfully looking for advice, and keep getting facepunched by MMM wannabes and trolls.  My mistake for opening the kimono, but your mistake for being such a jerk.

Well, exactly.  I cleaned up some early over-zealousness in this thread.

Did Peachfuzz777 get facepunches?  Yes.  Peachfuzz777 also acknowledged they were deserved.  Now we're moving on and improving.

There's no real need to continue the condescension while we're on the road to financial freedom.

Toque out.

nobody123

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Re: In what order should we pay off these debts?
« Reply #42 on: March 25, 2015, 01:07:02 PM »
I guess I really do want to stay in debt.

It sure sounds like it.  There is no magic wand anyone on this forum can wave and make your situation change.  The numbers are the numbers, and if you're not willing to try to undo the damage done by downgrading your house or vehicles, then there's not much anyone can offer you.  If you've got 5 kids, suggesting a side hustle isn't probably realistic, nor is leaving your job for a higher paying one due to the 401k loans, so cutting expenses is the only real course of action anyone can suggest.

Personally, I would pay off my parents immediately if for nothing other than the pride factor.  You are an adult with a job and $15K in the bank, there is no reason you should owe your parents 5 grand.  In a practical sense, it might also buy you some goodwill there in that because you paid it back, they might be more willing to let you borrow again if an emergency arises.  Take the remainder of your savings and pay back your wife's 401k loan so she's not tied to her job and can see if she can find a better paying one.  Then, aggressively pay off your 401k loan.

justajane

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Re: In what order should we pay off these debts?
« Reply #43 on: March 25, 2015, 01:23:02 PM »
If you would post a case study, people on here might find other areas to save so that you don't have to downsize your home. The money has to come from somewhere.

I agree with others about paying the family off first. Even if they say they are okay with the debt, they probably aren't. People rarely are, especially if they see you spending money on anything else. My BIL owes my MIL 40K, and every time she comes to visit us she brings up how many Amazon boxes showed up at the front door while she was there. Family you are owe money to notice these things, and I promise it burns.

James!

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Re: In what order should we pay off these debts?
« Reply #44 on: March 25, 2015, 01:47:49 PM »
We have a 7 person family and 2 dogs, and I work from home. 1200 sq ft. homes like those on the under $150K Zillow list just aren't going to cut it.  Not to mention those are in terrible neighborhoods mostly.  I guess that is an excuse to some of you, but if it was your family and you weren't poor, I can't imagine all of you would be willing to live in slummy neighborhoods and have 5 kids in 2 bedrooms and an office in a kitchen to save money.  I could reuse paper towels, too, but not EVERY decision is all about money.  Maybe I'll come around eventually, but some of the solutions people are proposing just don't work in the real world.

I think the root of the disconnect is here. To many people here, you are poor. It's hard to estimate your net worth since we don't know the market value of your house or your other assets, but since you didn't list them perhaps people are assuming there's not much there. You may not consider yourself so because you both have jobs and you have a house and cars and whatnot, and you may not be relative to the mainstream definition, but you are not in the mainstream here. Not by a longshot!

It's all relative. You sound like you're on the right track, but you're still stuck in the struggle of your old ways and the joneses. My brother gave me the same line on needing a nice car (leased Infiniti G37 AWD) because of perception with clients, yet his NW is below zero. I laughed in his face.

Perhaps take a bit of time to digest all of the strong advice before worrying about action. You may come around on some and decide some isn't worth it, to you. Hopefully you don't miss out of good advice because the delivery is harsh.

Cheers,
James

JLee

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Re: In what order should we pay off these debts?
« Reply #45 on: March 25, 2015, 01:48:01 PM »
We have a 7 person family and 2 dogs, and I work from home. 1200 sq ft. homes like those on the under $150K Zillow list just aren't going to cut it.  Not to mention those are in terrible neighborhoods mostly.  I guess that is an excuse to some of you, but if it was your family and you weren't poor, I can't imagine all of you would be willing to live in slummy neighborhoods and have 5 kids in 2 bedrooms and an office in a kitchen to save money.  I could reuse paper towels, too, but not EVERY decision is all about money.  Maybe I'll come around eventually, but some of the solutions people are proposing just don't work in the real world.
I don't recall you listing "seven people, two dogs, and home office" earlier - my apologies if I missed that.

I am not "poor", I do not live in a "slummy neighborhood" (Phoenix with Tempe school district), and my house is over 1800sq ft.  I understand you are frustrated but there's no call to throw insults back at people who are trying to help you.

flyingcircle - that is exactly what I'm thinking of doing (very minimal savings until I get the non-mortgage debts paid off).  Totally agree that savings interest is terrible.  I'm not as concerned about the loan to my parents as we have a great relationship and they are much easier creditors than some, but I am considering paying them off anyway since it is such a relatively small loan. 

JLee - can you please tell me where to find a house in a SAFE neighborhood that would hold 7 people (5 growing kids that are only getting bigger) and an office since I work from home and also be close to Goodyear and Arrowhead and Tempe for $140K?  You make it sounds like homes in Phoenix are cheap, but there are always trade offs when you go lower prices, and our large family makes us need a decent sized home and definitely in a good area.  We have strong incomes, so the house we have is already quite affordable for us by conventional standard and the 4.125% mortgage I am signing on today is a pretty nice rate. 

Ok - read the rest of your replies.  I guess I really do want to stay in debt.
I moved here from New England three years ago - homes in Phoenix are cheap in comparison to many areas of the country. There's nowhere that's close to Goodyear, Arrowhead, and Tempe - that's what, a 60 mile loop? Also, the closest-ish area to that would be around what, Camelback and 40th Ave - not high on my list of "safe" places. So, I'm afraid I can't help you there. :(

Do what you want to do - justify your purchases by "conventional standards" if you like. Calling me out as "poor" and judging me for living in what you expect to be a slummy neighborhood, while you're over $100k in debt plus mortgage - is rather silly. I'm just trying to help.

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #46 on: March 25, 2015, 01:58:36 PM »
Sorry JLee - that was uncalled for on my part.  Please forgive me for my harsh response.  I meant I thought you had purchased your home a long time ago, and there was no chance that you could buy a home for that price in Phoenix today.  A few years ago, homes were much more reasonably priced, but the market has gone up by 40% or more in some areas since 2011, and I was thinking you had purchased your $140K home at a reasonable time (which is looks like you did if you got here 3 years ago).

Thank you FrugalToque.  You are correct - I recognize my past stupidity and am on here trying to correct it.

Really appreciate all of those who are trying to help.  I especially appreciate those who are helping with tact and finesse. 

Peachfuzz777

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Re: In what order should we pay off these debts?
« Reply #47 on: March 25, 2015, 02:00:12 PM »
Also, I believe our net worth is right around $200K total considering retirement accounts, cash, and equity on my home (even with the 401k loans).  Not impressive by MMM standards, but certainly not negative.

JLee

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Re: In what order should we pay off these debts?
« Reply #48 on: March 25, 2015, 02:10:14 PM »
Sorry JLee - that was uncalled for on my part.  Please forgive me for my harsh response.  I meant I thought you had purchased your home a long time ago, and there was no chance that you could buy a home for that price in Phoenix today.  A few years ago, homes were much more reasonably priced, but the market has gone up by 40% or more in some areas since 2011, and I was thinking you had purchased your $140K home at a reasonable time (which is looks like you did if you got here 3 years ago).

Thank you FrugalToque.  You are correct - I recognize my past stupidity and am on here trying to correct it.

Really appreciate all of those who are trying to help.  I especially appreciate those who are helping with tact and finesse.

My house was listed at $145k and we settled on $140k (appraisal came in at $150k) in February 2013. Prices appear to have gone up a little bit since then, but not a whole lot. If you've evaluated housing options and you currently are in the best situation you can reasonably be, then we can look at alternative ways to help your situation. In my experience it's generally easier to spend less than it is to earn more (speaking on a day-to-day basis, not from a career development standpoint) so it may prove useful to conduct a case study (see the sticky thread) and find out where everything goes, and see what you can trim out from there.

I will freely admit I am not saving as aggressively as many people here. I have hobbies that do not follow the general mustachian philosophy, but I am aware of where I am spending money - and IMO that's one of the most important things. Once you realize where it all goes, then you can make informed decisions on whether or not that expense is worthwhile to you. You may find that what is worth the money changes as your mindset adjusts. I've never been big on eating out, but I also didn't really used to think twice if someone wanted to go. Now? I'll go out for a birthday/etc, but other than that I am almost exclusively eating at home. The expense is not worth it, while a year or two ago I thought it was.
« Last Edit: March 25, 2015, 02:15:08 PM by JLee »

boarder42

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Re: In what order should we pay off these debts?
« Reply #49 on: March 25, 2015, 02:13:01 PM »
Sorry JLee - that was uncalled for on my part.  Please forgive me for my harsh response.  I meant I thought you had purchased your home a long time ago, and there was no chance that you could buy a home for that price in Phoenix today.  A few years ago, homes were much more reasonably priced, but the market has gone up by 40% or more in some areas since 2011, and I was thinking you had purchased your $140K home at a reasonable time (which is looks like you did if you got here 3 years ago).

Thank you FrugalToque.  You are correct - I recognize my past stupidity and am on here trying to correct it.

Really appreciate all of those who are trying to help.  I especially appreciate those who are helping with tact and finesse.

My house was listed at $145k and we settled on $140k (appraisal came in at $150k) in February 2012. Prices appear to have gone up a little bit since then, but not a whole lot. If you've evaluated housing options and you currently are in the best situation you can reasonably be, then we can look at alternative ways to help your situation. In my experience it's generally easier to spend less than it is to earn more (speaking on a day-to-day basis, not from a career development standpoint) so it may prove useful to conduct a case study (see the sticky thread) and find out where everything goes, and see what you can trim out from there.

I will freely admit I am not saving as aggressively as many people here. I have hobbies that do not follow the general mustachian philosophy, but I am aware of where I am spending money - and IMO that's one of the most important things. Once you realize where it all goes, then you can make informed decisions on whether or not that expense is worthwhile to you. You may find that what is worth the money changes as your mindset adjusts. I've never been big on eating out, but I also didn't really used to think twice if someone wanted to go. Now? I'll go out for a birthday/etc, but other than that I am almost exclusively eating at home. The expense is not worth it, while a year or two ago I thought it was.

Yep small changes like that.  My group at work went out to eat on friday's every other time i brought my lunch now i go out with them maybe once every 3 months if that.  I thought i was frugal and by american standards i was uber frugal.  but now i'm super uber frugal and my life is just as good if not better than before.