Investment advice needed please UPDATED

[tankhead]

I have approximately 12000 dollars in credit card debt which I married into.  We are on track to pay off the only one with interest by Nov. ($2500.00) The next one is 0% until May which I will pay off by that month. The next one is 0% until Nov 2015.  I will be getting about $3500.00 from retro pay in my job before the end of the year.  I wanted to open up the Vangaurd index fund the Mr Money mentions in the first few blogs of his site. On vangaurds site it is a minimal $3000.00 investment.   Should I pay off the 0% debt first or invest that money?  Should I open it as an IRA, Roth IRA, or just a regular investment?  Wife contributes to her 401K with a match from emplyer up 6% but she is dumping about $10,000 this year

I am a teacher and have pension.  Trying to get into investments for future.

Thanks for the replies.

[VirginiaBob]

Ok, so what is the game?

[Caella]

Mathematically, if the debt is on 0% interest, you should invest and pay the debt later, while still on 0%, obviously.

BUT, having the peace of mind of being debt free is awesome, and sometimes it trumps the math! You have to decide what is best for you.

About the options, my guess is to put on tax deferred accounts first, until the max you can contribute for the year, then look at other options.

[frugaliknowit]

More information would be needed to be helpful:

1.  Do you have an emergency fund?  Is it large enough?  If not, how large do you want it.
2.  Any financial goals over the next five years?

Also, I believe the minimum in Vanguard is $3000, not $300...?

[Chrissy]

Pay off the 0% debt first, because the time at which they are at 0% is very short.  Don't run the risk of paying punitive interest rates because you didn't get them paid off in time.

When you're ready to invest, definitely do a tIRA or ROTH, not a taxable account.  Why would you ever want to pay taxes if you could avoid it, right?

[Terrestrial]

I would invest the money ONLY if you are 100% certain you will have the cash flow come in to pay off the 0% debts before the 0% window expires.  If you will comfortably save enough by then, there shouldn't be an issue, but be sure you will have enough...you can't rely on being able to pull all of this investment money back out that soon in the future to be able to pay the debt off, it may (temporarily) be sitting at a loss at that time.  If for some reason you pass the window the high CC interest rate will quash and gains from investment returns.

If you are not sure you will have enough cash flow come in by then (and remember unexpected circumstances could derail this...surprise expenses/job loss/illness/etc) and you don't have an emergency fund built already to handle these kinds of scenarios, that may be a better use of the money than investments. 

From my personal perspective, I think there is alot of value in being debt free from the kind of debt like credit cards that have a ticking expiration clock on the reasonable interest rate, even if you may technically come out a few dollars ahead by investing it.  The peace of mind is worth alot to me.

Regarding what kind of acct to open, it depends on what your tax rate is and what your goals are.  Do you need after tax savings for a specific purpose (for a house, or something)?  If so probably do a regular taxable account.  If this is long term savings/retirement money I would do either a Roth or Traditional Deductible IRA, depending on what your tax rate is.  You can't go 'wrong' with either but one might be a little better for your situation than the other.

[tankhead]

Yeah $3000.00 not $300.00. Sorry I didn't have time to proof read.

Emergency fund: about $2000 on any given month

We might be looking at starting a part time business (food concession business) by next year.  I will be looking into kickstarter and various other option for financing the start up with minimal (if any) loans. 

More information would be needed to be helpful:

1.  Do you have an emergency fund?  Is it large enough?  If not, how large do you want it.
2.  Any financial goals over the next five years?

Also, I believe the minimum in Vanguard is $3000, not $300...?

[tankhead]

I make just shy of $70,000 she makes over $80,000. Last year we filed married but separate.  We were not able to fully fund her 401 account last year while trying to pay off her two other cards (succesfully) and tried as hard as we could this year.

I am making $1000.00 to $1200.00 payment a month on our CCards.  We will be done the two cards by May.  Then we will be done the other one by November. 

I will go ahead and use the money from the retro pay to pay off the debt even sooner.  And then starting next september we will start the school year off by opening a Roth IRA through Vangaurd.  80/20 I would imagine.

[penguin456]

Why would you file married but separate?  That is usually not a good move.

[surfhb]

Pay off all debt and never use your CCs again unless its an extreme emergency or you use them just to tabulate your expenses every month.

[tankhead]

Pay off all debt and never use your CCs again unless its an extreme emergency or you use them just to tabulate your expenses every month.

Yep this very old debt that we have had (she).  Last four years of paying alimony and child support has hindered us from tackling it.  Now, for the last year, we have been hammering it and have been successful.  Paying $1000.00 a month till May and then we will have the last one to pay off by Novemeber '15.  She also will start funding the full $17500.00 in her 401K.  In the meantime I will open a ROTH IRA.

 Lat year when we did our taxes (turbo tax)  She owed alot in taxes.  If we filed together we would have had to pay more.

[VirginiaBob]

Why would you file married but separate?  That is usually not a good move.

Yea, I think it is pretty much a wash now that the marriage penalty has been removed.  The only benefit to file seperate now appears to be a higher deduction for medical expenses due to the 10% of AGI rule.

[frugalnacho]

I make just shy of $70,000 she makes over $80,000. Last year we filed married but separate.  We were not able to fully fund her 401 account last year while trying to pay off her two other cards (succesfully) and tried as hard as we could this year.

I am making $1000.00 to $1200.00 payment a month on our CCards.  We will be done the two cards by May.  Then we will be done the other one by November. 

I will go ahead and use the money from the retro pay to pay off the debt even sooner.  And then starting next september we will start the school year off by opening a Roth IRA through Vangaurd.  80/20 I would imagine.

lol wut

[tankhead]

UPDATE::::::

We have been successful at paying off the credit cards and the car (just sent out a $2900.00 final payment this week).  We have one more card at 0% $4500.00 which will be paid off by November when the interest rate changes.

Our only bills are : cable (135.00 but we are going to be reducing that this week), gas (130.00), electric (126.00), phone (130.00), mortgage 15 year @3.125 (three years in), groceries, HULU $7.99/month

We really never go out.  We are home bodies.  I am wearing the same clothes for the last 5-10 years.

Trying to ride to work on my bicycle now that the weather has warmed up a bit.  4 miles each way.

No gym fees have my own gym in the basement.

Wine on the weekends of about $25.00 a week.

Have two acres that we were going to start raising chickens for eggs and grow a reasonable sized garden for veggies.

One daughter going to community college for two years then four years for Physical Therapy.  If grades are good enough she could get to a program that gives her free tuition for the final two years...another daughter who will graduate high school in 3 years then wants to go to cosmetology school.

The plan is my wife would like to get out of the industry in 6 years and then do whatever sort of semi retired.  (nurse liaison for infusion company.) She will be 50 at that time.

She funded her 401k last year to $10,000.00 with a 6% employer match.

This year she will max fund @18,000.00

The value of her fund right now is about $43,000.00

I will be opening a 403B with my school board employer with Vanguard.  I could feasibly fund $12,000.00 this year with the next year up to $13,0000 and up a thousand every year for the next 6 years..

Here are the options:

500 index fund  VFINX
Balanced index fund VBINX
Capital opportunity fund VHCOX
Admiral Treasury MM fund  VUSXX

Should I just go with the VFINX?  What would you do differently?

[tankhead]

Or should we concentrate on paying down the mortgage?

Thanks in advance for your ideas.

[Chrissy]

Congratulations on making so many changes and much progress!

Don't pay down the mortgage.  The interest rate on it is so low that anything extra would do better for you in the stock market.

VFINX, definitely.  Has the lowest expense ratio of all the funds but the Treasury one, which is too low risk/low return.

Electric seems high.  Are you using energy efficient bulbs and power strips to control vampire chargers, televisions, and appliances?

Phones seem high too.  Shouldn't be more than $60 for you and your wife.  Are you paying for your daughters' phones?  There is a lot of information in the forum regarding alternative cellphone plans.  Look around.

[tankhead]

Reduced cable/wifi to $83.00 a month.

Increased nest egg by three thousand.

Electric is the new budget. We haven't payed an electric bill since  November because they overcharged us.  This month will be our first electric bill so we socked that monthly payment away for those months.

We have the EE bulbs in most of our lights.... All of the exterior lights...
Power strips for the tv but don't shut them down overnight.

This summer our phone commitment will be up and then we will research a new provider.