Author Topic: Is this the right order of using my income?  (Read 3592 times)

SpendyMcSpend

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Is this the right order of using my income?
« on: August 24, 2012, 11:36:31 AM »
1) Pay off 13.9% credit card
2) Invest 20% into 401k
3) Pay off 53,000 in student loans


Or should I try to pay off 3 first?  No match to worry about.

arebelspy

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Re: Is this the right order of using my income?
« Reply #1 on: August 24, 2012, 11:39:02 AM »
What's the rate on the student loans?
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SpendyMcSpend

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Re: Is this the right order of using my income?
« Reply #2 on: August 24, 2012, 11:40:45 AM »
I have 3
One is $25,000 at 3.37% variable (has gone up high in past, to 6 + %)
One is $13,000 at 6.7% fixed
One is $15,500 at 2.75% fixed

SpendyMcSpend

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Re: Is this the right order of using my income?
« Reply #3 on: August 24, 2012, 11:41:23 AM »
My income will be $57,000 and my rent is $1300 for now (city livin')

reverend

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Re: Is this the right order of using my income?
« Reply #4 on: August 24, 2012, 11:53:46 AM »
My thinking is to knock out whatever costs you the most, first.

1 - 13.9% credit card. Pay this off first.
2 - Company matching 401(k), how much do they match? If they match up to 5%, put in your 5% to get theirs.
3 - Pay on the highest student loan first.

My thinking (and someone's sure to correct me if I'm wrong) is that the CC is expensive. Pay it off. Then get the free money in the 401(k) from your employer and use the remainder to pay down the most expensive loan. As the loans pay down, you start increasing the 401(k) contributions, until you are paid off and contribute the full 20%.

Or - depending on what you have budgeted, you might be able to contribute the full 20% AND still pay more than the minimums on the loans.

SpendyMcSpend

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Re: Is this the right order of using my income?
« Reply #5 on: August 24, 2012, 11:55:40 AM »
My company has no match.  They just contribute a bonus into once per year regardless of what I do.

Uncephalized

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Re: Is this the right order of using my income?
« Reply #6 on: August 24, 2012, 02:50:23 PM »
In that case I would probably pay off the highest-interest student loan before putting money into the 401k, personally (guaranteed 6.7% return vs an uncertain return in a similar ballpark through investments, I'd choose the safer bet that also reduces debt load). Once that's paid off you can make minimum payments on the low-interest balances while putting the surplus into 401k.

James

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Re: Is this the right order of using my income?
« Reply #7 on: August 24, 2012, 08:56:03 PM »
I have 3
One is $25,000 at 3.37% variable (has gone up high in past, to 6 + %)
One is $13,000 at 6.7% fixed
One is $15,500 at 2.75% fixed


I would work on the middle one, 6.7% is pretty close to what is expected in the market, and would be guaranteed returns instead of expected.  Then I would work on the variable, that could really bite you hard if rates every really skyrocketed.  The last one should be minimum until you max your 401k.

Richard3

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Re: Is this the right order of using my income?
« Reply #8 on: August 25, 2012, 07:37:31 AM »
Credit cards obviously.

I'd then pay down the 6.7% student loan

I would not pay down the variable one if it stayed below 5% since it's pretty easy to get 5% on investments. Above 5% I'd divert all my savings to the variable loan and above 7% I'd seriously consider liquidating investments to pay it off (depending on inflation).

2.75% fixed is almost free money, I'd pay that off as slowly as possible without breaking my credit rating.

bdub

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Re: Is this the right order of using my income?
« Reply #9 on: August 25, 2012, 12:13:26 PM »
#1. CC
#2. 6.7% fixed SL
#3A.  Max out Roth, remainder to variable SL
#3B.  If rate on variable SL gets above a threshold (let's say 6.5%), pull all past contributions from Roth and payoff variable SL as fast as possible.   

#4.  Payoff fixed 2.75% fixed SL as slow as possible.
« Last Edit: August 25, 2012, 12:18:30 PM by bdub »