Author Topic: Need to get out of debt. Where to start?  (Read 3507 times)

skunkfunk

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Need to get out of debt. Where to start?
« on: February 20, 2014, 08:15:20 AM »
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I've got a few debts and I've decided to pay them off. The only questions are in what order and how fast to do it. I'll list them in the order that I have currently prioritized them.

$17500 @ 3% - I owe this to my parents and will tackle it immediately.
$12000 @ 2.2% - This is a loan on a car. Yes, it's too fancy, but there are two things my wife won't let me sell - her car, and her saxophone. We do get about 40 mpg in the 6-speed Cruze, so it's not a total waste given that her family lives 75 miles away from us.
$149500 @ 3.75% - My 15 year mortgage. This comes with PMI of around $70 a month, so after the previous two loans are paid I at least want to get rid of the PMI asap.
$5500 @ 0.85% - This is what remains of my student loan debt. This is a variable rate, but in the 10 years that I have carried this debt I've never seen it over 1.75%
$2000 @ 0% - Lawn mower. Ridiculous, yes, but whether I manage to sell the mower or not this one might be at the bottom of my priority list.

I'm split on whether I should keep the student loan and mower loan paying off as slowly as possible and invest that money rather than pay it off at such a low interest rate. On the one hand, get out of debt, on the other, I can get a much better return with Vanguard.

So, do I have my priorities straight? The wife and I are having trouble coming to an agreement on this stuff, so we would like any input we can get.

arebelspy

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Re: Need to get out of debt. Where to start?
« Reply #1 on: February 20, 2014, 08:20:44 AM »
Those are some great interest rates.  I'd keep them all (other than the family one, and possibly the mortgage just to clear PMI - if it's possible on your loan, it may not even happen) and invest all your surplus that you would send to debt.  Send the minimums, and be sad when you don't have that debt anymore.

That's me though.  :P

The order looks good if you're a Dave Ramsey type anti-debt zealot and want to get rid of the debt despite it very likely costing you more money to pay it down than invest.

In other words, you're on the right track if debt free is your goal!  :)
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skunkfunk

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Re: Need to get out of debt. Where to start?
« Reply #2 on: February 20, 2014, 08:28:54 AM »
Those are some great interest rates.  I'd keep them all (other than the family one, and possibly the mortgage just to clear PMI - if it's possible on your loan, it may not even happen) and invest all your surplus that you would send to debt.  Send the minimums, and be sad when you don't have that debt anymore.

That's me though.  :P

The order looks good if you're a Dave Ramsey type anti-debt zealot and want to get rid of the debt despite it very likely costing you more money to pay it down than invest.

In other words, you're on the right track if debt free is your goal!  :)

I voted to hold the debt and keep it in investments, but my wife is much more comfortable paying down the debt first. It will be a good investment if it makes her feel better. It is possible to clear the pmi - I believe I need to put in another $23500 or so to clear it.

Baron235

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Re: Need to get out of debt. Where to start?
« Reply #3 on: February 20, 2014, 09:46:17 AM »
Those are some great interest rates.  I'd keep them all (other than the family one, and possibly the mortgage just to clear PMI - if it's possible on your loan, it may not even happen) and invest all your surplus that you would send to debt.  Send the minimums, and be sad when you don't have that debt anymore.

That's me though.  :P

The order looks good if you're a Dave Ramsey type anti-debt zealot and want to get rid of the debt despite it very likely costing you more money to pay it down than invest.

In other words, you're on the right track if debt free is your goal!  :)

I generally agree with this except for the loan to your parents.  A family loan is a favor to you and it is costing your parents investment growth, so I wouldn't want to grow my investments at the expense of my parents.  I would pay that off as soon as I could.  Now if it was a gift that is another story, but generally speaking, I don't want to take advantage of a family favor.

greaper007

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Re: Need to get out of debt. Where to start?
« Reply #4 on: February 20, 2014, 09:57:01 AM »
Do a 0% balance transfer on your parents (do the math first and see if the transfer fee is worth it).    Otherwise, everything is under 3% so don't worry about it.

skunkfunk

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Re: Need to get out of debt. Where to start?
« Reply #5 on: February 20, 2014, 09:57:53 AM »
Do a 0% balance transfer on your parents (do the math first and see if the transfer fee is worth it).    Otherwise, everything is under 3% so don't worry about it.

??? I don't have any idea what you're talking about.

arebelspy

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Re: Need to get out of debt. Where to start?
« Reply #6 on: February 20, 2014, 11:52:40 AM »
I generally agree with this except for the loan to your parents.  A family loan is a favor to you and it is costing your parents investment growth, so I wouldn't want to grow my investments at the expense of my parents.  I would pay that off as soon as I could.  Now if it was a gift that is another story, but generally speaking, I don't want to take advantage of a family favor.

I agree, that's why I specifically said "other than the family one."

Do a 0% balance transfer on your parents (do the math first and see if the transfer fee is worth it).    Otherwise, everything is under 3% so don't worry about it.

??? I don't have any idea what you're talking about.

He means do a credit card 0% balance transfer to immediately pay off the parents, and then pay off that credit card.  Not sure I agree (or disagree, for that matter, it'll depend on the circumstance), but that's what was meant.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

skunkfunk

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Re: Need to get out of debt. Where to start?
« Reply #7 on: February 20, 2014, 11:54:59 AM »
I generally agree with this except for the loan to your parents.  A family loan is a favor to you and it is costing your parents investment growth, so I wouldn't want to grow my investments at the expense of my parents.  I would pay that off as soon as I could.  Now if it was a gift that is another story, but generally speaking, I don't want to take advantage of a family favor.

I agree, that's why I specifically said "other than the family one."

Do a 0% balance transfer on your parents (do the math first and see if the transfer fee is worth it).    Otherwise, everything is under 3% so don't worry about it.

??? I don't have any idea what you're talking about.

He means do a credit card 0% balance transfer to immediately pay off the parents, and then pay off that credit card.  Not sure I agree (or disagree, for that matter, it'll depend on the circumstance), but that's what was meant.  :)

Yikes. I doubt I could get a credit card with a limit anywhere near that high, anyway.

Baron235

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Re: Need to get out of debt. Where to start?
« Reply #8 on: February 20, 2014, 01:42:15 PM »
I generally agree with this except for the loan to your parents.  A family loan is a favor to you and it is costing your parents investment growth, so I wouldn't want to grow my investments at the expense of my parents.  I would pay that off as soon as I could.  Now if it was a gift that is another story, but generally speaking, I don't want to take advantage of a family favor.

I agree, that's why I specifically said "other than the family one."

Do a 0% balance transfer on your parents (do the math first and see if the transfer fee is worth it).    Otherwise, everything is under 3% so don't worry about it.

??? I don't have any idea what you're talking about.

He means do a credit card 0% balance transfer to immediately pay off the parents, and then pay off that credit card.  Not sure I agree (or disagree, for that matter, it'll depend on the circumstance), but that's what was meant.  :)

I missed that.  I guess I agree with everything then :)