Reader Case Study - Pay off debt, invest or hang on to cash?

[catmustache]

Here goes (this is based on future estimations):

Life Situation: Married, no kids, one cat. I'm 30, he's 29

Gross Monthly Salary/Wages: $800 for me, $2500 for husband

Pre-tax deductions: Nothing

Other Ordinary Income: NA. I'm hoping to make more, but it's unclear at this point.

Qualified Dividends & Long Term Capital Gains: NA

Rental Income, Actual Expenses, and Depreciation: $300 room rental in primary residence, average $250 house rental on investment property. This is profit.

Adjusted Gross Income: $3850

Taxes: Around $500 a month.

Current expenses:
Mortgage: $790
Student Loan: $666 (the irony is not lost on me)
HOA: $130
Gas & bus fare: $200 (will drop substantially to about $100 or less)
Phone: $80
Utilities (gas + electric): $150
Food: $350
Tithing: $300 (Utah, so not negotiable)
Entertainment: $50 (books, netflix, etc.)
Miscellaneous: $100
IRA: $110



Assets:
Roth IRA: appr. $7,000
IRA: $2,000
My retirement accounts: approx. $18,000. Not sure about his.
Cash: appr. $7,000 (varies depending on repairs to investment property)
House: About 20k in equity
House 2: About 12k in equity


Liabilities:
Student loans:
$37895 @ 6.55%
$16916@ 6.3%
$3601 @ 1.86
All above are on IBR - Set payment at $568 a month.
$3835 @ 5.5% - $98 a month

Specific Question(s): I just left/in the process of leaving my job and I anticipate a lump payout of vacation time of around $2,600. This, added to my current cash, would allow me to buy a small investment property, which nets about $200 a month profit. Or I could keep it. Or I could use it to pay of my $3,835 debt and free up an extra $98 a month. Paying off the other loans doesn't change my payment amount, which is based on my income. I've been trying to pay stuff off aggressively.

Other things of note, I'm going into self-employment, so while it's unlikely I'll make nothing, I'm not sure how much I can bring in, especially at first. I have another part-time job, which will cover the student loans and we can make it on my husband's income alone. I'm tempted to just invest the money since I think that will net the largest return, but I'm also concerned about not having any real cash available in case an emergency happens. We have insurance through my husband on a high deductible plan, but we have enough in the HSA to meet the deductible. I'll also keep applying for jobs to try to find one closer to home.

My specific question is what do I do with the cash I have and will be getting?

[Kaikou]

I think you should focus more on paying off your debt, at least for the peace of mind alone.

It looks all nice broken up:

Liabilities:
Student loans:
$37895 @ 6.55%
$16916@ 6.3%
$3601 @ 1.86
All above are on IBR - Set payment at $568 a month.
$3835 @ 5.5% - $98 a month

But um you are $64947 in the hole. Your income $30000 a year from your husband, since you are leaving your job to start your business of unknown income. Seems like a hair on fire type situation.

[OneDollarAtATime]

How about this:

Sell House #2 (12k equity)
Get Vacation Payout ($2.6k)
Cash ($7k)
Total Cash On Hand:  $21.6k

Pay off the $3.8k loan and $17k loan.  (Total = $21.8k)

I suspect the loss of the rental would be made up by the cash flow from less loans (although I'm not familiar with how IBR's work).

Then focus on the $3.6k loan (because you can pay that off in <12 months). and all you're left with is one loan for $38k.

[catmustache]

Yeah... Hair on fire is correct. I hadn't considered selling any of the houses to pay off the debts, but maybe selling my primary residence might be more worth it than selling the other property. Hum.

[OneDollarAtATime]

Yeah... Hair on fire is correct. I hadn't considered selling any of the houses to pay off the debts, but maybe selling my primary residence might be more worth it than selling the other property. Hum.

Then where would you live?