Author Topic: Reader Case Study - What do we focus on?  (Read 8526 times)

YummyRaisins

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Reader Case Study - What do we focus on?
« on: December 04, 2016, 09:18:25 AM »
Topic Title: Reader Case Study - What do we focus on?

Life Situation: Married Filing Jointly, wife and 2 children (ages 2 and 1), 33 living in the Greater Boston Area.

Gross Salary/Wages: $67,500 bi-weekly + a yearly profit sharing bonus that is equal to ~35% of my base salary (no clue how consistent this is), wife is raising the kids full-time

Pre-tax deductions: 401k - 10% with 10% employer match

Other Ordinary Income: NA

Qualified Dividends & Long Term Capital Gains: NA

Rental Income, Actual Expenses, and Depreciation: NA

Adjusted Gross Income: $4,312.60/month after taxes and 401k deduction

Taxes (monthly):
Federal: $131.50
State/Local: $187.78
Social Security: $349
Medicare: $81.62

Current expenses (this is from last month, need more data):
Rent: $2,100
Utilities: $200 (Gas, Electric, Water/Sewer)
Car Insurance: $50
Internet: $35
Cell phones: $45
Groceries/household goods: $600
Netflix: $11
Fuel/Tolls: $179
Medical (pharmacy, urgent care): $75
Misc: $572 (Gifts, charity, car repairs)
Credit Card #1: $67 (minimum)
Credit Card #2: $175 (minimum)
Personal Loan: $398 (minimum installment)
Total: $4,518

Expected ER expenses: NA

Assets:
My ROTH: $7,886.67
Wifes ROTH: $51,498.71
My IRA: $14,032.97
Wifes IRA: $43,686,35
Work 401k: $8,468.38
One Car: paid off and worth ~$12,000
Emergency fund: $307
Total: $137,573.08


Liabilities:
Credit Card #1: $3,997 @ 16.24% ($67/month minimum)
Credit Card #2: $7,345 @ 15.49% ($175/month minimum)
Credit Union Loan - $15,692 @ %8.9 ($398/monthly installment - 15 payments made)
Student Loans:
   $2,000 @ 2.65% 
   $2,515 @ 2.65%
   $3,143 @ 2.65%
   $709 @ 0.4%
Total: $35,401


Specific Question(s):
How do we get these debts paid off quickly and start saving for a house and planning for FI?

Having rented for my entire adult life and now having a family of 4, Im very tired of renting. However, I know that we are in no position to be thinking of a house until we tackle our debt and get some savings stashed away.

Our rent is our biggest monthly expense and my wife and I both realize housing is costing us too much. We made a cross country move for a new job and rented our current place sight-unseen due to its proximity to parks, activities, and shopping, allowing the wife and kids to walk to everything besides visits to the doctor. This location also allows us to only have one vehicle. Commute to work is about 30 minutes for me. Our lease is up in April.

Our current approach is to put all remaining income after expenses into paying off debt. Virtually all of that is going toward credit card #1, which has the highest interest rate.

My wife is staying home with the kids which is saving us the considerable cost of child care for two toddlers. Weve talked about things she might do on the side to earn some extra income, but any insights here would be appreciated.

Thanks for your help Mustachioed Mystics!


EDITED 12/5/16 - Moved minimum CC payments to expenses, which now shows our monthly expenses exceeded income. Last month was exceptional as expenses usually go, but this is clearly unsustainable.
« Last Edit: December 05, 2016, 12:07:47 PM by YummyRaisins »

waltworks

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Re: Reader Case Study - What do we focus on?
« Reply #1 on: December 04, 2016, 09:51:44 AM »
Long story short, you need to make more money. Or move. All of your expenses are pretty reasonable for where you live - but you aren't being paid commensurate with living in a HCOL area.

Before paying the credit cards, you're only positive ~$1000/mo? I think that's what I'm getting from your numbers (your AGI is after taxes?) No way to save up for a house that way. Literally not possible. In fact, it will take you many years just to pay off the credit cards.

Now, stuff you *can* do right now:

-You should be able to withdraw the original ROTH contributions (not the earnings!) tax free and I would suggest immediately doing that to pay off the credit cards and credit union loan. I'd just pay the minimum on the student loans.

-Does your city/town have an affordable housing program? Would you qualify for it? Could you cram everyone into a smaller apartment? Your rent is a huge chunk of your budget and is the obvious biggest target.

-You can probably do better than $600/mo on groceries, especially if you cut out meat and most dairy and learn to use a pressure or slow cooker. Loads of ideas about that available online.

-Start looking around the country for LCOL areas where you could find a job in your field.

-Ask for a raise.

-Your wife's obvious best bet is to watch some other kids at your home. Probably just one or two, for people you know - doing an actual daycare is most likely not legal/practical where you live (but who knows?) Could easily make $1000/mo doing that, and your kiddos might enjoy the company.


Good luck!

-W

« Last Edit: December 04, 2016, 10:01:37 AM by waltworks »

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #2 on: December 04, 2016, 10:26:44 AM »
Thanks for the reply waltworks!

My AGI is not after taxes, just the 401k deduction. After taxes my AGI would is $4,312.60. My apologies for not doing that calculation before posting. I'll make and edit to the original.

I've only been at the current job for 7 months so a raise beyond a yearly ~3% bump is out of the question at this point. For the purpose of maintaining anonymity, I omitted that my employer pays a yearly profit sharing bonus that can be considerable (~35% of base salary), but I haven't been there long enough to know how stable this is. I realize now that was a big detail to leave out and I will edit my original post to include this. I only received a partial bonus of ~$13k this year (after taxes), which allowed us to wipe out a 3rd credit card and take out a chunk of another credit card #1.

We are definitely living in an HCOL area and we are paying for it. We plan to move after our lease is up and are hoping to find a place in the $1,500/month range. That should get us 2 bedrooms, which is essential IMO (as it is our kids wake us up a few times a night while being in a separate room). I will look and see if our city offers affordable housing. I'm guessing that we wouldn't qualify based on my income, but you never know.

Hadn't considered borrowing from our ROTH contributions to pay down debt (honestly wasn't aware you could do that). Are there any penalties for this? Would the money need to be returned in a specific time frame?

Mrs. YummyRaisins is interested in watching other kids for additional income. Thanks for the idea!



waltworks

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Re: Reader Case Study - What do we focus on?
« Reply #3 on: December 04, 2016, 11:07:01 AM »
Roth IRA contributions can be withdrawn with no penalty at any time. You can verify this yourself with your HR person or accountant (if you have one). Keep in mind that only the *contributions* can be withdrawn, any interest/dividends/capital gains that have been earned in the accounts can only be withdrawn with penalty/taxes (unless you're a lot older than I think you are!)

Here's a relatively simple explanation from Vanguard: https://investor.vanguard.com/ira/ira-distribution-rules

You are in way better shape if you are expecting ~$20-25k in bonuses each year!

I'd still kill the credit cards and credit union loans with the Roth money (unless those accounts have been around for a LOOONG time you should have plenty of contributions available to withdraw) right away. No sense in paying 15%+ when you have the money to kill them off. That will in turn free up a bunch of money for savings toward a house (which IMO should be in the form of high-interest savings account or CDs).

As a side note, Roth money (including earnings) can be used *one time* up to $10k for a first-time home purchase with no penalty/taxes. So if you want to, you can consider yourself already at first base on the DP! :)

-W

crispy

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Re: Reader Case Study - What do we focus on?
« Reply #4 on: December 04, 2016, 11:28:09 AM »
Focus on the high interest debt. With your bonus, kill both credit cards. Those interest rates are high! That will give you a lot of breathing room. Also, I am coming up with around 137k in assets. Am I missing something?

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #5 on: December 04, 2016, 12:02:13 PM »
-waltworks-

Sorry again about leaving out the profit sharing info. I see now that that was an important detail.

The ROTH accounts are older than 5 years and should have sufficient contributions to use for paying down the credit cards, as they have the highest interest. I would have to clarify with a representative whether there is a 60-day window to return the funds. Maybe this is the difference between a withdrawal and a loan?

I'm less sure about paying down the 8.9% Credit Union Loan though, as that loan has the largest balance would make a big dent in our savings accounts. Is the 8.9% interest of this loan costing us more than the return on the IRAs?

Thanks for the suggestions on CDs and high interest savings accounts for saving up for a DP. That was a question I had, but didn't add as my post was already quite long. Definitely want to hit that 20% DP to avoid PMI!

-crispy-

You are right, the assets should $137k and have been edited. Good thing my job doesn't require too much maths...

waltworks

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Re: Reader Case Study - What do we focus on?
« Reply #6 on: December 04, 2016, 12:24:24 PM »
You can just make a withdrawal. You are not taking a loan (you may be confusing your Roth IRA with a non-Roth 401k, from which you do indeed have to take a loan/return funds if you want to withdraw money early) and you do not have to return the funds.

Here's the logic: Roth contributions are after-tax. So you have already paid taxes on that money that you contributed. You have *not* paid taxes on the money earned by those contributions (ie dividends, interest, etc) so that money can't be touched without paying taxes on it.

Expected historic returns in a generic 100% stocks account with no fee load would be on the order of 7% after accounting for inflation. Many people would argue that at current valuations, more like 4-5% would be a realistic expectation.

So killing your 8.9% loan using Roth contributions is probably a good move unless you are expecting a giant boom in the stock market in the next few years. A guaranteed 8.9% return is something I would snap up immediately if I were you...

-W

mary w

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Re: Reader Case Study - What do we focus on?
« Reply #7 on: December 04, 2016, 12:48:51 PM »
I think you also need to ponder how and for what you got that cc debt.  Have you fixed whatever the underlying issue was?  If not, you'll end up back in cc debt.   Look back at a couple of years of statements.  Was it food out?  Christmas presents?  Car repairs? Or??

I agree that paying off cc debt should be a priority. Personally I would not withdraw from my Roth to pay off this debt.  Better to keep it there as a back-up emergency fund until you can build up your e-fund.  $307 is not enough to have in an e-fund especially with two children and a non-employed spouse. 

You'll need more months to figure out what that $500 miscellaneous monthly really is.

SwordGuy

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Re: Reader Case Study - What do we focus on?
« Reply #8 on: December 04, 2016, 02:59:56 PM »
So, if you:

1) Steadfastly refuse to get into MORE debt, and
2) Use all bonus money to pay down debt, and
3) Reduce any and all expenses you can control, and
4) Aggressively pay down your debt each month, and
5) Don't have any more kids,

you could be out of debt in 12 to 18 months.  That allows for a visit or two by Murphy during the time period.

In another 3 to 4 years after that you can build up a pretty good nest egg.   

By then the both kids will be in kindergarten and your spouse can go back to work full time.

A year or two of that and you'll have enough cash to buy a nice home free and clear in a LCOL area.

If you and your spouse have built up your skills so you can get a job in a LCOL area by then, you'll be golden.

Things that could accelerate progress big time:

1) Spouse finds a way to make money while at home with the kids.   Even $5,000 a year adds up to a $20,000+ additional nest egg contribution by the time both kids are in school!

2) Getting a good job at the same salary in a LCOL area.   Rent will drop significantly.  For example, here's a 3/2 house, 1350 sq. ft. in size, plus a large yard and large outbuilding, for only $850 a month rent.

http://www.zillow.com/homedetails/446-Lynhurst-Dr-Fayetteville-NC-28314/53627061_zpid/?view=public

That's way better than $2100 a month rent!!!

It would run you about $80,000 if you purchased it for cash or less than $600 a month if you bought it on a 30 year fixed mortgage at 4%.

Stay the course and freedom is not that far off.






YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #9 on: December 04, 2016, 03:31:12 PM »
-waltworks-

Thanks for that breakdown. This is very useful information, especially for someone such as myself who knows very little about personal finance. I only just discovered MMM and FI and I'd really like to make it my new goal. Luckily we aren't too far off the path.

-mary w-

Our cc debt, as well as the credit union loan, were a conscious decision (kids are expensive, more so if you can't have them the old fashioned way). We are happy with 2 kiddos and don't plan on more. Before the kids, we were living almost completely debt free with the exception of a car payment.

We're generally pretty good at being frugal. DIY Christmas gifts "from the kids" for family. Cook most all meals at home. Paid off our car in 3 years with low interest rate. The cc debt and loan definitely set us back though.

We definitely need an emergency fund. This was something I hadn't really considered before MMM and we're going to make it a priority.

The Misc. this month was for break pad replacement on the car, oil change and tire rotation, a small donation, dry cleaner fees, and DIY Christmas supplies. This was and exceptionally high month IMO, but I plan to go back a few months to see what we usually spend.



meandmyfamily

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Re: Reader Case Study - What do we focus on?
« Reply #10 on: December 04, 2016, 03:53:25 PM »
Oh my goodness if you have a good credit score roll those high credit cards to 0% for 18 months and keep rolling until paid off!!!  Citicard, Discover and Chase   I would not pull from my Roth IRA to pay them off.
« Last Edit: December 04, 2016, 03:55:30 PM by meandmyfamily »

Able was I ERE

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Re: Reader Case Study - What do we focus on?
« Reply #11 on: December 04, 2016, 04:00:17 PM »
Did a double take on your user name combined with "Greater Boston Area".  There is a great Boston-based band called "Free Raisins" ( http://www.freeraisins.com ) with a very frugal member Jeff Kaufman ( http://www.jefftk.com/donations ).  Go to a contra dance and listen some time.

Be sure to go to one of the regular Boston MMM meet ups. Lots of friendly interesting people that will inspire you.  http://forum.mrmoneymustache.com/meetups-and-social-events/boston/


Any way to reduce the interest rates on your credit card loans?   
If not...mathematically, withdrawing contributions from your Roth is probably better.  A guaranteed 8.9% gain is great.  If you're be able to replenish your withdrawal within a few years you won't miss out on much compounded tax-free gains.  Psychological, it's harder to evaluate.  Are you the type of person to increase your spending unnecessarily because you have less debt?  Be honest with yourself.

For housing, it may be helpful to consider your combined housing and transportation costs. Right now, you're paying more for housing because it allowed you to only own one car.  Are the other places that would reduce your total costs, for example by letting you be car free?   

What part of Boston-area is your job?  The forum may be able to suggest alternative locations that are cheaper but commutable.
Part of the 2020 FIRE Cohort.

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #12 on: December 04, 2016, 04:03:34 PM »
-SwordGuy-

Thanks for the feedback!

We plan on following steps 1-5 from now on! (was already on board with 5 before MMM)

Definitely want to reduce housing costs. We've already scoped out a few places that are closer to work for me and $700-800 cheaper than what we're paying now. Will lose some conveniences, but much better for long term success.

Mrs. YummyRaisins is considering ways to earn bonus cash. As stated above, taking on a few more kids during the day would probably be the most straightforward way. Any other online suggestions would helpful too.

The job I have now is brand new and took me about a year to land, so I'm in no hurry to change. Earning potential is pretty high and the benefits are very good. I think cheaper housing should solve most of the problem. Just have to lower our standards a bit. We're also already in the area, which wasn't the case when we chose our current apartment.

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #13 on: December 04, 2016, 04:42:44 PM »
-meandmyfamily-

This would be a good alternative to taking from our ROTH accounts! Are there any consequences (e.g. reduced credit score) for doing something like this? Our credit scores are very good.

 -Able was I ERE-
 
Nope! I'm not a musician (not since high school band anyway). Was just thinking that raisins are delicious when I was setting up my account.

Thanks for suggesting the MMM meetup! I'll have to check it out.

I'm not sure how to go about reducing the interest of our credit cards. Any pointers?

As I said to mary w above, we are generally frugal people and don't accumulate debt. The debt we have was the cost to us for starting our family and we don't plan on any more additions.

My work is in the North Shore area and ~1,800 for a 2 bedroom 1 bath apartment seems to be the average.

As for housing, I think we'll be able to find a cheaper option that will allow us to stay a one car family. As long as a public library, playground, and grocer are within walking distance or close by, we're good. Being near the commuter rail (Newburyport or Rockport) would be a bonus.

MEJG

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Re: Reader Case Study - What do we focus on?
« Reply #14 on: December 04, 2016, 05:00:23 PM »
I too would start with the CC and personal loan debt. Look into the Chase Slate card- balance transfers have no fee for the first 60 days. I'm not sure if you can transfer from the personal pain to the slate but you could consolidate the CC debt at 0%.

I would not pay a cent early on the student loans at those interest rates.

If you haven't seen it yet check out the investment order sticky http://forum.mrmoneymustache.com/investor-alley/investment-order/

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #15 on: December 04, 2016, 06:42:22 PM »
-MEJG-

Thanks for suggesting the Chase Slate card. It would be an excellent option, however one of our cards with a balance is through Chase Bank, so we can't use it. Alliant Credit Union has a Visa Platinum Card with 0% APR on balance transfers for 12 months and no transfer fees, so we're going to apply for that and see what rate they give us (credit score is in the low 700s). That would leave just the personal loan to handle, potentially with funds from our ROTH contributions.

Also agree on the student loan debt. Very low rates and we are just paying the minimum at this point.

Also thanks for the link to the investment order sticky! Hopefully we'll be able to make full use of it soon!

MEJG

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Re: Reader Case Study - What do we focus on?
« Reply #16 on: December 04, 2016, 07:19:17 PM »
YummyRaisins,

I'm glad you found another option! If it doesn't work out though you can try with Chase, with whomever is not the primary account holder for your open line of credit. I would be surprised if that didn't work.

We had some CC debt from building our family too- it's not idea but I know you can get on top of it.

waltworks

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Re: Reader Case Study - What do we focus on?
« Reply #17 on: December 04, 2016, 08:04:40 PM »
Slightly off-topic: why is everyone against pulling Roth money? That's the *whole point* of doing Roth investing rather than just normal taxable (or traditional IRA) - that you can still get access to the money if you need it! The idea of keeping your easily available tax-free investments in place while paying 15% on credit cards just boggles my mind.

Money is fungible. If it's not working as hard in an "investment" as your debts are consuming it, you should liquidate the investment to pay the debt. It's that simple.

0% credit cards are a good idea, though. :)

-W

jengod

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Re: Reader Case Study - What do we focus on?
« Reply #18 on: December 04, 2016, 08:08:54 PM »
Dave Ramsey that debt. Net worth zero is your first priority.
Waste is lost profit made visible. #zerowastehome #permaculture

meandmyfamily

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Re: Reader Case Study - What do we focus on?
« Reply #19 on: December 04, 2016, 08:58:58 PM »
We frequently transfer CC balances to 0% cards as we pay them off and have an 800 credit score.  Do some searches this one is 21 months.  You might not need that long!
https://citicards.citi.com/usc/dual/value/simplicity/dp/2016/April/PS/A/default.htm?BTData=O9E.B.gAB4f.J.Bo*.Rsnh.bV1.jEC.uEN.Bj.PB.vy.E&m=23BF111111W&cmp=KNC~01~110901~CRDACQXX~Google&BT_MKWD=s1JaqNOMa%7Cdc_pcrid_163427660579_pmt_b_pkw_+citibank++no++interest_slid_&ProspectID=8C958E4239144633867961100A0A5BA6

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #20 on: December 04, 2016, 09:18:27 PM »
-meandmyfamily-

Thanks for the suggestion.

The 12 months of 0% APR from Alliant should be sufficient, especially when we knock out the peronal loan with ROTH funds and focus just on the cc debt. Alliant also has no transfer fee, which would be somewhat significant in our case.

If Alliant doesn't approve is, we'll give try Citi.

meandmyfamily

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Re: Reader Case Study - What do we focus on?
« Reply #21 on: December 04, 2016, 10:01:12 PM »
That sounds like a great plan.  No reason to pay interest and no transfer fees are the best way to go!

Dicey

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Re: Reader Case Study - What do we focus on?
« Reply #22 on: December 05, 2016, 03:04:07 AM »
Settle in for pithy advice from Diane C: Insomnia Edition.

Hmmm, are your monthly debt (CC, CA & SL) payments in the "Expense" section? Maybe I'm mis-reading this.

The reason NOT to withdraw from a Roth is because you can't put it back. Don't do it yet.

Instead, focus on lowering the interest rates on the credit cards. Also, is it correct to assume you maxed out three CC's and took out a CL loan in order to get pregnant? I.e. for a specific use vs. random overspending?

Have you contacted each creditor and asked for an interest rate reduction? If not, do it today. Tell them you have zero percent offers and have a choice of which cards to pay off. Some interest to them is better than the nothing they will get if you pay off their card. If the debt is old enough and your history is good, is should be quite do-able. If they offer a lower numbers ask if that's the best they can do. Then look to consolidate these debts into one if possible. Just easier.

I think your car is paid off (can't see the original post due to forum limitations). Look into borrowing against it to pay off a CC. Secured loans are almost always cheaper than CC's. Start with your existing CU.

Make sure taking in another kid doesn't violate the terms of the lease. Check out the going rates. In your HCOLA, $1k/month might be too low. Consider a couple of days a week vs. full time, at least to start. Make sure the parents of daycare kid are responsible, reliable and have good credit. A kid who lives within walking distance to you is a plus, as is one whose parents don't work extended or variable hours. If you found someone really close, you could charge a premium for pick-up & drop-off service so other parent doesn't have to schlepp their kid to your place. That only works if your wife is highly organized and likes rtwice daily walks  with your kids in all kinds of weather. Otherwise, might be too stressful.

Can you borrow more from the CU to throw at the higher interest CC's?

Make sure you are not over withholding on your taxes. If so, adjust now to avoid a windfall refund. Better to have more to throw at debt on a monthly basis.

Go to Amazon and buy this right now:
Tightwad-Gazette-Promoting-Alternative/dp/0375752250
It's dated, but completely relevant to your situation. You will want to refer to it again and again, so buying is a good move, especially if you can find a nice used copy.

I normally like walt's advice, but I understand that moving to a lower COLA doesn't make sense for you at the moment, so set that advice aside for now. Sometimes you just gotta suck it up and live in a HCOLA. When your lease expires, look into moving closer to work to save on time and commuting costs. Chose wisely, because moving with little ones is a hassle.

Forget about a house right now. It sounds like you opted to make babies with borrowed money. Pay them off before you start jonesing for your "own" home. And beef up that emergency fund any way you can asap. Sell something on CL or similar, collect cans and bottles for recycling, babysit kids in the evening, whatever it takes until you have at least another grand or two cushion. Check out scrubbyfish's "Rising" or Donna Freedman's "Surviving and Thriving" for great tips on jump starting an anemic EF. Kill this debt, establish a little more solid EF, then start stockpiling down payment soldiers.

Okay, getting sleepy finally. To sleep, perchance to dream. I hope you've ordered that book and made a few phone calls by the time I wake up. Ready, set, go! You can do this!
I did it! I have a journal!
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And hell yes, I am still moving confidently in the direction of my dreams...

waltworks

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Re: Reader Case Study - What do we focus on?
« Reply #23 on: December 05, 2016, 08:45:14 AM »
I assumed the CC debt was for fertility treatments of some kind or other pregnancy/childbirth expenses, worth every penny if you are trying to have kids. IMO the OP should not be criticized for the CC debt as they have already explained that it was a one time expense.

-W

Dicey

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Re: Reader Case Study - What do we focus on?
« Reply #24 on: December 05, 2016, 09:13:28 AM »
I assumed the CC debt was for fertility treatments of some kind or other pregnancy/childbirth expenses, worth every penny if you are trying to have kids. IMO the OP should not be criticized for the CC debt as they have already explained that it was a one time expense.

-W
Hi Walt,
Is it safe to assume you're responding to my post? If so, please know that their choice wasn't met with criticism; is was more of a statement of the facts. Had they asked this forum if they should save up the money or use credit to achieve their goals (whatever they are) before they spent the money, the discussion would have been very interesting and predictably different. However,  they made a choice (zero criticism for that) and now they must clear that debt before they consider taking on new debt. Simple.

I also don't care that they have CC debt, I merely offered a number of suggestions for how they can dig out from under it, which I believe is the help they asked for. Given that the request for help was published here, in the land of facepunches, I'd say my advice was nowhere near that. I stand by it, and wish the YR family every success.

Damn, Walt, I was actually rather pleased with that middle-of-the-night list! It's advice I would have been happy to receive had I found myself in the same position. Spending money you don't have always comes at a cost, no matter what the reason.
Kind regards,
Diane C
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RedwoodDreams

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Re: Reader Case Study - What do we focus on?
« Reply #25 on: December 05, 2016, 10:54:00 AM »
I think you're doing pretty well, including that 10% into 401k. Nice. Agree with previous posters that if you can concentrate on knocking out that CC debt, you have a nice cushion to start saving.

If you love where you live and it works well for your wife home with two little kids, be careful about moving somewhere cheaper to save $200-300/month just for savings' sake. If she can take the kids to the park or library, socialize, get groceries within walking distance of home, there's a big quality of life value to that price.

Taking care of two little kids ages 2 and 1 is a big job. Taking on other kids could be good money, but could also complicate things unnecessarily...additional nap times, your kids' nap times interrupted, more germs/sick kids in the mix, etc.,  so proceed with caution there. In my experience, those little kid years were somewhat all-consuming, but they don't last forever. Enjoy the freedom you've bought yourselves by being generally frugal and careful. Things can change dramatically when the kids hit school age, and savings can accelerate dramatically at that point.

You live in a HCOL area, which means there are people there who are working and will pay a premium for services. How about a side job for your wife checking on a neighbor or two's pets on weekdays? I make $15/pop for dog walks/checks daily, and check two dogs, so bring in $600 cash for going out and getting some exercise daily. Plus it could be fun for the kids. (I found these jobs by putting an ad on craigslist...And $15 might be low for a HCOL area...I've seen $20-30 per check in areas like SF.)

i think you're on the right track. Bravo.

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #26 on: December 05, 2016, 10:58:19 AM »
-Diane C-

Thanks for the input! Hopefully it didn't cost you too much sleep.

Our CC and personal loan debt are related to getting pregnant and additional family planning costs once we realized IVF wasn't a viable option for us.

The minimum payments for the CCs are listed next to each debt in the liability section. Our approach up until now has been to siphon all remaining income after expenses into the CC with highest rate and pay the minimums on the rest. This wasn't getting us anywhere fast. Thanks to the suggestions in this thread, I think we can tackle our debt much faster now.

We haven't contacted the CC companies or the personal loan provider about lowering the interest rates on our accounts. Is there a justification for doing this instead of transferring the balance of our CC balances to a 0% APR card and paying it down over 12 months? Seems like 0% would be better than reduced interest.

We could contact the credit union about lowering the rate on our loan, but using ROTH contributions seems like the most expedient and cost-effective way to take care of it, unless I'm there is some information I'm missing. When you say you can't put money back in a ROTH, do you mean you literally can't contribute to a ROTH in the future once you withdrawn from it? If this is the case, we'll have to seriously consider using that approach.

As for asking for more credit from the credit union or borrowing against our car, are these more cost-effective options than what has been proposed by others (e.g. 0% balance transfer and ROTH withdrawal)?

I think our tax withholdings are very low right now, but I can look into this further.

I agree with our perspective on moving and house saving. These aren't in our best interest now, so they are going on the back burner.

GENERAL QUESTION: Does anyone have experience with Alliant Credit Union? Are they reputable? We've been approved for their 0% balance transfer card and are considering using it to deal with the CC debt.

Thanks!

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #27 on: December 05, 2016, 11:28:27 AM »
-RedwoodDreams-

Thanks for the positive reinforcement.

You are definitely spot-on with what Mrs. YR has to deal with. Handling two kids in that age range can feel like more than a full time job and anything we can reasonably do to make that easier for her and enriching for our kids is worth it to me. Having said that, we are both in agreement that we need to find a cheaper place to live not far form where we are now (North Shore area of Mass). This should be easier now that we are in the area and can conduct a local search, not remotely like before.

Great idea regarding pet sitting! We live in a complex right now, so there may be folks looking for just such a service.

Thanks again!

Dicey

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Re: Reader Case Study - What do we focus on?
« Reply #28 on: December 05, 2016, 11:53:03 AM »
-Diane C-

Thanks for the input! Hopefully it didn't cost you too much sleep. Thanks, but I was awake anyway and I'm FIRE, so I can sleep whenever I want. Sigh.

Our CC and personal loan debt are related to getting pregnant and additional family planning costs once we realized IVF wasn't a viable option for us. See reply to Walt above. Doesn't matter, not judging.

The minimum payments for the CCs are listed next to each debt in the liability section. Our approach up until now has been to siphon all remaining income after expenses into the CC with highest rate and pay the minimums on the rest. This wasn't getting us anywhere fast. Thanks to the suggestions in this thread, I think we can tackle our debt much faster now. Still should be in expenses, because until they're dead, they're the same as the utility bills.

We haven't contacted the CC companies or the personal loan provider about lowering the interest rates on our accounts. Is there a justification for doing this instead of transferring the balance of our CC balances to a 0% APR card and paying it down over 12 months? Seems like 0% would be better than reduced interest. At least two reasons. Because balance transfers have a hard stop. If you don't pay it off or roll to another card are the end of the grace period, you'll be in deep doo-doo. Next, they may not offer you enough money to pay off all the cards. Lowering the interest rate only makes you more credit worthy. Also might be easier to get before you've opened new lines of credit. Minimal effort for maximal returns. Don't get me wrong, you should still do the balance transfer, but sequence it optimally.

We could contact the credit union about lowering the rate on our loan, but using ROTH contributions seems like the most expedient and cost-effective way to take care of it, unless I'm there is some information I'm missing. When you say you can't put money back in a ROTH, do you mean you literally can't contribute to a ROTH in the future once you withdrawn from it? If this is the case, we'll have to seriously consider using that approach. If you withdraw from the Roth, you are pulling out dollars you saved in 2010 or earlier. The amount you can contribute is capped annually. If you pull money from say, 2008 and repay it in 2018, then you are losing out on the contribution you could have made in 2018. You can't get the lost or withdrawn years back. Call the Credit Union already. One kills debt expediently, one does not drain hard-earned retirement resources for "expedience". It's okay to pay a little interest to protect your retirement funds.

As for asking for more credit from the credit union or borrowing against our car, are these more cost-effective options than what has been proposed by others (e.g. 0% balance transfer and ROTH withdrawal)? Again, you don't know how much $ you can get on BT's. See above and make the phone call today.

I think our tax withholdings are very low right now, but I can look into this further. Good. If you got more than $1k back last year, you're doing something wrong, especially since you have dependents.

I agree with our perspective on moving and house saving. These aren't in our best interest now, so they are going on the back burner.

GENERAL QUESTION: Does anyone have experience with Alliant Credit Union? Are they reputable? We've been approved for their 0% balance transfer card and are considering using it to &deal with the CC debt. Who cares? It's hard to find no-fee 0% BT's. Take the money and run. But make those other phone calls first.

Thanks! You are so welcome. Go give those babies a hug from me. And tell your wife she's beautiful today.
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robartsd

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Re: Reader Case Study - What do we focus on?
« Reply #29 on: December 05, 2016, 12:12:14 PM »
Diane C's advice on asking to lower rates with existing lenders before doing a balance transfer is good. Here's some of my thoughts:

Promotional transfer rates should serve you well. Often there is a transfer fee (usually 3-5%), so shop for best deal in regards to fees, rates, and promo period - sometimes a low rate over a longer period with no fee is better than 12 month 0% offers. I'd hesitate to use Roth contributions to pay off debt - you can never get that tax advantaged space back; however, assuming you wouldn't be able to contribute to IRAs for 2016 and 2017 due to your debt anyway, you could take $11k from Roth IRAs to pay down your credit union loan now with a goal of paying the remainder off and contributing $5,500 to IRAs for each of you for 2017 by April 2018. You'd end with the same amount of contributions in your IRA's but with about a year out of the market in exchange for eliminating debt at 8.9% interest.

As far as emergency funds go, I like to think of Roth contributions as part of my emergency funds. This allows me to maximize tax advantaged space while still having funds available for an emergency. (I still tend to keep about 1 month's expenses in a regular savings account.)

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #30 on: December 05, 2016, 02:27:43 PM »
-Diane C-

Thanks again for the detailed response. Very much appreciated.

Minimum payments have been moved to expense in the OP.

So our current personal loan rate is 8.9%. If the credit union agrees to lower it, in your opinion what would be a rate where it makes more sense to pay the loan monthly instead of using Roth money? I plan on calling them, but would like to have a number in mind going into the call.

-robartsd-

Thanks for the post!

The Alliant card doesn't have a transfer fee and the 0% rate is for 12 months. We're confident we can pay off the balance in 12 months, especially with my profit sharing bonus coming next year.

Your approach to the personal loan debt using Roth funds is well thought out. My question now, as I already put in my response to Diane above, is what reduced interest rate I should consider low enough to leave the Roth funds where they are and pay the loan balance down monthly.

And we definitely want to get back to the point where we can start making max contributions like you describe. We had the flexibility to do that when we were young, which is why we have the balances we do, but it's much more challenging now.

Dicey

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Re: Reader Case Study - What do we focus on?
« Reply #31 on: December 05, 2016, 02:38:55 PM »
In my opinion, tapping the Roth is simply taking the easy way out, with a huge cost down the road. Another aspect that hasn't been mentioned is that a Roth isn't taxable if withdrawn after age 59.5 (Fact check the exact date anyone who knows, please.). Also not taxable if you pass it on to your children. Why give that up? Peace of mind is illusory bullshit. Sometimes we need that nagging voice to help us make the right decisions. No, just NO on the Roth. Put another way: you chose to create those balances for something that was important to you, but not an emergency (again, not a criticism), so don't treat it like it is one now. It isn't and there are better ways to kill this debt and reach your goals.

Made any phone calls yet?

(Yup, that's me being the nagging voice. I'm working gratis today and I'll be here all week. Mic drop.)
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waltworks

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Re: Reader Case Study - What do we focus on?
« Reply #32 on: December 05, 2016, 02:44:08 PM »
The Roth withdrawal (as long as you follow the basic rules and only take out contributions) is not taxable!!! Not now, not tomorrow, not when you're 59.5. The only thing that changes when you reach full retirement age is that you can tap the *earnings* as well as the original contributions.

I'm unclear on what people don't understand about this. There is nothing sacred about money in an investment account - if you need to use it for something (like paying down high interest debt, DP on a house, living expenses when FIRE, etc) then you do.

I agree that a zero percent card is also a great solution, but there is no reason not to tap a Roth if you need to. Otherwise, why did you put money in it in the first place? A tIRA would be the better choice if you wanted to not touch the money until full retirement age.

OP, I would pay down the CU loan unless you can get the rate under, say, 5%.

-W
« Last Edit: December 05, 2016, 02:46:27 PM by waltworks »

robartsd

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Re: Reader Case Study - What do we focus on?
« Reply #33 on: December 05, 2016, 03:19:05 PM »
Your approach to the personal loan debt using Roth funds is well thought out. My question now, as I already put in my response to Diane above, is what reduced interest rate I should consider low enough to leave the Roth funds where they are and pay the loan balance down monthly.
I like MDM's advice for order of investments in the case study spreadsheet. That suggests that it would be better to put money towards tax advantaged investments than debt with rates about 5% above 10 year treasury yields (so about 7.5% today). Above 8%, I think I'd "borrow" from the Roth IRA as I described in my previous post. Between 7-8%, I'd probably just pay off as quickly as possible without touching the IRA funds. If I could get the rate below 7%, I'd start thinking about maximizing tax advantaged investment space while making minimum payments. 5% is about where I'd switch from debt payoff to taxable investing.

seattlecyclone

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Re: Reader Case Study - What do we focus on?
« Reply #34 on: December 05, 2016, 03:44:23 PM »
When do you get your profit sharing check? At 35% of salary, it should be enough to knock out essentially all of your debt besides the student loans.

I agree with Diane that pulling from the Roth IRAs should be a last resort. You have other means at your disposal to end these interest payments. Try them first.
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #35 on: December 05, 2016, 05:32:41 PM »
Phone calls have been made.

Talked to the credit union (current rate = 8.9%) and they gave us 2 options:

Option #1: Refinance the current balance for 48 months at 6.99% (monthly payment ~$380)

Option #2: Reduce the balance of the loan to less than the value of our car (~$12k) and refinance using an auto equity loan with an interest rate of 3.5%. The credit union would be added to our title as a lien holder. $25 to add a lien holder to your title in Massachusetts.

I'm not sure if there are any fees for refinancing. There was a $75 charge for the original, so maybe it will cost the same (or maybe not).

Option 2 seems like the way to go if I'm not mistaken. We can continue monthly payments until the balance falls below the KBB value of our car, then refinance at 3.5%.

We were also approved for a 0% APR card for 12 months through Alliant with no transfer fees and no annual fees. We will move the balances of credit cards 1 and 2 to the new card and cancel the younger of the two cards (card #2), as we don't plan to use it. We'll ask card #1 for a reduced rate before we transfer, using the 0% card as leverage in the negotiation.

-MDM-

I think the 3.5% would change our approach to simply repaying at the minimum rate and start saving again, as you suggest.

Thank you for your suggestion!

-seattlecyclone-

The bonus comes next fall, so it will be a while before I can use it. However, with the refinancing and balance transfer discussed above, we may have to think about whether we put all the money towards debt, or do a combo of investing and debt repayment.

Thanks for the post!

And thank you all for your help! I'm a bit disappointed that I hadn't considered doing any of this before...


seattlecyclone

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Re: Reader Case Study - What do we focus on?
« Reply #36 on: December 05, 2016, 05:53:53 PM »
We'll ask card #1 for a reduced rate before we transfer, using the 0% card as leverage in the negotiation.

The interest rate on your credit card will be mostly irrelevant if you swear never to carry a balance month-to-month in the future. You will be doing this, correct?
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #37 on: December 05, 2016, 06:03:27 PM »
I swear on my barely visible peach fuzz stache to pay it off monthly from here on out.

wintertell

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Re: Reader Case Study - What do we focus on?
« Reply #38 on: December 05, 2016, 08:57:45 PM »
Phone calls have been made.

Talked to the credit union (current rate = 8.9%) and they gave us 2 options:

Option #1: Refinance the current balance for 48 months at 6.99% (monthly payment ~$380)

Option #2: Reduce the balance of the loan to less than the value of our car (~$12k) and refinance using an auto equity loan with an interest rate of 3.5%. The credit union would be added to our title as a lien holder. $25 to add a lien holder to your title in Massachusetts.

I'm not sure if there are any fees for refinancing. There was a $75 charge for the original, so maybe it will cost the same (or maybe not).

Option 2 seems like the way to go if I'm not mistaken. We can continue monthly payments until the balance falls below the KBB value of our car, then refinance at 3.5%.

We were also approved for a 0% APR card for 12 months through Alliant with no transfer fees and no annual fees. We will move the balances of credit cards 1 and 2 to the new card and cancel the younger of the two cards (card #2), as we don't plan to use it. We'll ask card #1 for a reduced rate before we transfer, using the 0% card as leverage in the negotiation.

-MDM-

I think the 3.5% would change our approach to simply repaying at the minimum rate and start saving again, as you suggest.

Thank you for your suggestion!

-seattlecyclone-

The bonus comes next fall, so it will be a while before I can use it. However, with the refinancing and balance transfer discussed above, we may have to think about whether we put all the money towards debt, or do a combo of investing and debt repayment.

Thanks for the post!

And thank you all for your help! I'm a bit disappointed that I hadn't considered doing any of this before...

Option #2 seems like the best option to me.

But is it possible to go ahead and refinance the 12K?

Then you have only 3K to pay off at 7.9% and the rest of the debt is at a much lower interest. You start saving on interest now vs. later.  Since you are paying so little interest, I bet you could pay off the 3K balance at 7.9% very quickly.

The only way you can do this, though, is if you have the cash flow to carry another payment.

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #39 on: December 05, 2016, 09:32:20 PM »

Option #2 seems like the best option to me.

But is it possible to go ahead and refinance the 12K?

Then you have only 3K to pay off at 7.9% and the rest of the debt is at a much lower interest. You start saving on interest now vs. later.  Since you are paying so little interest, I bet you could pay off the 3K balance at 7.9% very quickly.

The only way you can do this, though, is if you have the cash flow to carry another payment.

I'm not sure if they allow us to split the balance across 2 loans. I'll need to get clarification on this.

robartsd

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Re: Reader Case Study - What do we focus on?
« Reply #40 on: December 06, 2016, 08:40:03 AM »
Securing what you can to the car to get a low rate isn't a bad idea. Do note the auto insurance coverage that the auto loan would require and include the costs of any additional insurance you must purchase in your consideration.

If the new Alliant card does not transfer all of your credit card balances, you can always apply for another card with a promotional rate to transfer more. Of course every inquiry and new credit line will temporarily lower your score. Generally keeping credit cards open is better for your credit score than closing them. I certainly don't carry any credit cards that I don't want to use (you could even destroy the physical card - I keep mine locked up at home), but the accounts are left open.

YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #41 on: December 06, 2016, 11:40:38 AM »
Securing what you can to the car to get a low rate isn't a bad idea. Do note the auto insurance coverage that the auto loan would require and include the costs of any additional insurance you must purchase in your consideration.

If the new Alliant card does not transfer all of your credit card balances, you can always apply for another card with a promotional rate to transfer more. Of course every inquiry and new credit line will temporarily lower your score. Generally keeping credit cards open is better for your credit score than closing them. I certainly don't carry any credit cards that I don't want to use (you could even destroy the physical card - I keep mine locked up at home), but the accounts are left open.

Thanks robartsd

Good point with the auto loan insurance. Not sure what that will cost per year, but hopefully it's still worth it to refinance.

The balance on the Alliant card will be enough for both cards, so no issue with needing multiple new cards. They also offer 1% on savings and 0.65% on checking accounts, which isn't too shabby.

The credit card we will close is the newest card we have and one we mainly opened for airline rewards. We don't use it anymore, so no big deal to close it. It happened to have a lower rate at the time we needed credit, so we used it.




YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #42 on: December 06, 2016, 03:21:52 PM »
Another update on the credit union loan.

After discussing the loan options again, we should be able to refinance ~$12k of the balance (dependent on the value of our car on KBB) using the auto equity loan at 3.5%. The credit union would be added to our title and our insurance policy as a lien holder. No additional insurance is required by the credit union.

The remainder of the loan, ~$3,700, could be refinanced at 6.99%.

The result would be two new loans, both with lower interest rates than the original loan.

What's left is to decide how long the terms for each loan will be. I'm thinking long terms (48+ months, they go up to 72 months) make the most sense. The smaller monthly payments would allow us to accumulate an emergency fund in the short term, then we would switch to making larger payments and complete repayment early. Is this a reasonable approach?

wintertell

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Re: Reader Case Study - What do we focus on?
« Reply #43 on: December 06, 2016, 03:35:23 PM »
This sounds ideal to me.

As long as it is on the condition that you will get at least a one month e-fund and still stay aggressive about paying these suckers off. But, I wouldnt get distracted from the debt payoff too long, as I want your cash flow to get better quickly....

Everyone has different levels of comfort when it comes to e-funds. When I was paying off 170k of car, student and mobile home loans, I kept a one month buffer ("live on last month's income" per YNAB's advice), plus about a 1k emergency fund. This was enough for the entire 2.5 years we were paying off debt super aggressively. Only now that we got all debt over 3% paid off are we building a multi-month fund.
« Last Edit: December 06, 2016, 04:43:02 PM by wintertell »

Dicey

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Re: Reader Case Study - What do we focus on?
« Reply #44 on: December 06, 2016, 03:43:02 PM »
Another update on the credit union loan.

After discussing the loan options again, we should be able to refinance ~$12k of the balance (dependent on the value of our car on KBB) using the auto equity loan at 3.5%. The credit union would be added to our title and our insurance policy as a lien holder. No additional insurance is required by the credit union.

The remainder of the loan, ~$3,700, could be refinanced at 6.99%.

The result would be two new loans, both with lower interest rates than the original loan.

What's left is to decide how long the terms for each loan will be. I'm thinking long terms (48+ months, they go up to 72 months) make the most sense. The smaller monthly payments would allow us to accumulate an emergency fund in the short term, then we would switch to making larger payments and complete repayment early. Is this a reasonable approach?
Hippity, hoppity, hooray!!!! So excited for you! Glad you made those phone calls! Assuming the same interest rate, take the longest term but pay it off as fast as you can. It feels so good to do. #askmehowiknow

Securing what you can to the car to get a low rate isn't a bad idea. Do note the auto insurance coverage that the auto loan would require and include the costs of any additional insurance you must purchase in your consideration.

If the new Alliant card does not transfer all of your credit card balances, you can always apply for another card with a promotional rate to transfer more. Of course every inquiry and new credit line will temporarily lower your score. Generally keeping credit cards open is better for your credit score than closing them. I certainly don't carry any credit cards that I don't want to use (you could even destroy the physical card - I keep mine locked up at home), but the accounts are left open.

Thanks robartsd

Good point with the auto loan insurance. Not sure what that will cost per year, but hopefully it's still worth it to refinance.
Diane C - Be careful not to underinsure your car anything before you've built up a beefier EF. Too risky right now. Save that trick for later.

The balance on the Alliant card will be enough for both cards, so no issue with needing multiple new cards. They also offer 1% on savings and 0.65% on checking accounts, which isn't too shabby.

The credit card we will close is the newest card we have and one we mainly opened for airline rewards. We don't use it anymore, so no big deal to close it. It happened to have a lower rate at the time we needed credit, so we used it.
Don't close those old cards! You need them to help balance your credit utilization numbers because your new card will be maxed out.
Cut them up so you can't use them, but do not close! In fact, if you've had them a while, try to get the credit line increased before you transfer the balances.

Hmmm, adding this thought. Take the longest CU term and focus paying down the Alliant card first so your utilization rate drops as quickly as possible. Maxed out cards look bad to credit score bean counters, even if it is a fucking brilliant move for you personally. Plus you only have 12 months to kill the Alliant CC balance. Hopefully you're fully aware of the consequences of failing to do so even by a single penny. You are, right?
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robartsd

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Re: Reader Case Study - What do we focus on?
« Reply #45 on: December 06, 2016, 04:35:50 PM »
Don't close those old cards! You need them to help balance your credit utilization numbers because your new card will be maxed out.
Cut them up so you can't use them, but do not close! In fact, if you've had them a while, try to get the credit line increased before you transfer the balances.

Hmmm, adding this thought. Take the longest CU term and focus paying down the Alliant card first so your utilization rate drops as quickly as possible. Maxed out cards look bad to credit score bean counters, even if it is a fucking brilliant move for you personally. Plus you only have 12 months to kill the Alliant CC balance. Hopefully you're fully aware of the consequences of failing to do so even by a single penny. You are, right?
I'll second the opinion that the open credit card will be better for you.

Minimum payments until you get your bonus next fall would be fine. Kill the 6.99% loan and credit card debt with the bonus if possible. If it falls short, you could pay off as much as possible, then transfer the balance again just before the 12 month promo rate expires. I'm not sure what Diane C getting at as far as paying off the balance. I think she may be referring to "No Interest For a Year" deals where if you pay off a purchase within 12 months there is no finance charge, but if you don't pay in full interest is charged retroactively for that period - I've never seen a credit card balance transfer promo structured that way.

Dicey

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Re: Reader Case Study - What do we focus on?
« Reply #46 on: December 06, 2016, 04:51:53 PM »
Well, I've never had a balance to transfer. I'd be gobsmacked if there wasn't a "gotcha" for the bank if you didn't pay it off, or why would they offer them?
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robartsd

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Re: Reader Case Study - What do we focus on?
« Reply #47 on: December 06, 2016, 05:17:07 PM »
Well, I've never had a balance to transfer. I'd be gobsmacked if there wasn't a "gotcha" for the bank if you didn't pay it off, or why would they offer them?
With the high interest rates charged on credit cards, it only takes a couple of months of interest to add up to a decent return. Even if most people transfer balances, pay only minimums, and start looking for a transfer deal again after their first bill with the regular rate it would probably still be profitable to the bank - I imagine that most people who have balances to transfer are poor enough at planning and personal finance that the majority of the transferred balance ends up being on the hook for the regular interest rate for quite a while.

Dicey

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Re: Reader Case Study - What do we focus on?
« Reply #48 on: December 06, 2016, 06:14:15 PM »
Well, I've never had a balance to transfer. I'd be gobsmacked if there wasn't a "gotcha" for the bank if you didn't pay it off, or why would they offer them?
With the high interest rates charged on credit cards, it only takes a couple of months of interest to add up to a decent return. Even if most people transfer balances, pay only minimums, and start looking for a transfer deal again after their first bill with the regular rate it would probably still be profitable to the bank - I imagine that most people who have balances to transfer are poor enough at planning and personal finance that the majority of the transferred balance ends up being on the hook for the regular interest rate for quite a while.
So, are saying there is no gotcha? Extremely hard to believe... We're talking about banks here, right?
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YummyRaisins

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Re: Reader Case Study - What do we focus on?
« Reply #49 on: December 06, 2016, 06:18:35 PM »
This sounds ideal to me.

As long as it is on the condition that you will get at least a one month e-fund and still stay aggressive about paying these suckers off. But, I wouldnt get distracted from the debt payoff too long, as I want your cash flow to get better quickly....

Everyone has different levels of comfort when it comes to e-funds. When I was paying off 170k of car, student and mobile home loans, I kept a one month buffer ("live on last month's income" per YNAB's advice), plus about a 1k emergency fund. This was enough for the entire 2.5 years we were paying off debt super aggressively. Only now that we got all debt over 3% paid off are we building a multi-month fund.

Thanks wintertell. I think we'll doing something similar to what you suggest for a couple of months, then get back to aggressively paying down debt.

Don't close those old cards! You need them to help balance your credit utilization numbers because your new card will be maxed out.
Cut them up so you can't use them, but do not close! In fact, if you've had them a while, try to get the credit line increased before you transfer the balances.

Hmmm, adding this thought. Take the longest CU term and focus paying down the Alliant card first so your utilization rate drops as quickly as possible. Maxed out cards look bad to credit score bean counters, even if it is a fucking brilliant move for you personally. Plus you only have 12 months to kill the Alliant CC balance. Hopefully you're fully aware of the consequences of failing to do so even by a single penny. You are, right?

Thanks for the pointer on keeping the old card open. I am generally unaware of the calculus that goes into determining your credit score, beyond missing payments and have a history of credit.

I don't think we need to change our insurance at all. Was just unclear if some form of supplementary insurance was needed when getting an auto equity loan, and there isn't.

The Alliant CC will definitely be our focus, as there is a clock ticking on it. Once the profit share bonus kicks in, we can make decisions about what debts to obliterate. We have no plans to do another balance transfer and will get this taken care of before the year is up.

I'll second the opinion that the open credit card will be better for you.

Minimum payments until you get your bonus next fall would be fine. Kill the 6.99% loan and credit card debt with the bonus if possible. If it falls short, you could pay off as much as possible, then transfer the balance again just before the 12 month promo rate expires. I'm not sure what Diane C getting at as far as paying off the balance. I think she may be referring to "No Interest For a Year" deals where if you pay off a purchase within 12 months there is no finance charge, but if you don't pay in full interest is charged retroactively for that period - I've never seen a credit card balance transfer promo structured that way.

The bonus will definitely help us to crush some debt when it rolls around. Can't be sure exactly how much it will be, but from what I've heard from coworkers it's been fairly reliable income.

I don't know if there is a retroactive interest charge if we don't finish paying before 12 months are out, but we are confident we can knock out that debt before 12 months. In the unlikely event we can't we'll be sure to take steps to transfer the balance again, but we really REALLY don't want that to happen.