My husband and I are struggling with developing a plan to tackle our debt and prepare for the eventual death of our HVAC system. Some background information, we're both combat vets who met in AFG were engaged before the end of our tour. We currently live in Virginia, but he owns a house in a suburb of Cleveland which is currently rented. We break even with that arrangement at the moment. I have approximately $2000 each month that can be put to principal or savings. We're trying to decide where best to place those funds. Here's the monthly breakdown:
VA Mortgage: $1056/mo, 30 year mortgage, been paying on it for a year (currently owe $189,699, interest rate 3.175)
OH Mortgage: $996/mo, 20 year mortgage, currently owe $86500 (PMI will drop off at ~$78000, interest rate ~4%)
Student Loans (mine): Currently in deferment because I am in an MBA program full time. I pay $180/mo to ensure I am paying off the interest so that won't capitalize. Usually that payment is $400/mo. Currently owe $53423, highest interest rate for bulk of loans is 5.5%. More details on why I'm not paying more in a minute.
Two car loans (yep, I know, bad juju, but what's done is done and there is no desire to downsize or sell). A Nissan Xterra: $249/mo (11031) and a Nissan Titan: $234/mo (10471). Both are used and the interest rates are at 2.99%.
Our HVAC will be 20 years old next year and was installed and maintained by the previous homeowner who was a pipe fitter and we are not. Also, there was a mold issue so the duct work will be replaced with metal duct work when we replace the system. I anticipate that to be approximately $12,000.
My MBA is mostly funded by the GI 9/11 Bill (I was a reservist and only qualified for 80%).
We have approximately $5000 in savings.
My plan was to put the $2000 aside until I could cover the HVAC/duct work replacement and then put $1500 of the $2000 to the student loans which is the debt with the highest interest rate and the other $500 into savings so we have that built in cushion. I know I cannot get a home equity line of credit on my house yet and I do not expect to get one on his house either. We're also considering moving to the Midwest in the next two years depending on job availability.
Here are some of our thoughts on this:
1) We put the $2000/mo aside for the eventual demise of the HVAC, which will probably happen sooner rather than later (also half the household has some major allergies that replacing the duct work would help, so even if the HVAC doesn't die it should probably be replaced sooner rather than later). After that is saved up, the $1500/month could go to the OH house until it reaches the $78000 and the PMI drops off the mortgage. This way we're making money, not just breaking even.
2) Save for the HVAC, then put the money towards the high interest student loans. Based on my calculations, we could have them paid off in less than three years if we focus our efforts on this lingering debt.
3) HVAC, then car loans. This is my least favorite option because the interest on the car loans is so low.
4) HVAC then the VA mortgage until it reaches $157000-ish so that we have equity in the house.
What is the best way to divide up our surplus cash so that we are most effective in eliminating debt and planning for a major replacement for our home and an eventual move to the Midwest?
Thanks!