Trying to attack debt?

[coldsteel333]

So I’m following the Dave Ramsey baby steps and trying to get out of debt. Currently our debt is as follows I’m 38 yrs old, our combined family gross income is 77,000
14,500 1.25% car, other car paid for (6000 tax return is going to this tomorrow so will be 8,500)
19,000 4% wife’s student loan
44,000 5% 15yr home equity loan for pool in Florida
119,000 3% home 13 years left, house is appraised at 280 before pool so probably a little more now
I’ve cut my 401k back to only match levels to try to aggressively attack this debt.
Will be putting an extra 1000 per month and snow balling in this order. My main question is once I get to the pool should I start maxing out a Roth IRA and put rest up to 15% in 401k. Or do I just continue the payoff of the pool before restarting the contributions? Any other advice for someone in my position is welcome.

[Linea_Norway]

Don't rush to pay off the car loan with 1,25%. Maybe you can get higher interest on a good savings account?
Prioritize to pay down the loans with higher interest. If you want to pay off some small sum, to be able to check it off your life, pay of the study debt, which is also small.

If you can get an employer match (free money), that I think you should max that out.

A pool is probably not a good financial investment. Can you at least do all the pool maintenance (cleaning) yourself instead of outsourcing?

[Freedomin5]

In your case, it’s death by a thousand papercuts. None of your loans have super high interest rates, so it doesn’t look bad, but when you add it all together you’ve borrowed A LOT of money for frivolous things like a nice car and a pool.

I would pay off the pool and student loan but not rush to pay off the car loan or mortgage. Once you okay off your car loan please don’t ever ever ever take out a loan to buy a car you cannot afford on your salary. Cars are depreciating assets, so basically expenses. You shouldn’t be wasting so much money on cars. Pay for your cars in cash - buy what you can afford (which is what you can pay for in cash).

I also don’t understand why $8000 tax return is going to the 1.25% loan and not to the 5% loan.

[Linea_Norway]

I also don’t understand why $8000 tax return is going to the 1.25% loan and not to the 5% loan.

I recently heard this in a podcast. An economic expert says there has been an statistic investigation among people who have paid down their debts. Those people who focussed on paying off the smallest loans first, were the best to pay off their debts at all, even though it was often the least economic choice when counting by interest rates. That was because it was more motivating to be able to check off tasks down along the way than to have a very big hurdle to get over first. If the high CC debt is the biggest, it might take most time and not be do motivating to pay of first, even though it is the most sensible in every other aspect.

So only for motivational reasons, it might pay off for the OP to focus first on the smaller debt. In the OP's case rather the student debt, which has at some significant interest.

[Metalcat]

Yikes...

That's an entire year's worth of combined income in debt!
And am I understanding correctly that you are only paying $1000/mo towards that debt? When you say "extra" do you mean on top of other regular debt payments you are already making???

And you are talking about cutting back on retirement savings?

Is that $1000/mo plus whatever you cut back from retirement savings or is that $1000/mo accounting for cutting back on retirement savings?

How much are you actually planning to pay towards debt monthly?

Have you calculated out how long it's going to take to pay all of this off? That's going to be several years of reduced retirement savings. Are you at least saving enough for your 401K match? Have you calculated the opportunity cost?

I'm not sure what advice you are looking for because I'm not clear on what kind of math you have done already or what your long-term outlook actually is.

The general advice here though is probably going to be: do a case study, and find a way to spend less and save more.

[MrThatsDifferent]

Your combined salary is $77k and you bought a $44k pool at 5% interest!?! Holy shit!  That’s not even counting all the extra monthly costs for the pool!  You can’t afford the pool, especially with all your other debt. I’m not sure what your plans are, but you’ve made FIRE quite challenging for yourself.

In your case, I’d sell the house to get away from the nightmare of that pool loan. Then rent something and attack the student loan. I’d leave the car loan alone, but don’t buy anymore cars. Then, you and your wife should bust your asses to increase your income. Stop buying stuff you can’t afford because you want people to think you can afford it.

Now, I doubt you’ll do anything that radical so focus everything on that awful pool loan and get a second job, cause that will take at least 4-5 years to kill. Then it’ll take you about 2-3 years to kill that student loan. That means you’ll be around 46, assuming you pull all that off as you start with your tax advantage accounts. Dude, you’ll be retiring at 65, if you’re lucky.

Sell the house and never do that again!

[coldsteel333]

thanks for the somber replies lol. i know you guys are trying to help though and im just starting this journey and realizing my past mistakes. To clarify some things  my payments are
Car 327 (once paid off will never be taking out another car loan period.) once car has both cars have about 80k milage and are asian so with upkeep should last
Student loan 200
Pool 368 i do take care of my pool myself. i know its a lot but i live in Florida and it will avoid trips to other places in the summer. In florida you get better ROI on the pool if we every sell or rent it.
House 1138 (900 goes to principal)
So 3033 toward the total debt monthly while doing 5% to 401k which is matched
Right now me and my wife bring home about 6200 a month when you spread out the 5 check months over the year.

The extra 1000 will be on top of that and then in 2 years i will have about 600 more a month once both kids are in free daycare aka school. And as each loan gets paid of it with roll into the next loan.
Our average tax return is 5-6k a year which i also decided to pay off debt with (also being advised to change w2 status which would free up that money to be paying off the debt monthly.

[RWD]

I also don’t understand why $8000 tax return is going to the 1.25% loan and not to the 5% loan.

I recently heard this in a podcast. An economic expert says there has been an statistic investigation among people who have paid down their debts. Those people who focussed on paying off the smallest loans first, were the best to pay off their debts at all, even though it was often the least economic choice when counting by interest rates. That was because it was more motivating to be able to check off tasks down along the way than to have a very big hurdle to get over first. If the high CC debt is the biggest, it might take most time and not be do motivating to pay of first, even though it is the most sensible in every other aspect.

So only for motivational reasons, it might pay off for the OP to focus first on the smaller debt. In the OP's case rather the student debt, which has at some significant interest.

If I had a 1.25% interest debt I would do everything in my power to not pay it off. That's nearly a whole percentage point less than my savings account pays!

[RWD]

So I’m following the Dave Ramsey baby steps and trying to get out of debt. Currently our debt is as follows I’m 38 yrs old, our combined family gross income is 77,000
14,500 1.25% car, other car paid for (6000 tax return is going to this tomorrow so will be 8,500)
19,000 4% wife’s student loan
44,000 5% 15yr home equity loan for pool in Florida
119,000 3% home 13 years left, house is appraised at 280 before pool so probably a little more now
I’ve cut my 401k back to only match levels to try to aggressively attack this debt.
Will be putting an extra 1000 per month and snow balling in this order. My main question is once I get to the pool should I start maxing out a Roth IRA and put rest up to 15% in 401k. Or do I just continue the payoff of the pool before restarting the contributions? Any other advice for someone in my position is welcome.

What I've bolded above is a really bad idea. You should not cut back on tax sheltered investments to tackle debt at 5% and below unless you have a cash flow problem (i.e. can't even make minimum payments). Also, snow balling is inefficient. Especially when you have a great 1.25% debt that you should always be making the minimum payments on. Take a look at the investment order post for a much more optimal prioritization.

What I'm seeing here is very little troublesome debt. The car loan has an interest rate so low you should be celebrating it. The home equity loan and mortgage are at reasonable rates and tied to your property so there isn't much to worry about there. The only thing worth even thinking about is the student loan because that is not dischargeable in bankruptcy. But at 4% for that I would rather invest more instead.

The sooner you stop following Dave Ramsey the better. If you keep following that path eventually you'll be investing in subpar mutual funds that give him a kickback and will significantly impact your ability to retire.

[Peachtea]

If we’re not too late I want to pile on to say put that 6000 towards the SL. I would do a modified debt snowball where you pay SL, Pool, Car, House. That way your attacking a low balance first, but not a super low interest rate first. If the interest rates were closer together I’d say go for the snowball. But it really doesn’t make sense at all to kill a 1% loan first.

And when you get to the car and mortgage crank up your retirement savings full blast. You’re 38 you need to be saving for retirement, so that’s way more important than paying off a 1% car loan or 3% mortgage early. I would put in more than 15%. Figure out what you think you’ll need each year in retirement and when you want to retire to sort out how much you need to put in now to make that happen.

Even the 4% and 5% debt, some people on here would say it’s still better to invest than pay it off early, but I also think you will benefit from the increase cash flow and less stress of having those debts paid off.

[Indio]

I wouldn't worry about the car loan either, even though psychologically it will feel good to get rid of one loan. Your money is better spent knocking down the higher interest debt. I'd target the 5% loan because the interest is calculated off the principal so the more you lower the principal the less you pay in interest.
 
I agree with another poster that you need to increase your salary possibly by taking a 2nd job to pay down the debt. Doing that while your kids are young is better than having to do it when they are older. Even when you stop paying childcare costs, that debt will still have accumulated interest. When your kids are older you will want to spend more time with them and they will need you more. Reducing debt as quickly as possible now and not taking on anymore is key.

[coldsteel333]

I also don’t understand why $8000 tax return is going to the 1.25% loan and not to the 5% loan.

I recently heard this in a podcast. An economic expert says there has been an statistic investigation among people who have paid down their debts. Those people who focussed on paying off the smallest loans first, were the best to pay off their debts at all, even though it was often the least economic choice when counting by interest rates. That was because it was more motivating to be able to check off tasks down along the way than to have a very big hurdle to get over first. If the high CC debt is the biggest, it might take most time and not be do motivating to pay of first, even though it is the most sensible in every other aspect.

So only for motivational reasons, it might pay off for the OP to focus first on the smaller debt. In the OP's case rather the student debt, which has at some significant interest.

If I had a 1.25% interest debt I would do everything in my power to not pay it off. That's nearly a whole percentage point less than my savings account pays!

Based on the replies here Im considering attacking the student loan first now which is at 4% and then the pool at 5% after that. The 6000 tax return will go to the student loan which will then be 13,000 and will be paid of in around one year with 1000 extra towards it. at which time the pool should be around 41,000 and i will start paying 1000+327+368= 1695 a month so paid off in 2 years give or take. and the car should be paid off by then to just based on the monthly payment and term. so 3 years everything but home paid off. what then? any other advice on this plan?

[RWD]

any other advice on this plan?

That seems like a good order of tackling the debt, but you still shouldn't sacrifice your 401k for it. Again, check out investment order post.

[coldsteel333]

another reason why i cut back investing is i feel the market will either be stuc in a trading range or go down over the next 3 years so i might be able to attack debt during that time at which i can invest more at same spot.

[Metalcat]

another reason why i cut back investing is i feel the market will either be stuc in a trading range or go down over the next 3 years so i might be able to attack debt during that time at which i can invest more at same spot.

You will learn A LOT just reading here for awhile.

[FIRE@50]

I'll just chime in to say that you should be aggressive about increasing your income. Not just by getting a second job, but by seeking promotions whether they are at your current company or with a new one. Don't be shy about asking for more money, even an amount of money that might seem a little bit obnoxious. Because talking about money is seen as taboo, people seem to be really shy about negotiating a salary. Put yourself in a position of strength mentally. Sure, you may not have FU money but you do have a job. You aren't desperate. That allows you to ask for a big chunk of money and stick to that figure. Obviously you need to be reasonable, but step outside of your comfort zone a little bit. Lastly, be patient with this. Just because you ask for a raise doesn't mean they will be able to give it to you next week. It may take a few months to a year, but if you are working hard, you should see some progress.

Also, for deciding which debt to be aggressive about, keep in mind which debts are tax deductible versus those that aren't.

Good luck!

[coldsteel333]

I'll just chime in to say that you should be aggressive about increasing your income. Not just by getting a second job, but by seeking promotions whether they are at your current company or with a new one. Don't be shy about asking for more money, even an amount of money that might seem a little bit obnoxious. Because talking about money is seen as taboo, people seem to be really shy about negotiating a salary. Put yourself in a position of strength mentally. Sure, you may not have FU money but you do have a job. You aren't desperate. That allows you to ask for a big chunk of money and stick to that figure. Obviously you need to be reasonable, but step outside of your comfort zone a little bit. Lastly, be patient with this. Just because you ask for a raise doesn't mean they will be able to give it to you next week. It may take a few months to a year, but if you are working hard, you should see some progress.

Also, for deciding which debt to be aggressive about, keep in mind which debts are tax deductible versus those that aren't.

Good luck!

Yeah im due for a merit increase next month and will be getting into busy season next month so will be picking up some OT at time and a half. have 8 hrs OT tomorrow already. I am laser focused right now to tackle this situation.

[chicagomeg]

Why don't you reduce your paycheck withholding so you get that $6000 refund as $500/month in your paycheck instead of one lump sum in 2019? You can use the W4 calculator on the IRS website to figure out how many exemptions to claim on each income source for your refund to be close to 0.

[coldsteel333]

Why don't you reduce your paycheck withholding so you get that $6000 refund as $500/month in your paycheck instead of one lump sum in 2019? You can use the W4 calculator on the IRS website to figure out how many exemptions to claim on each income source for your refund to be close to 0.

Highly considering this as of right now we are claiming 1. Can this be updated at anytime of year or is there a preferred time of year to make this calculation and change?

[K-ice]

I’m another vote for:

Pool
SL
Invest

Just let the car and mortgage ride out.
As mentioned do a bit of paperwork to get that $6000 working for you every month.

I’d hit the pool first for 2 reasons. First it has the highest interest rate, second, it’s likely the most guilt ridden because it’s luxury debt.

Also, no vacations until the pool is paid. That’s why you got it right?

[chicagomeg]

Why don't you reduce your paycheck withholding so you get that $6000 refund as $500/month in your paycheck instead of one lump sum in 2019? You can use the W4 calculator on the IRS website to figure out how many exemptions to claim on each income source for your refund to be close to 0.

Highly considering this as of right now we are claiming 1. Can this be updated at anytime of year or is there a preferred time of year to make this calculation and change?

Any time. The IRS calculator is pretty slick. It will ask when your last paycheck was & how often you're paid & do the calculations to get your withholding correct for the rest of the year. I believe the output will even say something like 'switch to 0 exemptions on x future date' if I recall correctly.

[coldsteel333]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first as its hers and been hanging over her head for a long time. and the interest rate difference is minimal all be it is a larger amount. I also have a emergency fund in saving of 9400 and a 6000 tax refund what is everyone's thoughts on dropping the emergency fund down to 1000 and and taking the 8400+6000 = 14400 which would pay the student loan down to 4,600 today and be paid of in 4 months , then could immediately up the payment on the pool to 1568 a month

[plog]

I’m following the Dave Ramsey baby steps...

No you are not. My vote is that stay off these boards until you are out of debt.  Go all in on Dave Ramsey.

Most people here have their shit together and are giving advice based on you having your shit together.  You do not, you wouldn't be in such debt if you did.  Dave Ramsey will get you there.  Then when you are debt free come back and use this site for getting wealthy. 

[coldsteel333]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first as its hers and been hanging over her head for a long time. and the interest rate difference is minimal all be it is a larger amount. I also have a emergency fund in saving of 9400 and a 6000 tax refund what is everyone's thoughts on dropping the emergency fund down to 1000 and and taking the 8400+6000 = 14400 which would pay the student loan down to 4,600 today and be paid of in 4 months , then could immediately up the payment on the pool to 1568 a month

My only concern is my incentive can very a good 2-4 hundred per month any way to calculate that. can you post me a link to the calculator your talking about if you don't mind.

[coldsteel333]

I’m following the Dave Ramsey baby steps...

No you are not. My vote is that stay off these boards until you are out of debt.  Go all in on Dave Ramsey.

Most people here have their shit together and are giving advice based on you having your shit together.  You do not, you wouldn't be in such debt if you did.  Dave Ramsey will get you there.  Then when you are debt free come back and use this site for getting wealthy.

I just started this process and am getting myself together and trying to pay off this debt. i didn't buy all this stuff while following the methods. Your post offered nothing of value where everyone else has been great and offered great insight and advice so thank you everyone else

[chicagomeg]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first as its hers and been hanging over her head for a long time. and the interest rate difference is minimal all be it is a larger amount. I also have a emergency fund in saving of 9400 and a 6000 tax refund what is everyone's thoughts on dropping the emergency fund down to 1000 and and taking the 8400+6000 = 14400 which would pay the student loan down to 4,600 today and be paid of in 4 months , then could immediately up the payment on the pool to 1568 a month

My only concern is my incentive can very a good 2-4 hundred per month any way to calculate that. can you post me a link to the calculator your talking about if you don't mind.

http://lmgtfy.com/?q=irs+w4+calculator

[coldsteel333]

lol thanks

[therethere]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first as its hers and been hanging over her head for a long time. and the interest rate difference is minimal all be it is a larger amount. I also have a emergency fund in saving of 9400 and a 6000 tax refund what is everyone's thoughts on dropping the emergency fund down to 1000 and and taking the 8400+6000 = 14400 which would pay the student loan down to 4,600 today and be paid of in 4 months , then could immediately up the payment on the pool to 1568 a month

My only concern is my incentive can very a good 2-4 hundred per month any way to calculate that. can you post me a link to the calculator your talking about if you don't mind.

You have a house and a lot of monthly required payments. Do not deplete your emergency fund down to $1,000!!! A job loss would wreck your life in a week if you did. Student loans can be deferred in hardship times paying that down with your emergency fund wouldn't do you many favors.

Personally, I would:
- Keep the 401k savings up. Maybe not maxed out, but at least 10-15%, to save on taxes and get a small balance started. Investment gains snowball much like loan interest.
- Forget about paying down the car loan. 1.25% is a great rate. Lower than a savings account.
- Forget about paying off the mortgage. At this point I wouldn't consider it debt that must be snowballed. It's just adding to your stress over debt. This should be the last loan you pay ahead (if at all) and only if you are maxing retirement accounts.

[RWD]

I’m following the Dave Ramsey baby steps...

No you are not. My vote is that stay off these boards until you are out of debt.  Go all in on Dave Ramsey.

This has to be one of the worst pieces of advice I have ever seen on this forum.

[coldsteel333]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first as its hers and been hanging over her head for a long time. and the interest rate difference is minimal all be it is a larger amount. I also have a emergency fund in saving of 9400 and a 6000 tax refund what is everyone's thoughts on dropping the emergency fund down to 1000 and and taking the 8400+6000 = 14400 which would pay the student loan down to 4,600 today and be paid of in 4 months , then could immediately up the payment on the pool to 1568 a month

My only concern is my incentive can very a good 2-4 hundred per month any way to calculate that. can you post me a link to the calculator your talking about if you don't mind.

You have a house and a lot of monthly required payments. Do not deplete your emergency fund down to $1,000!!! A job loss would wreck your life in a week if you did. Student loans can be deferred in hardship times paying that down with your emergency fund wouldn't do you many favors.

Personally, I would:
- Keep the 401k savings up. Maybe not maxed out, but at least 10-15%, to save on taxes and get a small balance started. Investment gains snowball much like loan interest.
- Forget about paying down the car loan. 1.25% is a great rate. Lower than a savings account.
- Forget about paying off the mortgage. At this point I wouldn't consider it debt that must be snowballed. It's just adding to your stress over debt. This should be the last loan you pay ahead (if at all) and only if you are maxing retirement accounts.

So your saying pay the pool down first? the reason ive brought my 401k down to 5% because thats what they match and i just dont see an index fund growing over the next few years. the s&p is struggling to break out of that 2800 resistance and will surely get held down by all time highs for some time IMO especially with global growth coming the fed intching to raise rates, and a lot of loans coming due over the next few years for corporates that used them to do share by back which have proped the market up. i just thought aggressively attacking the debt would be the way to go at least for the next 2 years. i know many hate the pool idea and that i bought it, but i can take it back and the home and pool are on a 15 year loan which the home is at 13 year now. and the total payment for both is 1500 which is right under 25 percent of my take home pay.

[jps]

I’m following the Dave Ramsey baby steps...

No you are not. My vote is that stay off these boards until you are out of debt.  Go all in on Dave Ramsey.

This has to be one of the worst pieces of advice I have ever seen on this forum.

I understand how everyone here feels about DR, I really do. The fact is, probably nobody else has gotten more families out of debt. Take issue with his investing advice all you want.

Like many others have said on this forum, he zeroes in on the behavioral that gets people so far into debt. Like, obviously, if someone cared about math and would rationally do whatever is best w/r/t the math, they wouldn't buy a $40K pool on credit. It's about changing the behavior and how you think about money in a way that is accessible to people who don't react to math. There are countless people who have used his method to get out of debt quickly and aggressively, so it seems like a misstatement to say that following his advice is just the worst thing you could do with regards to getting out of debt, as Plog stated.

Just my $.02.

[MrThatsDifferent]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first as its hers and been hanging over her head for a long time. and the interest rate difference is minimal all be it is a larger amount. I also have a emergency fund in saving of 9400 and a 6000 tax refund what is everyone's thoughts on dropping the emergency fund down to 1000 and and taking the 8400+6000 = 14400 which would pay the student loan down to 4,600 today and be paid of in 4 months , then could immediately up the payment on the pool to 1568 a month

I know someone else disagreed with this but if your job is fairly stable, then I would do this. Like the others, I would aim a firehose at the SL and the pool and leave the mortgage and car alone, just pay them the minimum. I’d probably build the EF fund back up after the SL is paid off by using the money I was paying for the SL. My thinking is you can at least kill the SL quickly, but that damn pool is going to take a bit.

Max out your tax advantage accounts and build up any HSA or 529 or whatever plan you have for college for 2 kids and then any extra put into Vanguard. Also, do a proper case study because you need some help examining your expenses. Your income is a bit low for your age if your ambition is FIRE and it would require you to trim your expenses to the bone, which I don’t think your family wants to do, so you’re going to need something else to get you there.

[coldsteel333]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first as its hers and been hanging over her head for a long time. and the interest rate difference is minimal all be it is a larger amount. I also have a emergency fund in saving of 9400 and a 6000 tax refund what is everyone's thoughts on dropping the emergency fund down to 1000 and and taking the 8400+6000 = 14400 which would pay the student loan down to 4,600 today and be paid of in 4 months , then could immediately up the payment on the pool to 1568 a month

I know someone else disagreed with this but if your job is fairly stable, then I would do this. Like the others, I would aim a firehose at the SL and the pool and leave the mortgage and car alone, just pay them the minimum. I’d probably build the EF fund back up after the SL is paid off by using the money I was paying for the SL. My thinking is you can at least kill the SL quickly, but that damn pool is going to take a bit.

Max out your tax advantage accounts and build up any HSA or 529 or whatever plan you have for college for 2 kids and then any extra put into Vanguard. Also, do a proper case study because you need some help examining your expenses. Your income is a bit low for your age if your ambition is FIRE and it would require you to trim your expenses to the bone, which I don’t think your family wants to do, so you’re going to need something else to get you there.

i am absolutely going to put together a case study in time. I am more on board than my spouse with living a very lean lifestyle. a lot of our expenses are wrapped up in day care which is 1400(thats more than my mortgage) a month. that will drop to 900 in august and then to 400 in 2 years from august. so that will free up quiet a bit. we spend 160 a month on my kids swimming lesson so this summer that should end. them being safe with the pool is highest priority. ive already cut the cord and just reduced to internet and piggy backing a buddys netflix and hulu and use Kodi.  Reduced eating out by half and made a pack too not eat out at all in march. Also cut down our grocery budget from 800 to 600 a month. Zero credit card debt too

[K-ice]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first as its hers and been hanging over her head for a long time. and the interest rate difference is minimal all be it is a larger amount. I also have a emergency fund in saving of 9400 and a 6000 tax refund what is everyone's thoughts on dropping the emergency fund down to 1000 and and taking the 8400+6000 = 14400 which would pay the student loan down to 4,600 today and be paid of in 4 months , then could immediately up the payment on the pool to 1568 a month

Sure, sounds good. Happy wife happy life they say. 4% vs 5% is not a huge difference and paying off a smaller loan is also motivational.

PS you belong here :)

[therethere]

I would pay the pool first since it's a higher rate and likely higher payment. Student loans can always be deferred or refinanced. They can't take your degree from you if you don't pay. The pool is a liability and if you fell behind on payments or couldn't pay wouldn't the next step be a lien on your house? It really depends what you're interested in most. A quick win? Better cash flow? Most interest savings? Attack the riskiest first?

So you're skeptical of the market and that's why you want to pay down debt. Do whatever motivates you the most. But it's just another version of timing the market. Throwing money into a 401k saves you at least 12% + state taxes instantly. You could stomach a ~15% drop and still be "ahead." Even if it the stock market does drop 50% you'll be working much longer than 2 years so your money will have time to regrow. I think you may be letting fear creep in here. I've been buying at "stock market highs" for a few years now yet I still have gains.

[Boofinator]

As others have noted and explained, you're much better off maxing out your 401k (and in your case, probably a Traditional IRA as well). You're essentially getting these stocks on sale at the rate of your tax bracket, and additionally you can expect the long-term return (at least 7%) if you keep them for the long term.

After maxing the 401k and IRA, I would then consider it prudent to use any additional money to pay down debt. I would include the emergency fund in paying down debt, so long as you and your wife both have jobs (so if one were to lose a job, you could still cover necessary expenses).

[RWD]

I’m following the Dave Ramsey baby steps...

No you are not. My vote is that stay off these boards until you are out of debt.  Go all in on Dave Ramsey.

This has to be one of the worst pieces of advice I have ever seen on this forum.

I understand how everyone here feels about DR, I really do. The fact is, probably nobody else has gotten more families out of debt. Take issue with his investing advice all you want.

Like many others have said on this forum, he zeroes in on the behavioral that gets people so far into debt. Like, obviously, if someone cared about math and would rationally do whatever is best w/r/t the math, they wouldn't buy a $40K pool on credit. It's about changing the behavior and how you think about money in a way that is accessible to people who don't react to math. There are countless people who have used his method to get out of debt quickly and aggressively, so it seems like a misstatement to say that following his advice is just the worst thing you could do with regards to getting out of debt, as Plog stated.

Just my $.02.

I didn't say following Dave's advice is the worst thing you could do in general. I said that telling this particular user to leave the boards and go all in on Dave is some of the worst advice I have seen.

I agree that Dave Ramsey's steps are better than doing nothing. However we are providing guidance to someone that has deliberately come here seeking more advice and has the vast majority of their debt at/under 3%. Telling them to stop reading the forum and go back to Dave when they don't sound at all like they are struggling with the psychological aspects of debt repayment is doing the poster a huge disservice (and is honestly insulting too). Especially saying to go "all in" because that entails buying front loaded funds that Dave recommends so that he can get a kickback at your expense.

[coldsteel333]

I didn't say following Dave's advice is the worst thing you could do in general. I said that telling this particular user to leave the boards and go all in on Dave is some of the worst advice I have seen.

I agree that Dave Ramsey's steps are better than doing nothing. However we are providing guidance to someone that has deliberately come here seeking more advice and has the vast majority of their debt at/under 3%. Telling them to stop reading the forum and go back to Dave when they don't sound at all like they are struggling with the psychological aspects of debt repayment is doing the poster a huge disservice (and is honestly insulting too). Especially saying to go "all in" because that entails buying front loaded funds that Dave recommends so that he can get a kickback at your expense.
[/quote]

Thank you for your support

[coldsteel333]

As others have noted and explained, you're much better off maxing out your 401k (and in your case, probably a Traditional IRA as well). You're essentially getting these stocks on sale at the rate of your tax bracket, and additionally you can expect the long-term return (at least 7%) if you keep them for the long term.

After maxing the 401k and IRA, I would then consider it prudent to use any additional money to pay down debt. I would include the emergency fund in paying down debt, so long as you and your wife both have jobs (so if one were to lose a job, you could still cover necessary expenses).

I think i have a plan to pay down my debt all but house in 3 years roughly. im 38 that would put me at 41 at which point i would have about 39,0000 a year to put toward 401k and IRA. which would put me fairly close to maxing those out. then at 50 my home would be paid for without adding extra. Having trouble seeing the big picture of what that should look like for retirement as in what age and how the compounding would go

[ice1717]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first

This statement is significant to me.  I had to convince my spouse to get on the "saving" bandwagon.  I used paying off a debt as a motivator to cut out some of our wasteful spending, which helped prove that our quality of life was still great without things like eating out lunches, etc.  After paying off the debt it was easy to roll those dollars into savings.  Although it wasn't the absolute best mathematical choice, we ended up on the same page and went from a 35% savings rate to now 60%+.

I agree with the other posters that focusing on the SL over the car payment makes the most sense.  Maybe after that is paid off your wife will be on board with moving those dollars to savings and you can move on to investing instead of paying off low interest rate loans. 

[coldsteel333]

for the simple fact of getting the wife on board to make the sacrifices necessary to do this is why i want to attack the student loan first

This statement is significant to me.  I had to convince my spouse to get on the "saving" bandwagon.  I used paying off a debt as a motivator to cut out some of our wasteful spending, which helped prove that our quality of life was still great without things like eating out lunches, etc.  After paying off the debt it was easy to roll those dollars into savings.  Although it wasn't the absolute best mathematical choice, we ended up on the same page and went from a 35% savings rate to now 60%+.

I agree with the other posters that focusing on the SL over the car payment makes the most sense.  Maybe after that is paid off your wife will be on board with moving those dollars to savings and you can move on to investing instead of paying off low interest rate loans.

Ive got her on board now to go after the pool after i showed her the saving over the life of the loan comparative. ive got a plan to pay the Pool and Student loan off in 2 years 10 months. I will be able to invest at that point around 2500 a month.  Car just with minimum payments will pay off in 3 years 10 momths. at which point will bump the monthly savings too 3000.

[Laserjet3051]

coldsteel:

Please stay on this board and learn, you will benefit greatly. Like many others here, I dont like DRs investing advice but his debt elimination advice/strategies are really good. You could benefit greatly by employing them. I would add that based on your income the pool financing was outrageous. Until you understand this behavioral mistake, you may be likely to repeat it again. Make no mistake, that level of debt for you will be a  significant drag; you could do worse than 5% interest but take a look at the total repayment amount at the end of the prospective repayment period, it will be enlightening if you havent already done that. Doesnt MMM have an article devoted exclusively to the ridiculousness of buying a pool? If you havent read this article and seen the math, please do. look, I understand, I lived in florida for over a decade, its hot and humid and unbearable many months. What I did was to live near the beach, and swim in the ocean ALL THE TIME. I wont go through a detailed cost comparison, and I dont know where in FL you live, but the preior posters suggestion to sell the house should at least be entertained as a mental exercise, if nothing else, if relocating close to the beach is feasible and could keep your AC costs down and eliminate your expensive pool habit.

Good luck!

[K-ice]

Have you had the chance to play around with a good spreadsheet?

I really like this one:

https://www.vertex42.com/Files/download2/themed.php?file=debt-reduction-calculator.xlsx


I calculated your total current minimum payments at $2033. Assuming $3000 a month to put towards it you will pay off in this order SL, Pool, Car, House.  Immediately throwing the $6K at the SL it will be paid off in 12 months, with the pool following in 41 (June 2021).   Your pool + SL interest is $4976.    If you pay the pool first the interest is $4703.  The pool is paid off first in 36 months and the SL follows in 41 months.

So really no big difference.  Make your wife happy.


For fun let's see if you can throw $4000 per month at everything....

The SL is now paid off in 7 months and the pool in 24.  WOW.  Total interest for those two is $2933.

If you paid only $3000 and started with the car, SL, pool, home (the Dave Ramsey way) then the pool and SL interest would be $6326, so you can see why people were saying don't rush to pay off the car. (I know have taken people's advice and realize this now but playing with the math is fun.)

The DR method of lowest balance has total interest of $19,840 December 2023 it is ALL paid
The SL, Pool, Car, House  has $18,878 in total interest  November 2023 it is ALL paid
The SL, Pool, Car, House but with $4000/month  has $13,426  in total interest  April 2022 it is ALL paid

I'd attack debt hard until the SL and pool were paid, then I would redo the spread sheet with the car and the house as I rapped up my investing.


Anyway, have fun with spread sheet. I love working thru the different scenarios.

[Telecaster]

As others have noted and explained, you're much better off maxing out your 401k (and in your case, probably a Traditional IRA as well). You're essentially getting these stocks on sale at the rate of your tax bracket, and additionally you can expect the long-term return (at least 7%) if you keep them for the long term.

After maxing the 401k and IRA, I would then consider it prudent to use any additional money to pay down debt. I would include the emergency fund in paying down debt, so long as you and your wife both have jobs (so if one were to lose a job, you could still cover necessary expenses).

I just want to highlight what Boofinater is saying, because I think it is really important. 

You don't actually know if stocks will be lower or higher in three years.  Nobody does.  I do know that (barring a meteoroid strike or zombie Apocalypse) stocks will be much higher in 20 years or so when you are ready to retire.   However, your 401(k) contributions give you a a tax savings equal to your top marginal rate right now.  Bang for the buck is off the charts.    Same for the traditional IRA.   Even if stocks are flat for the next three years, you will still have the stocks.  Then when things take off again (and they will, eventually) you will have lots of assets that are taking off all at once.   Remember, your investment horizon is 20, 30 years or more.  So you don't really care what stocks do for the next five years.   You just want to buy as much as you can right now, and getting the tax savings is gravy.

I do like that you say you are "attacking" debt.  That exactly what you have to do.  Declare war!   Take no prisoners.  It is a great feeling when your money becomes your own again.