So here's the situation. I am selling a property and will walk away with roughly $60k at closing. I have the following debt/situations:
1) Current house - only put 3% down on a $362k house so I pay PMI. The PMI is $192 a month and my interest rate is 3.5% for 20 years. There is no length of time I need to keep PMI.
2) Student loans - I owe $45k in student loans and my interest rate is 4%. I currently pay $472 for 10 years.
3) Car loan - I have a car loan originally of $36k with $27k left. I pay $550 a month and interest rate is 1.9%.
4) I have $10k on a zero percent credit not due till August 2018. I am confident I could just pay this off monthly.
Some thoughts I have are to pay of my student loan and put another $10k in my savings. I don't have much of an emergency fund right now. Another option was to take $10k and buy a car outright and get rid of my auto loan.
Thoughts?
My thoughts are as follows:
a) Your PMI is the following yearly rate on $61,540 (or 362000*.17 assuming you need 20% equity): 192*12 = 2304 or 3.74%
b) Your Student loan is the following yearly rate on $45,000: 45000*.04 = 1800 or 4%
c) Your car loan is the following yearly rate on $27,000: 27000*.019 = 513 or 1.9%
d) Your credit card is the following yearly rate on $10,000: 10000*.00 = 0 or 0%
If you want to get the most use out of your money you should do the following:
1) Sell your expensive car and buy a new used car in cash. You admitted that you work from home and although you need a car of some sort, you don't really need the car you have. This is not a license to go buy a luxury vehicle when there are plenty of nice and functional options out there.
2) Pay off your student loan. Although the yearly rate seems less than that of your student loan, it is on a smaller amount of money. You can pay it off entirely and immediately stop paying interest.
3) Either put the remaining amount into your home loan to increase equity or invest it.
-Putting the money immediately into your house equity protects it from the variability of the market in the event of a downturn in the short term. However, my understanding is that your PMI will not be reduced even with the greater equity, so it will not provide immediate returns.
-Investing the money is more risky, but has the possibility of greater returns in the long term. This is the better option and will grow your money unless you are not comfortable with the risk or feel like having it available will tempt you to spend it.
4) Ensure you pay off that $10,000 0% credit before it begins to accrue interest!!!
If you follow these steps, you will see the immediate effect of reducing your interest payments by 1800+513 = $2,313. Also you will either have an additional 15,000 + whatever is left over from your new car choice invested or put into your home loan. The 15,000 alone could potentially earn you an additional $1,050 per year using 7% returns.
Edited to add Link:
http://www.investopedia.com/articles/personal-finance/062014/how-get-rid-private-mortgage-insurance.asp