Would You Pay Off Debt in this Order? 3 Year plan

[Luckie]

Hi, Thanks for viewing my post! We have a 3 year plan to pay off some of our debt and I just wanted to confirm if fellow Mustachians would do the same. Why 3 years? it is becuase our eldest will be out of daycare and we will net another 1200 per month. For now, we only have $1500-2000 per month after all our bills are paid. $1500-2000 is all going into paying off debt. I am going to pay off the debts in the following order

1. Husband's TSP loan: $3400 at 2.125% with a payment of $40/ per month payment with 8 years left. will pay off next week in September
2. Credit Card: $5800 interest free til late December 2014 with 20+% after December
3. On the same Credit Card: $2000 interest free til March 2015 with 20+% after March
4. On the same Credit Card: $5500 interest free til July 2015 with 20+% after July
totaling $500 per month payment and if the loans aren't paid off, the interest accrued for the past year would also apply.
5. Saving for Daycare, if paid one year full $11970 with a 5% rebate (I figure this is a guarantee 5%): due in August 2015 but is broken down to 1197 per month per 10 months
6. Pay my TSP Loan:$48,000 @ 2.125% with $300 per month for the next 15 years, will take about 2-3 years becuase of the bills above and daycare.
7. Car loan is 2.6% and we currently owe $8900 at $333/month for another 3 years but will tackle after we pay off our TSP loan or until the loan term is over whichever first.
8. Student Loan: 19,600@ 1.875% with $201/monthly payment for another 20 years.  I think I would rather start contribution to the mortgage, since our mortgage can't be paid off until the next 20 years, I am not including the information on my mortgage (I will get faced punched) but the interest is 4.1% with 29 years left.

We are also putting $250 in a 529 per month, 125 for each kid and in addition to the $5000 childcare rebate goes to the 529 plan which is = $4000 per year per kid. We also have $8000 extra in bonds that can go into paying off the daycare in advance. No emergency fund, but we both have very secure federal jobs with pensions. We each max out our TSP ($17,500 per year)

My questions are: If you would pay the bills in this order? if you would stop all the 529 contributions to pay off debt asap? if you would stop paying childcare in advance to pay off this debt (but please keep in mind that no matter what situation, it would take us at least 2 years to pay my TSP loan)? If you would do something with $8000 to pay of this debt? We can also look into maxing out a Roth, if so, do we do it within the next 3 years over not paying something else or should we do it after the 3 years?

Thanks!

[HairyUpperLip]

Husband's TSP loan: $3400 at 2.125% will pay off at the end of September
Credit Card: $5800 interest free til December 2014
Credit Card: $2000 interest free til March 2015

Will you pay off the $5800 by December?

If not, maybe you can pay off the $2000 card first and do a transfer of the $5800 to this card and get a new longer 0% transfer balance special.

And how much are you actually applying per month (total) towards the debts? You don't really say the monthly payments or expected time tables on paying off them with your current method.

The more information you provide, the better answers people will provide. Hiding stuff for fear of internet face punches isn't going to gain you a lot of sympathy on this forum either. We don't know you personally, so it's a good place to be open and get some real help.

[CommonCents]

What is the credit card rate?  Are you projected to pay them off before the interest kicks in?  (And by how big of a margin?) 

And how the heck did you get a student loan at 0.75%?  That seems really low! 

[Luckie]

Husband's TSP loan: $3400 at 2.125% will pay off at the end of September
Credit Card: $5800 interest free til December 2014
Credit Card: $2000 interest free til March 2015

Will you pay off the $5800 by December?

If not, maybe you can pay off the $2000 card first and do a transfer of the $5800 to this card and get a new longer 0% transfer balance special.

And how much are you actually applying per month (total) towards the debts? You don't really say the monthly payments or expected time tables on paying off them with your current method.

The more information you provide, the better answers people will provide. Hiding stuff for fear of internet face punches isn't going to gain you a lot of sympathy on this forum either. We don't know you personally, so it's a good place to be open and get some real help.

Well I guess I'm not including the mortgage information becuase it's not really in our 3 year plan. We will tackle that after our 3 years. My husband's TSP loan and the credit card debt and a year in advance of the daycare payment will be projected to be paid off within the year. If I transfer the balance onto another credit card it'll be an additonal 4-5% fee but since we can pay it off, we should. I am apply the full 1500-2000 towards the debt after all the monthly payment is paid.

[Lkxe]

I don't think I would pay off the TSP loan (his) before I paid the CCs. The interest rate is low and yes you lose some compounding but 20+ is ridiculous. And yes I would stop contributing cash to the 529's till the debt is paid.  You need to max your own retirement (after debt) before financing the kids ( no loans for retirement) The rebate and prepaid childcare seems fine to me. I use the general rule that if the interest (or potential interest -shit happens) is over four it needs to be paid ASAP. I hate to right a check( debit the checking) but your loans are at a low rate, I would pay them as they go(car/student) till you have paid the debt and yourselves back. The mortgage is a personal decision- I never pay mine off, we move every 3 years, but I would pay off smaller ( car/student) before I started prepaying the mortgage, because I hate owing little piddly amounts I have to track.

[Luckie]

I don't think I would pay off the TSP loan (his) before I paid the CCs. The interest rate is low and yes you lose some compounding but 20+ is ridiculous. And yes I would stop contributing cash to the 529's till the debt is paid.  You need to max your own retirement (after debt) before financing the kids ( no loans for retirement) The rebate and prepaid childcare seems fine to me. I use the general rule that if the interest (or potential interest -shit happens) is over four it needs to be paid ASAP. I hate to right a check( debit the checking) but your loans are at a low rate, I would pay them as they go(car/student) till you have paid the debt and yourselves back. The mortgage is a personal decision- I never pay mine off, we move every 3 years, but I would pay off smaller ( car/student) before I started prepaying the mortgage, because I hate owing little piddly amounts I have to track.

So you would pay all credit card, then all TSP loan while maximizing TSP and stopping 529. Would you stop saving one year in advance for daycare to get the 5% rebate and instead contribute to TSP loan and then Roth?

To clarify, I think you are saying:
Pay credit Card Debt first
Pay all TSP Loan while still maxing out TSP of 17500 contributions per each person per year and stopping 529 until TSP Loan paid off.
Start Roth after all TSP loan is paid off
then 529 and not worry about paying in advance for daycare?

[norabird]

Just curious, have you thought about selling the car and trading down for something else?

[Malaysia41]

"2. Credit Card: $5800 interest free til late December 2014 with 20+% after December
3. On the same Credit Card: $2000 interest free til March 2015 with 20+% after March
4. On the same Credit Card: $5500 interest free til July 2015 with 20+% after July"

Are you certain that if you pay $5800 in late December, the payment will go toward the December balance? If not, please confirm with the cc company that you can direct payments to a specific balance. 

I have a feeling they may take your $5800 December payment and pay off the July balance, put $300 to the March, and stick you with an interest rate charge for December. 

As for 529s - fund those after you get your debt sorted out.  After that, 529 contributions should stay small compared to retirement funding.  Overfunding 529s bad - overfunding retirement good (esp Roth IRAs). 

[Lkxe]

I don't think I would pay off the TSP loan (his) before I paid the CCs. The interest rate is low and yes you lose some compounding but 20+ is ridiculous. And yes I would stop contributing cash to the 529's till the debt is paid.  You need to max your own retirement (after debt) before financing the kids ( no loans for retirement) The rebate and prepaid childcare seems fine to me. I use the general rule that if the interest (or potential interest -shit happens) is over four it needs to be paid ASAP. I hate to right a check( debit the checking) but your loans are at a low rate, I would pay them as they go(car/student) till you have paid the debt and yourselves back. The mortgage is a personal decision- I never pay mine off, we move every 3 years, but I would pay off smaller ( car/student) before I started prepaying the mortgage, because I hate owing little piddly amounts I have to track.

So you would pay all credit card, then all TSP loan while maximizing TSP and stopping 529. Would you stop saving one year in advance for daycare to get the 5% rebate and instead contribute to TSP loan and then Roth?

To clarify, I think you are saying:
Pay credit Card Debt first
Pay all TSP Loan while still maxing out TSP of 17500 contributions per each person per year and stopping 529 until TSP Loan paid off.
Start Roth after all TSP loan is paid off
then 529 and not worry about paying in advance for daycare?

Stop the 529s, pay the credit cards, It looks like the prepaid childcare benefits you and I would still do that, Max the TSP and the pay back the loans, then Roths (if you qualify) and then student and car loan with the 529s if those are important to you and lastly the mortgage. The 529s depend on how you feel about education for your children -for us it was very important, more important than the mortgage because my Husband will resign his commission (thus retire) before our youngest starts college. The FIRE budget includes housing but not enough to pay out of pocket for education.

edit because I can't complete a thought

[Luckie]

Just curious, have you thought about selling the car and trading down for something else?

Yes I thought about it but the used cars are more expensive and the mileage is a lot more than the Mazda5 that I currently own. I needed a car for two kids that can fit double strollers and sliding doors to fit into my garage but didn't want to pay for a price of a big minivan and gas for it. This is going to be my forever car, so I don't wnat to give it up. I rack about 6000 miles per a year so I think I can keep it for another 10+ years.

[SunshineGirl]

To clarify, I think you are saying:
Pay credit Card Debt first
Pay all TSP Loan while still maxing out TSP of 17500 contributions per each person per year and stopping 529 until TSP Loan paid off.
Start Roth after all TSP loan is paid off
then 529 and not worry about paying in advance for daycare?

This is what I would do, yes. I would fully fund Roths before you fund 529s, because you can use the Roths for college if needed.

You will feel SO GOOD once you get your debts paid off!

[Luckie]

"2. Credit Card: $5800 interest free til late December 2014 with 20+% after December
3. On the same Credit Card: $2000 interest free til March 2015 with 20+% after March
4. On the same Credit Card: $5500 interest free til July 2015 with 20+% after July"

Are you certain that if you pay $5800 in late December, the payment will go toward the December balance? If not, please confirm with the cc company that you can direct payments to a specific balance. 

I have a feeling they may take your $5800 December payment and pay off the July balance, put $300 to the March, and stick you with an interest rate charge for December. 

As for 529s - fund those after you get your debt sorted out.  After that, 529 contributions should stay small compared to retirement funding.  Overfunding 529s bad - overfunding retirement good (esp Roth IRAs).

Yes I called the CC company and they reassured me and before I make that big payment, I will call them again to confirm that the amount is for the first loan.

[MaggieD]

Here's what I would do:

#1: Quit 529 plan investments.

#2: Attack credit card - if mega-interest is about to be capitalized in December, March, or July, pull some from the $8000 if needed to avoid that.  Otherwise keep the $8k as an emergency fund.

#2: TSP loans - these are low rates, but even though your jobs are "secure" I would want to get them out of the way

#3: Car loan - by this point, there won't be much left

#4: Reassess - where are you at compared to your goals?  This is the time to consider how to balance an emergency fund, paying off the mortgage/student loans, Roths, college savings and after-tax investing. 

Paying daycare early doesn't sound appealing to me as multiple parents I know have unexpectedly needed to make daycare changes within weeks or months.

[Luckie]

Yes, my husband and I both agree that Credit cards have to be tackled but here's where my husband and I disagree. Even though I am with you to pay off TSP loan, Roth and then contribute to 529,  my husband's logic about not paying off the TSP loan or contribute to Roth is that we will forever have health care, we will have pensions and we will max out our TSP for another 30 years, so he thinks contributing 529, in our case, surpasses paying off TSP or contribute to Roth. He also thinks if we are disabled, we have pensions, if we are dead, we have life insurance and pensions for the other spouse. I can see this being true as well. Is this a game changer for any of you?

[frugaliknowit]

I would:

Stop all 529 contributions.
Stop paying childcare in advance.  Among other things, what happens if the provider goes "belly up"?
With the savings in not pre paying childcare, torpedo the highest interest rate balance
I do not understand what you mean by "maxing out a Roth" when you have all of this debt.
Stop all unmatched retirement contributions and tackle all debt, highest rates first.


Tough love outside of the scope of your question:  How did you get into all of this debt?  Was there a one time unforeseen event?  Re-evaluate spending versus income.  Are you contributing too much to your retirement funds?  If so, be realistic about what is sustainable.  Consider an emergency fund.  Best of luck!!

[Lkxe]

Yes, my husband and I both agree that Credit cards have to be tackled but here's where my husband and I disagree. Even though I am with you to pay off TSP loan, Roth and then contribute to 529,  my husband's logic about not paying off the TSP loan or contribute to Roth is that we will forever have health care, we will have pensions and we will max out our TSP for another 30 years, so he thinks contributing 529, in our case, surpasses paying off TSP or contribute to Roth. He also thinks if we are disabled, we have pensions, if we are dead, we have life insurance and pensions for the other spouse. I can see this being true as well. Is this a game changer for any of you?

We have a pension (at over 20 Military guaranteed) and will have healthcare forever (well till medicare anyway and it will not always cover everything) but 30 years is a long time and things change, budgets get cut, furloughs happen,jobs are lost,people get sick, ect. The only possible way I can think of that might make a 529 better is if you are in a state where contributions are deductible and even this is a small percentage (our actual tax rate last year was 8%) It doesn't sound like you( at least not both of you) are planning on retiring early but it is always best to plan for the worst(best?)- you don't get a do over if you haven't saved enough. As to the Roth our tax rates after retirement will be higher, no mortgage interest, no childcare, no extra dependents because of the pension that isn't earned income and can't be sheltered so it is a great idea and much more valuable to us.  What if you are disabled tomorrow does your contract cover long term disability? I tend to plan conservatively ( kinda a control freak) with what I know and have instead of counting on what I can't predict.  You can always take out contributions to the Roth ( guessing 15 years at 11000 so $165000 for college) yet if you don't it isn't locked up for only education expenses. That said it doesn't really matter at all when your current focus should be those possible 20% interest payments, though I respectfully disagree with frugaliknowit that you can't take care of it from cashflow without sinking al your other goals. assuming those low interest rates are fixed.