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  1. #1

    Debt repayment order

    Now that we're pretty well settled in our home, it's time for the wife and I to really figure out how we want to pay back our debts. Here is the run down (balances are approximates since I don't have the info right in front of me):

    Student Loans:
    1 - $2500 @6.9% (64/month)
    2 - $16,000 @6.9% (185/month)
    3 - $50,000 @5% (in deferment but will be about $400/month)

    Car - $14000 @1.9% (376/month)

    Mortgage - $202,0000@3.675 (1591 including escrow and PMI/month)

    Income - DW is at $4416/month gross
    Job one puts me at $3125/month (with about another steady $1,000 with OT)
    Job two I can pull in around $1000-$1500 depending on how much I want to work
    Gross monthly is about $8541 at minimum with up near $10,000 if need be. DW's job is new but should be very stable as are both of mine.

    Savings - 401k is at $25,000 and Roth is about $10,000 and we're both early 30's. Obviously very, very behind with that but the last two years have been a major cash suck with the wedding and home purchase. We cash flowed near $45-50k for both of those purchases.
    Also have about $9500 in an emergency fund. Another $2500 saved for I'm not sure what. It's just sitting around.

    We have a pretty decent net cash flow at the end of the month. I'm not going to list each expense (unless you'd like to see that) as we have nothing exorbitant except the damn cell phones. We each have 5% going into retirement with nothing into our Roth right now but I'd like about a couple of months in the home to better analyze our expenditures.

    My first thought was to use Dave Ramsey's snowball method and pay off the $2500 student loan. However, the car is currently our biggest cash suck (until the deferred loans starts getting paid back) and it would be really really nice to have an extra $376 to put towards that huge student loan balance. Financially it doesn't make a whole lot of sense but maybe it ultimately doesn't make a huge difference. My goal is that within two years we have everything but the mortgage paid off which will be a very very tight time frame and probably unlikely to some degree but doable if I just work my butt off. Thoughts? How should I be paying these off?

  2. #2
    In this case, Dave Ramsey's method works initially because it also happens to be the highest interest rate. Pay off the $2,500 loan. Then the $16,000 loan. Then the $50,000 loan.

    The car is a "cash suck"? There's a simple solution to that. Ditch the car! Sell it ASAP and replace it with something much more modest. You can get a perfectly good used car for $5,000. That would instantly reduce your debt by $9,000 assuming you can break even on the sale.

    Work all the OT you can get, live lean, and you can clean this up soon enough.

  3. #3
    If your time frame is short is probably doesn't matter much. I do think the $2500 loan would be great to start with.

    There's a great calculator at What's the Cost. Make sure it shows in dollars!

  4. #4
    This is true ultimately. If you are going to aggressively attack the debt, the order really doesn't make a big difference. It might be a difference of a couple hundred dollars in interest or an extra month or so to get debt free. It isn't a difference of thousands unless you drag out the repayment over many years.

  5. #5
    Just exploring another option based on the info provided.

    For each debt item, have you figured out how much interest remains to be paid over the life of the loan (ie. amortization schedule for each)? knowing each loan term would be helpful for us to advise.

    Depending on the interest remaining and given your current 401k balances and age, you may want to find a balance where you increase your contributions and pay off your non-mortgage debt over a slightly longer time frame (extra 1- 2 years say). 5%, is that getting the full company match if there is one??

    I do agree with the need as you mentioned to live a little in the house first to see how your expenses play out.

    The car does eat up a lot, but if you're going to keep it for a really long time it might be worth holding onto.



  6. #6
    "Cash suck" may have been a bit dramatic. By that, I just meant 376 going each month is a struggle to watch. Selling is not an option in DW's eye as it's DW's car and she wouldn't entertain the idea, nor is it so exorbitant it will make us go broke. She's one to drive a car into the ground so we'll have it for many many years to come.

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