Would you pay off the debt?

[monarch]

Since it's MM day.

OK. So, I will fully admit that we have totally overspent the last few years. Since I have been a SAHM we haven't reigned in our spending adequately. But we are dedicated to getting ourselves back on track for 2013.

We have these debts, all at 4%, totalling $105K
Truck loan $30K
Misc. consumer debt (yes, I know) $30K
Recreation property $45K

Other debt is the mortgage, at 3.2%. We owe $375K. (We have significant equity in our home).

We have investments as follows:
$60K savings (investments, includes e-fund).
$425K retirement
$40K college fund

Gross annual income is around $160K. We are both late 30's and have 2 kids. We pretty much spend what we make, other than retirement and college savings. We've been saving in our non-retirement account monthly, while racking up debt, telling ourselves it is ok because the investments should earn more than our interest paid.

We are expecting a windfall next month (approx $80K).

We are thinking of using $10K for a new bed and some other house stuff. And use the remaining $70K to pay down debt. That would leave $35K in debt, which we are thinking of paying off with our savings. That would leave us with $25K in savings which should be adequate for an e-fund.

With the lower monthly bills, we could then build up the savings account again.

Does this logic make sense? I think the key is not to build up the consumer debt again and live within our means, even if it means no monthly savings.

[SJ]

What kind of misc. consumer debt do you have at only 4% interest?

[monarch]

Dec 19, 2012 18:40:36 GMT -5 SJ said:

What kind of misc. consumer debt do you have at only 4% interest?

Its on our HELOC. It's slowly creeped up over the past 3 years. We are only required to pay the interest charges.

ETA: I could list out what makes up the bulk of the amount if there's a reason to, but I think it's irrelevent.

[monarch]

Dec 19, 2012 18:46:07 GMT -5 @mavjen said:

I am very conservative fiscally. Ok, now that's out of the way. Yes, pay off that $105,000 of debt asap. I'd take that entire windfall of $80k and pay down the debt with all of the $80k. Then pay the rest, $25,000, aggressively as you can. If you get an unexpected expense, you can take a break for that month or so, but get back on the program. Still put some $ in savings, but do it at a lower amount. Don't change your contribution amounts for retirement and college savings.

No, we weren't planning to make any change to retirement (18%) or college savings ($5K/year).
Just use some of the other investments to pay off the debt to start at $0 again. And stay that way. We were basically borrowing on our HELOC to invest. But not realizing we were doing that.

[SJ]

See, this is hard for me, because I agree that 4% is a low interest rate and I know you have beaten that (probably by over 300%) this year by being in the market. I have done similar things in the past, and never regretted it.

But I also don't think it is generally wise to leverage your home for the sake of consumer items/spending.

I think I am in favor of your plan:

$10K spend (do you really need a bed?)
$70K pay down debt from windfall
35K pay down debt from savings

Then continue to invest and try to avoid going back into consumer debt.

[monarch]

Dec 19, 2012 18:59:59 GMT -5 SJ said:

See, this is hard for me, because I agree that 4% is a low interest rate and I know you have beaten that (probably by over 300%) this year by being in the market. I have done similar things in the past, and never regretted it.

But I also don't think it is generally wise to leverage your home for the sake of consumer items/spending.

I think I am in favor of your plan:

$10K spend (do you really need a bed?)
$70K pay down debt from windfall
35K pay down debt from savings

Then continue to invest and try to avoid going back into consumer debt.

Thanks for confirming our gut feeling. I just think if we get the HELOC down to $0, then we will be more diligent about putting anything else on there. Right now, we pay it down the pay periods where we have extra $, then borrow when we are short and it results in us not really knowing when we are adding to our debt because it's always fluctuating anyway. Rationally, we know we are saving on interest that way, but I do think we end up spending way more.

We do desperately need a mattress and non-desperately want new blinds. We don't need to spend the whole $10K though!

[monarch]

Dec 19, 2012 18:59:59 GMT -5 SJ said:

See, this is hard for me, because I agree that 4% is a low interest rate and I know you have beaten that (probably by over 300%) this year by being in the market. I have done similar things in the past, and never regretted it.

I just looked back and that investment account was a result of a total of $40K invested periodically between 2009-2012. So definitely better than 4%.

[leeluu]

I would build savings for the bed and blinds into the monthly budget so you get into the habit of budgeting for things you want. Throw the whole $80k at your debt.

[kadams767]

This might be flameful, but $10k on a bed and some blinds sounds crazy when you have $105k worth of debt. I would probably use the entire $80k to pay off the debt and find a way to fit the new bed and other house stuff in your normal budget.

[monarch]

Thanks. I agree about the blinds and will hold off on those. But we do need a new mattress. Ours is terrible, and we have been waiting for the windfall to buy it.

I appreciate everyone's input. Can't have too much input -- If there's any other info you would like, just ask!

[GailGoldie]

I just can't get over $10K for a bed and blinds... we have an expensive mattress (tempurpedic) and it was only $2500. I would put all but the actual cost of a mattress into the debt.

[Deleted]

I understand NEEDING a new bed but do you need to spend 10k on it? I don't know where you live and what the COL is like in your area but around here you can get a REALLY nice/high quality mattress for 4-5k that will last years.

[Roc A Bee]

We have a kickass mattress that we got for 1k. I'd use no more 3k for a mattress and put the rest towards debt.

[monarch]

Thanks posters. I did note above the $10K was what we were talking about allocating for a number of home items, the two biggest items being the blinds and the mattress. I also noted that I don't need to spend the whole $10K! We are planning to get a custom mattress, and we're told it will run $2-3K.