Help me explain to DH why I'm right

[Deleted]

With DH's raise, he is planning to put an extra $500 towards our mortgage every month. I think the money should go towards our car payment. Interest rate on mortgage is 6._%. Interest on the car is 2.25%. So, interest rate wise, he's right. However, I think car debt is worse than a mortgage. Also, I think it would be better to get the car paid off quickly, then put the extra money to the mortgage or whatever is needed, get the smaller amount gone 1st.

[theintended]

Depending on where your retirement accounts are, I might not pay down either of those debts.

Is refinancing the mortgage an option?

[chessie]

As long as savings is in check- I would probably split it between retirement and car payment. Though with every raise I up my savings up even a 1%, then split amongst other payments...

[gt7301b]

I'd use the extra money to refi the mortgage. (If you need to pay closing costs)

[Deleted]

We can refinance. We needed to get the porch done before we could get it appraised, but since that's done, we should go ahead and do that.

Retirement is not fully funded. We'll have a talk in the next few days and see if we can't re-evaluate things.

[Deleted]

Refinance ASAP. Then put more money into retirement or cash savings depending on your situation.

[rubytue]

I'm of the school of don't pay off your mortgage bc it takes liquid assets and makes them illiquid. A car, on the other hand, depreciated and should be paid off. On the other hand, at 2.something it's almost free money. So I'd up retirement first. Neither the house nor the car will pay you in retirement.

[CloudBee]

I can't form a decision without more info on your savings, retirement, etc.

[Deleted]

May 17, 2012 9:03:42 GMT -5 CloudBee said:

I can't form a decision without more info on your savings, retirement, etc.

Uh, let's see here. I contribute 6.8% to my state retirement fund. DH contributes 3% and get's a company match of 3%. He also has an IRA, which is not fully funded, I would like to work on that. I have an IRA, but it's a odd situation, and I can start contributing to it again in June, which I plan to do. We have a fully (for us) funded e-fund.

[Deleted]

Well, unless you only have a few years left on your mortgage, I probably wouldn't throw too much at it. A car is a depriciating asset and should be worked on first. That said, since your car has a fairly low interest rate and you're retirement isn't exactly on track, I would fund that. (Unless your car is going to shit out soon, then get it paid off so you can get rid of it.) Obviously, there are a lot of factors here.

[Deleted]

Your retirement contributions sound really low, so that's where I'd put the money. Also, you need to refinance. Rates are under 4 right now. When you do, take that money and put it toward retirement.

[CloudBee]

The money should go into retirement.

What do you mean "fully for us" e-fund? That sounds almost shady.

[julygal]

I would put DH's raise towards retirement. Then I would refi and use that money towards other goals be it padding the efund, paying off the car, paying down the mortgage, etc.

ETA: We have picked paying off car before mortgage, because it will improve our cash flow faster to redirect those funds to other areas.

[SJ]

Car interest rate is so low that I wouldn't worry about it.

1) I would use raise to bump up retirement- max out Roth IRA's if possible

2) I would try to refinance as 6% is high for a mortgage these days.

[Deleted]

In looking at the two debts, besides just the straight interest rates, you need to consider depreciations/appreciation rates.

Cars are inheritently a depreciating asset. They have a fairly fixed life span of about 200k miles before they need to be replaced.

[Deleted]

May 17, 2012 9:32:23 GMT -5 CloudBee said:

The money should go into retirement.

What do you mean "fully for us" e-fund? That sounds almost shady.

Just meaning that everyone has their own opinion about e-funds, and how much they need, and how long it needs to last them. I want a larger e-fund than DH does, so we compromised and found one that works for us.

[Deleted]

May 17, 2012 9:39:42 GMT -5 @septimus said:

In looking at the two debts, besides just the straight interest rates, you need to consider depreciations/appreciation rates.

Cars are inheritently a depreciating asset. They have a fairly fixed life span of about 200k miles before they need to be replaced.

This is what I was really trying to articulate to DH. Thanks.

[dexteroni]

May 17, 2012 9:39:42 GMT -5 @septimus said:

Cars are inheritently a depreciating asset. They have a fairly fixed life span of about 200k miles before they need to be replaced.

This was going to be my argument as well (although without the 200k mile criteria) - get the car paid off and start saving for the next one so you aren't forced to finance it if you don't want to.

And definitely refinance your house. Once the car is paid off, you can use the amount of the car payment to save for the next car, and put the $500 toward the house, that's fine. Or split it into some other proportion with which you're both comfortable (e.g. car payment plus $100 to the new car account, the rest toward the mortgage).

And what is the balance on the car? How long of a payoff period are we talking with the extra $500?