We have a few Outstanding debts, and I hate having monthly payments on all of them. Not sure how to pay these off. My husband is 52, I am 44. Both work full-time. We both max out our work 401(k) annually and have about 1.5 million combined in retirement funds (401k, Roth IRA, IRA rollovers). We are only contributing to our 401(k) now, as we were no longer eligible for the Roth. We have a good savings. Sometimes we pulled out for vacations, but typically our take-home pay covers everything else that we need /spend. We have college savings for our kids in 529. We don’t have a set budget for anything except savings. (I know—not good). We have 14.5 years left on mortgage and just refinanced to less than 3%.
So here’s what we owe: 9200 on furnace. 0% interest. 6 years left. Monthly = 154 6300 on HELOC at prime plus 1. Monthly we pay 500 4000 on furniture. 0% interest. 2 years left. Monthly = 150 23k on car load. 3.84% interest. 4 years left. Monthly = 485
I know two loans are 0% but we’re getting leas than 1% in savings interest.
For numbers—please do not quote bc I’ll delete soon Savings = 60k Contribute 1k/month to savings that doesn’t usually get touched.
I just hate having 1300/month in bills for a years left. But not sure if we should pull from savings and that monthly payment would go back into savings.
I’d start with the smallest and snowball them using your monthly savings amount. So in 4 months the first would be paid off, then add that payment plus the $1k/month to the second, etc until they’re all gone.
I would also figure out your emergency fund number ($x, 3-6 months income/expense/however you want to calculate it) and use any savings above that to of them off faster.
ETA. I agree mathematically I would pay off the highest interest first. However, the two lower ones seem more like consumer debt and things you could have paid cash for but didn’t pull from savings at the time so they’re just hanging out which is why I’d go ahead and get rid of them.
I think I would pay off the HELOC from savings then put that extra money towards the car since you are paying interest on those. I might also consider using the monthly savings contributions toward the car since you will still have $50k in savings. So if you paid $2k toward the car every month it would be gone in a year.
Post by spearmintleaf on Jul 4, 2021 10:43:23 GMT -5
I, personally, would pay off the first 3 in lump sum from savings and then put that money all back into replenishing. There’s really no right or wrong (paying 0% monthly vs less than 1% in savings) but I see no point in carrying that administrative task. I save so I don’t have to take on payments for things like furniture or a furnace.
I approach car payments as an ongoing expense, either paying the payment or paying myself for the next car. If you want all debt gone you can decide what you want to prioritize, getting back up to your current savings number and then paying off the car with the 1k/month, putting the extra 1k/ month into the car and then replenishing savings after, or snowballing all the current debt payments into the car. As long as I’m not underwater on a car and I could sell it if my life circumstances changed, I don’t sweat car loans though. Not super MM but we all have our own emotions around financial decisions!
Post by dr.girlfriend on Jul 4, 2021 10:51:24 GMT -5
Are the furnace and furniture 0% for the whole time you have listed, or does it adjust up to a crazy rate partway in? How much do you think you can put away for savings every month? I would pay off the HELOC and car, which will still leave you at least 30k in savings, and then use the savings plus $1k you were spending on those to pay off the furnace and furniture in 6 months. Then I would continue to bulk up savings with $1k a month and then split the extra $1.5k a month toward non-savings investments and things like a fund to pay for your next car in case or cover other emergencies.
Of course, this is a very much "do as I say, not as I do" situation -- we just keep building up money in savings because I have not been organized enough to deal with a non-retirement investment account, lol.
My opinion may be unpopular but I’d use savings to pay off everything but the car loan.
Without knowing the state of your house or what expenses may come up, your liquid savings seem healthy and you already add 1k a month to it. Take the money you would have spent on the furniture and furnace loan payments, etc and add it to the savings fund until you get back to the amount you feel comfortable with.
Are you doing any investing in a regular, taxable brokerage account? If not, that would be the logical next step. I would start that ASAP if you haven't already as you're at ages where your runway of time to ride out long-term market fluctuations is starting to get shorter (see this article and this one, for example). I would probably keep ~6 months of expenses in cash in a savings account, then put the rest in an index fund. You can always sell investments to access more cash if necessary, but you're also still building up savings by $1k every month, which you could split between saving and investing.
As for the debts, I'm more driven by math than psychology when it comes to these things so I would focus on paying the interest-accruing items first. The non-interest accruing ones are like free money, and you could invest that money instead and earn likely somewhere between 5-7% in the long run. I'd consider paying off that HELOC in one or maybe a few large chunks--whatever you're comfortable with--and knock out that bill and the highest interest rate of the bunch. The rest I'd either KOKO or ideally work faster on the car loan if you're comfortable doing so.
If you don't want to pull money from savings, I'd just stop contributing to savings and pay off the debts with the 1k you usually contribue. I'd do the HELOC first since it has interest, then the two 0% loans, then the car. I think you have enough in savings that I would not keep stockpiling cash like that, and I dislike having random consumer debts so psychologically I'd feel better paying them off.
I'd pull from savings to pay off the first 3 and then throw everything at the car loan for as long as it takes to pay off. I wouldn't empty your savings entirely. Sometimes having debt GONE provides peace of mind even if it's not the "best" thing to do in terms of savings, investing, etc.
I prefer the debt avalanche method over a debt snowball (highest interest rate first, not lowest balance). However, there’s no way I’d want to pay all of those monthly payments with your amount in savings. There’s definitely a mental freedom that comes with paying one off. I’d be really tempted to knock out the lowest amount / heloc and/ or the car loan (highest interest) with the savings, then increase my monthly savings amount to replenish it. Then repeat with the other loans again when savings is replenished.
Although it’s 0% interest, the furnace loan would bother me to take a long time to pay off, because I feel like by the time you do, you may have other major house repairs that take it’s place. I guess you could consider it under a “home maintenance” budget category and I would recommend you divide your savings into sub accounts like that, ie. E-fund, home maintenance, future car fund, vacations fund. Seeing a lower e-fund may motivate you to save or budget better.
In addition (again without knowing circumstances for the purchases) I divide up my savings into different accounts.
Travel Home Kids Car E fund And some others that are very personally specific.
So for my family our furnace and furniture purchase would have come out of our home savings account. The car purchase would have come out of the car savings account. We are constantly putting money into these anticipating that they will need to be spent in the future.
Post by awkwardpenguin on Jul 5, 2021 11:18:47 GMT -5
I'd pay off the HELOC, then the car loan, and then invest in a taxable brokerage account. I'd also start putting aside a bit of money in a "save to spend" account to cover things like home repairs and furniture, if you don't like accruing the debt to pay for them.
I'd pay off the HELOC w/savings b/c it's a variable interest rate and you'll feel a big impact on your monthly budget. Then I would probably start chunking off the car w/the extra $1500/mo (savings and HELOC payment savings) and keep paying down the other consumer debt.
I think the above approach would get the snowball rolling well and you'd have all that debt gone in pretty short order.