Budget Advice

[JenniferG]

28y/o Single person no kids just 1 cat and dog

Gross around 60k a year
Net Monthly take home avg. 3100 (after 401k 12% including employer match)

Mortgage 1050 this includes homeowners insurance and property tax( 125,000k at 4.25% interest x 30 yrs and a MCC credit annually for 30% of interest paid up to 2k per year for the life of my mortgage)

Car 330 (6% interest approx 11k left on loan)
Att tv and Internet 100 ( I don't spend much on entertainment except for this)
Sprint cell phone (no landline) 60
Gas Utilities 40
Electric 100
Water/Trash 50
Student loan 50 (5.25% 4,200 left)
Alarm 30
Netflix 10
24 hr 30
Car insur. 60
Groceries + toiletries and petfood 300
Gas 140
Wells Fargo Credit card (0 @ a whopping 21% interest)

Emergency fund
2,700 (I would like to build this up to 3,000 and aggressively pay off some debt)

401k
8,900

Total Monthly Expenses: 2380

Approx 720 extra I'd like to keep 150 towards misc. expenses so this leaves about 550 toward paying off extra debt.

My question is given my current debt and expenses which debt should I go after first? I'm thinking my car note because I can itemize my Student loan when preparing taxes. However using the snowball method it would be the Student loan correct? I would also like to pay 100 extra a month towards my principal. Should I pay off my car and student loan first?

[disneysteve]

If you snowball according to Dave Ramsey, it is smallest balance to largest balance regardless of interest rate. That will work, for sure. The method that will get you debt-free faster and at a lower overall cost would be highest interest rate to lowest interest rate.

I have a couple of questions.

How much are you contributing to the 401k? You said 12% including the match. How much is your money, not counting the match?

What is 24 hr?

How much is your car worth if you sold it privately today?

[JenniferG]

I am currently contributing 7% with an employer match of 5%. The 30 dollars a month is for 24 hour fitness. I havent blue booked my car however it's a 2007 VW jetta turbo with 36k so I'm guessing I should get atleast 10k. My mom payed around 100 extra a month sometimes more towards her principal and payed her 30year loan off in 18 yrs. I'm thinking I may take the MCC credit I get next year and apply it towards principal and continue that for the life of my mortgage.

[JenniferG]

I went and blue booked the car for a private party sale it's around 12k and 14k

[Shewillbemine]

It's very unlikely for people to sell their car to sacrifice for budgeting. If you can do it, sure, because you are in a good position that the KBB is more than the existing car loan. However, you'll have to replace that car. So unless you are planning to purchase a $5000 - $7000 car, then that idea won't really work for you.

I'd pay down the car loan first because it is the higher interest and you gain more "equity" on it as the loan amount decreases and the KBB value holds fairly steadily over the next few years. The largest depreciation already happened a few years ago so you're ok. Also, your credit score is not affected by complications with your student loan whereas defaulting on your car loan means the bank can go after you. There are even deferment options with student loans should you encounter difficult moments. There are no deferment options for car loans.

You have a good system so keep it up and do NOT accrue more debt on top what you already have. And let's be honest as a dog owner myself, you are spending more on those pets than what your budget suggests. I KNOW you don't just have pet food for them. What about the toys, beds, kitty litter, doggy bags, leashes, collars, pet vaccinations, flea medicine, chew toys, etc...?

Btw, 24 Hour = 24 Hour Fitness Gym.

[bjl584]

I would go after the car loan first. At least the SL's have a tax advantage.

Side note:
Your electric seems high. Mine isn't even half that.

[JenniferG]

Thanks for the advice. I wanted to make sure I was on the right track.

You are right I probably do spend more than that on the animals "childrens" however the budget is rough right now, I plan on tweeking it as I track my spending expenses for a few months.

As far as the electric bill it runs lower during the winter as I have gas heat however the heater itself is powered by electric. The house is around 1600 sq foot so 100+ dollars during the summer isnt really bad when it's 100 degrees out here in Texas, I would say on avg. it's 80-100 dollars but I havent been in the house a full year yet. It isnt uncommon for people with much much larger houses to have electric bills of upwards to 300+ dollars unfortunately.

[MonkeyMama]

At face value, the student loan would probably be better to pay first. The thing is you would make faster progress and have more motivation, likely. THe interest rate difference between car and student loan is small. That said, I will side with the others. Paying off the student loan would only free $50 per month (for snowball). So, I don't really see the point to hit that one first. It looks like the car loan makes more sense.

I would not advise paying down the house. Here's my story - I know a LOT of people who didn't pre-pay a dime on their mortgage the first 10 - 15 years or so. & they all paid off their 30 year lon in 20 years. Inflation. The loan will get cheaper and easier to pay, with time. Likewise, I wouldn't prepay a dime on the mortgage until all other debts were paid, at least a 6 month emergency fund (this amount is negotiable, but 6 months is a good number for most people), and retirement options are maxed out, or at least 15% of income. If you are committed to paying off your house early, it will happen. IT just shouldn't be a #1 priority. If I can't sway you, at least pay off all the other debt first.

[jpg7n16]

My question is given my current debt and expenses which debt should I go after first?

1) Car
2) Student Loans
3) House

Pay extra in that order and you'll be fine

The idea to pay the student loans seems like a good idea at first - but you'd be keeping $4200 away from the principal on your car loan (instead you'd pay it to the SL's) to free up $100/month to pay to the principal. It would take 42 months for you to catch up to where you would have been if you just paid extra on the car in the first place.


And I'd try to up my retirement to 15-20% before paying extra on the house.

[littleroc02us]

It will only take 26 months to pay off both loans. Start smallest debt first due to the feeling of paying off the debt faster. It will help motivate you to continue. So it's like this:

student loan: 7.5 months

Car: 17.5 months

=Done!!!!

[jpg7n16]

Or pay Car first, and be out of debt in 17 months.

Car: 12.93 months (paying $880/month to car, and $50/month to SLs)
SLs: 4.11 months (paying all $930 to SLs)
Total paid: $15,856.40
Tax refund on SLs over this time period: $67.31

Not sure about littleroc's math, as that method should only take about the same amount of time (17.1 months)

SLs: 7.12 months (600 to SLs, and 330 to car)
Car: 9.96 months (all 930 to car)
Total paid: 15,885.20
Tax refund on SLs: 18.75


Paying the car first saves $28.81 on interest and gets $48.57 more tax refund, so benefits you by $77.38.

$77 may not seem like much with the amounts we're talking about, but if I offered you a free $75 today, you'd take it.


(my '42 months' statement was just to illustrate a point about the $100/month, and I now see that it would be very misleading if taken at face value like it reads - it sounded different in my head It should not take you 42 months to get out of this debt, no matter which one you pay first. I could have worded that a lot better.)

[littleroc02us]

Or pay Car first, and be out of debt in 17 months.

Car: 12.93 months (paying $880/month to car, and $50/month to SLs)
SLs: 4.11 months (paying all $930 to SLs)
Total paid: $15,856.40
Tax refund on SLs over this time period: $67.31

Not sure about littleroc's math, as that method should only take about the same amount of time (17.1 months)

Actually it would be a lot faster than I originally stated.

School loan = $4200 if you paid $600 (includes her normal $50 payment and the $550 she has available to pay debt) that would equal around 7 months.

Car loan of = 11k - $2210 for the payment the last 7 months equals $8690 and some interest. Since the school loan is paid off after 7 months, then divide $8690 by $930 (the new payment) and that would come out to around 9 months and some days.

So, I'm sorry I was wrong, the situation is brighter for the poster at this moment. It will only takes around 16 months to pay both off. Remember my method is more philosophical than worry about interest rates and balances. You will feel more motivated by getting rid of the smaller debt first.

[jeffery12]

I can think of going with the one which holds tax benefits.