My debt listing - help me decide what to pay off first

KTdidit · October 2013

DH and I have decided to put off buying a new home for another year (so now around October 2015) in order to have as much paid off as possible and be in a better financial situation. We are not happy about it but its the best way to go. We have the following debt:

Item Balance Interest rate Monthly payment

Car $11,250 10.5% $441
Student loan $5,000 12% $66
Credit Card $3,800 19% $80
Personal loan (me) $3,300 30% $115
Personal loan (DH) $2,500 30% $140

Starting Jan 1st I will have our bed set paid off and will have an extra $135 to put toward a snowball. I originally wanted to put the additional toward my personal loan and get that paid off by the end of 2014. Then put the $250 toward getting my car paid off before buying a new house. Looking at the listing of debt, it doesn't follow the idea of getting the highest interest rate paid off first. Or the theory of paying off the lowest balance. But in my mind having the near-$450 extra per month, coupled with having both personal loans paid off, will help us in our checkbook each month. Along with improving my DTI.

What does MM think of this plan? If I don't pay off the car, it will be completely paid off about 6 months after we plan to buy a new home anyway. Should I focus our snowball on the smaller debts instead? (FYI - we do have a loan for DH's car in both of our names. But it was bought earlier this year and there is no way we could pay that off any time soon)

brij2006 · October 2013

I personally would start with your H's personal loan. It's the smallest loan, and has the highest interest rate. Then I would snowball that onto your personal loan, then CC, and car last. The SL I wouldn't worry as much about, because it's considered "good" debt in the eyes of a lender.

Also I would call and see about refinancing the car. That is a pretty high interest rate for today's loans. We just bought a car a couple of months ago, and the interest rate is at 2.1%. H's car is at 2.9%, and he bought his almost 2 years ago.

Then I would also call and see if there's anything you can do about the interest rate on your student loans. That seems pretty high also.

Xstatic3333 · October 2013

I agree, I'd start with the personal loans, his then yours. They have the highest rates AND lowest balances, and paying them off will still help your DTI. I agree about the car payment; I would look into your refinance options, especially if your credit may have improved since you got the loan. H is recovering from very so-so credit, and still got 6.9 about a year ago. We may look into refinance options for him as well, though since he bought used I'm not optimistic that would work out for us.

anssett · October 2013

Those interest rates are scary high. Consider waiting a couple more years to buy and get everything over 4-6% paid off. Adding a house payment could really hurt if one of you lost a job or got injured.

KTdidit · October 2013

Yes, unfortunately when I bought my car I was extremely upside-down on my trade-in and my original loan amount was ungodly high. My credit took a dive a couple years ago and I'm working on rebuilding it. I've looked at a few refinance calculators and in order to keep my time frame the same, it would only lower my payment about $20 per month and I would save about $800 over the remaining course of the loan. That doesn't seem worth it to have another inquiry to my credit....

hoffse · October 2013

Nah start with the car. In circumstances where you have really low principal on really high interest debt, the highest-interest-rate-first thing doesn't always work out mathematically. That's because your principal on other loans is offsetting the savings in interest. I tell people to go highest-interest-rate-first only because it usually saves money over Dave Ramsey's method, and most people have more credit card debt than other debt, which tends to be extremely high interest. But you're right it doesn't always work, and in your circumstance the car loan is too lopsided compared to your other debt to make the highest-interest-rate method work. Your options are to calculate it or use my cheat sheet.

Cheat sheet: go from your highest monthly payment to your lowest. So for you that's car, personal loans (although those monthly payments make 0 sense to me given their principal and interest rates... unless your H's has to be paid off sooner?), then credit card, then student loans. The last two ought to roll off pretty quick once your snowball gets to that point.

And now I have to switch to lecture mode for a brief moment: please please please don't finance furniture in the future. It's usually just not a good deal, and it's a hard pull on your credit. If you want a new bedroom set then save for it, or do what I do and shop at Ikea. Yes, I'm a lawyer who shops at Ikea. All the time. And then I do an Ikea hack for another $25-$50 or so to make their furniture match my decor/style - because I basically drool over the pottery barn look, but there's no f'ing way you will get me to spend $2,500 on a hutch. It does take time, but it gives me a real sense of ownership in my furniture, and I have saved a small fortune that way. I know this isn't for everybody, but please do consider it before financing in the future.

hoffse · October 2013

And in case you're curious, examples of Ikea hacks that look like they came from pottery barn:

http://www.ikeahackers.net/2011/08/turning-new-tables-into-vintage-farmhouse-finds.html

KTdidit · October 2013

hoffse said:

Cheat sheet: go from your highest monthly payment to your lowest. So for you that's car, personal loans (although those monthly payments make 0 sense to me given their principal and interest rates... unless your H's has to be paid off sooner?), then credit card, then student loans. The last two ought to roll off pretty quick once your snowball gets to that point.

Yes, DH got a personal loan before I did, and his original amount was higher than mine.

And now I have to switch to lecture mode for a brief moment: please please please don't finance furniture in the future. It's usually just not a good deal, and it's a hard pull on your credit. If you want a new bedroom set then save for it, or do what I do and shop at Ikea. Yes, I'm a lawyer who shops at Ikea. All the time. And then I do an Ikea hack for another $25-$50 or so to make their furniture match my decor/style - because I basically drool over the pottery barn look, but there's no f'ing way you will get me to spend $2,500 on a hutch. It does take time, but it gives me a real sense of ownership in my furniture, and I have saved a small fortune that way. I know this isn't for everybody, but please do consider it before financing in the future.

We bought a SleepNumber bed after our wedding this past June. We paid most of it in cash and the financed part was 0% interest for 6 months. We will have it paid off before the 6 months is up. It was a good thing for DH because it was in both of our names and it gave him some available credit and a small history of positive payments.

Sisugal · October 2013

I would find second PT jobs and sell items you do not need/use and apply to debt. Also monetary gifts and bonuses go to debt. Any bonuses go to debt. You get the idea - now is not the time for extras or luxuries.
After you have this paid off SAVE for your down payment (20%), closing costs, moving costs, start up costs, additional furniture/appliances, repairs/renovations and misc. outdoor items.
You NEED a good (think 6-8 month's expenses) emergency fund - your REALLY NEED a good emergency fund when you are a home owner!
Take your time - buy when you are financially ready - and not one day sooner.

A mattress on the floor works until you can save to pay cash for a bed. Get out of the buy first-pay later mentality.

vlagrl29 · October 2013

I would pay the car off first as well. and EEK on your student loan interest. I feel lucky I got 2.85% on mine. I'm always trying to sell items I don't need anymore on CL. I finally sold my first wedding dress last weekend! Got $300 for it! I never thought I would get rid of it. I have been listing it for 3 years now. Things I sell on craigslist goes towards our E Fund. I also second the get out of buy first pay later. Dang, I'm going to have to wait forever to get wood floors but Whatever, at least we won't have debt from it.

oneplusoneistwo · October 2013

When calculated out, you will save more in interest (over $700) and a month worth of payments if you go highest interest rate to lowest interest rate. I do agree that sometimes it can be beneficial to go highest payment first (or some mix depending on the combination of debt amount and interest rate), but it doesn't work out in this case. Start with your DH's personal loan, then yours, then the CC, then the student loan or car loan (the last two are nearly interchangeable at that point, so it's up to you). Good luck!

My debt listing - help me decide what to pay off first

Re: My debt listing - help me decide what to pay off first

Choose Another Board

Search Boards