WWMMD? Pay-off Order

brij2006 · February 2014

So we close on the refinance on our house tomorrow, and then we can clear out all but $1,000 from our savings account to put toward debt.

Well these past few months we've been tossing everything into our savings that we would've put toward debt, until we closed on the refinance. According to Dave Ramseys plan, we should start with the smallest debt first and work our way from there. So if we do that, then we will be paying off 7 student loans. Some of them being H's, and some being mine. All of them are split out amongst 3 different companies.

So here's my question. This amount we would be applying to the smallest debts, could also pay off all of H's student loans with 1 company (his are separated into 2 companies). Would you do the DR plan and just pay off the loans with 3 separate companies from smallest to largest. Or get rid of 1 company/payment from the start?

lifeonthehill · February 2014

We stuck to the DR plan. Which for us meant 5 loan companies! We paid them in order and as great as it was to stop getting a bill entirely it was a much more positive feeling to follow the plan.
I really don't think you can go wrong here. Paying off debt is paying off debt no matter which order you choose to tackle it.

VadersValkyrie · February 2014

When my DH and I started looking into our debts so he could go back to school, I just lumped our student loans together; both of ours are consolidated, if separately. So once the CCs are paid off, we're going to attack my car loan. Once he goes back to school, his loans'll be deferred, and then we can dump some money into paying off the mortgage and put more into savings/retirement.

spalko · February 2014

I agree with PP that paying off debt is paying off debt regardless of the order. What are the monthly payments for each of the loans? When we get our taxes back we are paying off our truck and one of H's student loans because we pay the most each month on those payments. That will give us an extra $300 each month to put toward other debts/savings.

jtmh2012 · February 2014

brij2006 said:

So we close on the refinance on our house tomorrow, and then we can clear out all but $1,000 from our savings account to put toward debt.

...

So here's my question. This amount we would be applying to the smallest debts, could also pay off all of H's student loans with 1 company (his are separated into 2 companies). Would you do the DR plan and just pay off the loans with 3 separate companies from smallest to largest. Or get rid of 1 company/payment from the start?

If the $1000 is the only savings you have and you own a house (assuming this from you mentioning refinance), I think I'd want to have a lot more in savings. Oh shit moments can be very expensive....:(

As for the loans, I would go highest interest rate to lowest. That gives you more money to go toward future principal....

Xstatic3333 · February 2014

jtmh2012 said:

brij2006 said:

So we close on the refinance on our house tomorrow, and then we can clear out all but $1,000 from our savings account to put toward debt.

...

So here's my question. This amount we would be applying to the smallest debts, could also pay off all of H's student loans with 1 company (his are separated into 2 companies). Would you do the DR plan and just pay off the loans with 3 separate companies from smallest to largest. Or get rid of 1 company/payment from the start?

If the $1000 is the only savings you have and you own a house (assuming this from you mentioning refinance), I think I'd want to have a lot more in savings. Oh shit moments can be very expensive....:(

As for the loans, I would go highest interest rate to lowest. That gives you more money to go toward future principal....

I'd probably take this approach too, but I know you're following TMM and it's a different strategy. Like PP have said, either way getting rid of debt=good. I might ask which approach feels more like progress to you, since that's the reasoning behind the DR plan as I understand it.

mana8503 · February 2014

I'd pay one company off so you can snowball it into other debts. If you did the 5 different ones would you still be paying the same amounts? If so, I guess you're still paying more on the other loans, but it'll be spread out to 5 different places. Where if you paid one off, you can focus on the next one and pay it off faster then a little bit to 5 different loans. I hope that makes sense.

Re Savings - With a house $1000 is really low for my comfort. I try to have enough to cover all our deductibles (medical, house, car). I know DR says $1000, but I just couldn't handle that.

jtmh2012 · February 2014

mana8503 said:

Re Savings - With a house $1000 is really low for my comfort. I try to have enough to cover all our deductibles (medical, house, car). I know DR says $1000, but I just couldn't handle that.

I ended up replacing a hot water heater and a HVAC system in the same month. That cost me $7400 and that was with us doing the hot water heater on our own. The year after we did the roof and had to do replairs to the leaking roof (I think that was $4900). The year after that, we ended up replacing all the windows for another $2800.

maple2 · February 2014

Basically, I agree with others that paying off debt is good no matter what. From a purely financial perspective, I would pay off loans from high interest rate to low rather than basing it on loan amount since that would result in the least total amount paid toward interest. I know DR advocates going from smallest loan to largest because they helps you reach milestones of paying off individual debts sooner, so if that kind of thing motivates you, then go for it. If it would simplify your life and reduce stress to have fewer loan companies to pay, then go ahead and payoff a DH's loans with a single company. Basically, do whatever will make it easiest for you and motivate you to continue your debt pay-off strategy, whether that be saving the most money by paying high interest loans first, following the DR plan to the letter, or reducing the number of people you have to pay every month.

mana8503 · February 2014

jtmh2012 said:

mana8503 said:

Re Savings - With a house $1000 is really low for my comfort. I try to have enough to cover all our deductibles (medical, house, car). I know DR says $1000, but I just couldn't handle that.

I ended up replacing a hot water heater and a HVAC system in the same month. That cost me $7400 and that was with us doing the hot water heater on our own. The year after we did the roof and had to do replairs to the leaking roof (I think that was $4900). The year after that, we ended up replacing all the windows for another $2800.

Ugh that sucks!

We built our house, so we knew the first 2 years everything was covered, and we used the warranty a few times when things broke - including our AC not cooling on the LAST week of the warranty. That's why I was ok just being able to cover all our deductibles at once while we paid off debt. Everyone is different, but age of applicances etc should definitely be taken into account when you figure out how much your comfortable with in savings. $1000 is not enough when you own your house.

brij2006 · February 2014

Xstatic3333 said:

brij2006 said:

So we close on the refinance on our house tomorrow, and then we can clear out all but $1,000 from our savings account to put toward debt.

...

So here's my question. This amount we would be applying to the smallest debts, could also pay off all of H's student loans with 1 company (his are separated into 2 companies). Would you do the DR plan and just pay off the loans with 3 separate companies from smallest to largest. Or get rid of 1 company/payment from the start?

If the $1000 is the only savings you have and you own a house (assuming this from you mentioning refinance), I think I'd want to have a lot more in savings. Oh shit moments can be very expensive....:(

As for the loans, I would go highest interest rate to lowest. That gives you more money to go toward future principal....
I'd probably take this approach too, but I know you're following TMM and it's a different strategy. Like PP have said, either way getting rid of debt=good. I might ask which approach feels more like progress to you, since that's the reasoning behind the DR plan as I understand it.

The $1,000 is just in our savings. Then we'll have the $500 buffer in our checking, and we have another $1,000 in a money market we opened last year to put our E-fund in. So technically we'll have $2,500, and we are going to be snowballing around $2k/month. So if something drastic happens to the house, we can come up with $4,500 in that month to pay for it. Which I know is the point of his plan and the $1,000 only in an E-fund. Because you can stop your snowball and have that much extra each month.

It free's up about the same amount each month if we pay off his SL's first or split the amount amongst the smallest balances.

Another option is to pay off his car with it. Which will give us an extra $240/month (instead of $160 like the others). But we figured that if anything were to happen, we could sell his car. We can't sell the student loans and get rid of that payment.

KatieCutie05 · February 2014

Unless the one high loan has a much higher interest rate and a much higher payment, I'd definitely rather get rid of multiple debts.... It would make me feel a lot less trapped and I'd get rid of multiple bills each month.

I might do the car though since it has a higher payment. If anything happened you could still sell the car. You'd just get actual money then instead of just getting rid of a payment.... Which is probably what you'd need most if you needed to sell it.

I agree though that you should do whatever one you hate the most.

WWMMD? Pay-off Order

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