Paying off HELOC advise and budget help

Smonet · May 2014

You guys have been such a great help in the past and I've made strides of progress since my initial request for budget help.

Here is my updated budget. My question is in what order would you attack debt? My initial thought is to throw $1,000.00 a month at my HELO since it is not a fixed rate and it was a 2nd mortgage on my rental unit, but now secured by my primary home.

I'm hoping to have another baby next summer (TTC in July) and hopefully rebuild our home at some point in the future even if its in 5 or 10 years ($200,000.00 max budget).

Take home pay each month including rental income, after taxes, health insurance and retirement account deductions.

1150.00 Rental (Renter pays all utilities)

10131.74 10585.67 Total

Bills/Expenses that I know and are planned for, I've factored what they are a month for the ones I pay 1 time a year or every other month:

22.55 Trash

205 Rental Assoc. Fees

61.25 Sewer/Recycling

100.50 Gas Utility

62.00 Landline/Internet

1000.00 Mort #1 on rental (I factored 1+ extra payment each year into our monthly payment-so we are overpaying)

245.00 Home equity line of credit (I took the 2nd mortgage that was balooning soon at 8% interest and moved it to our HELOC with a rate of 4 plus prime. The balance is 20,000.00)

2795.40 Primary home Mortgage (able to apply to drop $130.00 PMI in a month, this includes $6500 in property taxes per year, insurance premiums on the house, boat and wedding rings)

Paid off 798.oo/month payment on a furnace/ac unit we replaced in the rental last month.

82.00 average electric

151.27 Verizon-cell phones. We already get a discount and for 2 smart phones I can't get cheaper with our contract.

70.00 52.20 Direct TV. Contract is up in May 2015 and I'm planning on canceling it

33.00 Insurance policies on rental

62.79 Auto insurance

862.00 896.00 Daycare (I am maxing out a dependent care account through DH's employer. this $ is taken out tax free but factored into our takehome each month.)

90.00 140.00 House cleaning. Cut back to 1 time per month. Very important to our marriage.

200.00 Boat storage/boat lift costs. A one time a year payment but I've factored what it is a month.

124.42 Life insurance

90.00 153.91 Gym membership for me and LO (childcare)

350.00 I've added a car payment on a used suv. It is a 5 year loan at 4.2%.

My leftover is 4328.49 and I spend 275.00 a month on gas for our cars and I am aiming to spend only 800.00 on groceries/household supplies (I do buy mostly organic, local foods and feel that is very important-if this seems high.) Since my last budget I've also upped DH and my 401K contributions to 4% which is matched by our employers, and we are planning to up it a couple % each year. I've also managed to save 10,000 in a EF account. What would you tackle next? The HELOC?

Thanks for reading.

brij2006 · May 2014

How much is the debt on the SUV?

Smonet · May 2014

brij2006 $18,000.00 I figured over the course of the loan I was only paying an additional $1,500.00. Is it worth it to just pay that off at the regular rate? My instinct was to hammer it, but then I questioned myself with the HELOC rate on the rise.

hoffse · May 2014

With your incomes I would get retirement up to 15% gross first. You have a standard of living that presumably you want to maintain in retirement, and I don't think you're doing enough to get there right now. Every year you lose can cost you tens or even hundreds of thousands of dollars in lost gains for retirement, depending on your age and how far you have to go to get to that 15%.

Once your retirement is up, then I'd probably do the HELOC, since it's 4 over the prime rate. That's kind of high. The prime rate ought to be (very slowly) creeping up, and the interest rate will be higher than the car.

brij2006 · May 2014

I would start with the car first. Get that paid off, then focus on the HELOC. Just because the car loan is the lowest debt. If I'm doing the math right, you have $3,253 left over in your budget to go toward debt. That's a great number, and add the $350/month car payment to that and you have $3,603 to put toward the car. That would be finished in 5 months. Then snowball that payment to the HELOC and you will have it finished 6 months after that. So in less than a year you will be debt free except your home and the rental. Just in time to welcome baby #2 home. :-)

After that, I wouldn't focus on paying off the mortgages yet. I would focus first on beefing your Efund up to 6 months of living expenses. Then I would increase your investments to 15% of your gross income, putting aside money for kids' college, then finally the mortgage.

Smonet · May 2014

This may sound stupid, but for retirement do you consider 15% before the match our employers do? So my 4% is 4 or is it 8%?

brij2006 · May 2014

I don't factor in the match when determining how much I invest. I consider it an added bonus, but not something to rely on.

hoffse · May 2014

Smonet said:

This may sound stupid, but for retirement do you consider 15% before the match our employers do? So my 4% is 4 or is it 8%?

It depends on whether it has vested or not. You can count anything that is fully vested - meaning you can take it with you if you were to leave tomorrow. If it's not vested, then it doesn't count.

I should add: once it's vested it is legally yours. Your employer can't take it from you unless they want to open themselves up to a serious lawsuit and massive tax problems. Just make sure to read your plan documents so you know the rules that govern your plan.**

**This is not legal advice.

Smonet · May 2014

Thanks, it is vested. I get our portion up to 11% each which would be 15% with the matches. There is profit sharing on top of DH's and I have a stock portfolio and a rental as additional retirement. I'm planning that when the rental is paid off that will be $1200+ income as a bonus on top of our other retirement accounts.

Then I'll tackle the HELOC and car payment and be pretty close by baby time! Thanks for the help in the plan.

Xstatic3333 · May 2014

Smonet said:
Thanks, it is vested. I get our portion up to 11% each which would be 15% with the matches. There is profit sharing on top of DH's and I have a stock portfolio and a rental as additional retirement. I'm planning that when the rental is paid off that will be $1200+ income as a bonus on top of our other retirement accounts.

Then I'll tackle the HELOC and car payment and be pretty close by baby time! Thanks for the help in the plan.

I was about to voice support for this plan too. GL!

smerka · May 2014

I would do the 401ks up to the match from your employers and then max out IRA contributions before attacking the debt. As far as the debt repayment, go with which ever one will make you feel better.

Paying off HELOC advise and budget help

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