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I know there's a million threads like this, but the more I've been reading through these sections, I'm very impressed by many posters knowledge, and their frugalness (is that even a word?)
I am 25 years old, and relatively knowledgeable (for my age) regarding investing, 401ks, debt, etc. My parents love Dave Ramsey, and I like his enthusiasm and some of his suggestions. However I don't follow all. For instance, I put all expenses I can on my credit card, and pay it off in full every month. I earn a TON of reward points by doing such. Paid for my new years hotel, flights for my gf and I to my brothers wedding, $350 towards our hotel for mardi gras, etc. I know it's not everyones cup of tea, but I'm responsible enough to do such.
Now, just because I consider myself somewhat knowledgeable, it doesn't mean I have all the self control to do such lol. Luckily, I have a decent income which offsets it somewhat.
So here's my situation.
I have 15k in student loans
I have 50k in a a truck loan
I have 50k in a trailer loan.
I live full time in a trailer, and I use my truck to tow it. I travel for work, so I need both reliable, and comfortable, plus my vehicle under warranty. Could I have spent 30k on each instead? Yes, but I didn't. I came from a nice vehicle beforehand that was nothing but problems, so wanted something reliable under warranty that was capable of pulling my 16,000 lb trailer. I also need the truck for work, they give me a $650/mo truck allowance towards my truck, and cover my gas. (once it's paid off I'll still receive that)
Also, since I live full time in my trailer, it's also basically my mortgage, rent, etc. whatever you want to call it.
I have 10k in savings and 12k in my 401k which I have switched employers recently and not currently contributing to my new employers (they don't match) I'm currently a contractor and coming on full time with my "employer" in March. They match 10% of what I match. I.e. I contribute 10% and they contribute 1%. Nothing great at all, but oh well.
After basically all my bills, payments, spending money, entertainment, etc. is over every month, I have between $2300-$2600, which can go towards extra debt, extra savings, or anything really. Once I start knocking out debts, I'll have that much more to contribute. My 3 debt bills each month (student loans, truck, trailer) total at about $2000, so when those are knocked out, I'll have roughly 4300-4600/mo extra after all is said and done.
So, what priorities should I make these? Should I start maxing out a Roth IRA and put the debts aside, or at least slow down on them? I've paid off about $30k in school loans over the last 10 months, so I've been attacking them hard.
In around 6-8 years I would like to buy a house, in around 3-5 years I would like to get married to my girlfriend.
Lastly, I may be starting school soon as well, which I would do part time so I could still work full time. I could start later down the road, but would kind of like to get it out of the way. The total cost for 3-4 years part time will be around 35-40k. That would be between 10k-15k/year. I imagine I should pay for that out of pocket, unless anyone has a reason to convince me of doing differently.
I realize my debt is not the best, but it's what I've got now and I'd like to know what you guys would suggest moving forward.
Personally, I'd like to knock out my student loans by the end of this summer, then use that $340/mo to cover about 50% of my additional schooling I want, then pay the rest out of pocket. Then make sure I have 10k savings, and then continue paying off truck, trailer... Save for wedding, house, future, etc...
That being said, I have been with my girlfriend 2 years and know I want to marry her. If I did marry her sooner, it would drop me down a tax bracket essentially saving me around $3000-$4000/year in taxes...
If i were you I would max out 401k + ROTH. Then I would put the leftover money towards paying down your debt.
What i-rates are you paying on the loans?
Around 5% on truck and trailer and student loan I can't recall, maybe like 6% or 7% or something stupid like that. That student loan is getting knocked out this year no matter what. A few more months and that thorn in my side should be gone.
I like your suggestion regarding the 401k and Roth. In the grand scheme of things, that's really only a small portion and will make a big difference in the long run.
Is your reasoning to pay off the student loans first - just because it's the smallest?
If it was me, I'd put 1/2 of your excess ("I have between $2300-$2600") to savings and half towards the truck loan.
When the truck is paid off, take the increased excess and continue to put 1/2 in savings and 1/2 to the student loans.
The last loan would be the trailer - since it's your home, the interest on that loan is deductible on your taxes.
(Per the IRS - "For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities")
And if the trailer isn't completely paid off by the time you buy a house with a foundation - the interest is still deductible as a 2nd home. (Per the IRS - "If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year.")
You can never earn back time--put as much as you can now into your retirement accounts and pay down the debt with whatever is left over. You are doing a good job saving, your expenses are very minimal. The little bit in interest over the next 2 or 3 years is a drop in the bucket toward what those funds will be during retirement. How many years to you have on your truck and trailer? If those are 5 years or less, keep putting extra toward your retirement funds and don't worry about extra on those.
Is your reasoning to pay off the student loans first - just because it's the smallest?
If it was me, I'd put 1/2 of your excess ("I have between $2300-$2600") to savings and half towards the truck loan.
When the truck is paid off, take the increased excess and continue to put 1/2 in savings and 1/2 to the student loans.
The last loan would be the trailer - since it's your home, the interest on that loan is deductible on your taxes.
(Per the IRS - "For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities")
And if the trailer isn't completely paid off by the time you buy a house with a foundation - the interest is still deductible as a 2nd home. (Per the IRS - "If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year.")
But that's just how I'd do it. YMMV
My reasoning for the student loan first, is mostly because it is not a debt on a tangible product. More of a mental thing than anything, as I feel like it has been a thorn in my side. At least with my truck and trailer, I know they are payments that are going towards an item I will own when I pay them off, if that makes any sense.
That makes excellent sense regarding paying off the trailer last. I will definitely keep that in mind and take advantage of that with my taxes.
What is your reasoning for paying off the truck loan prior to the student loan? The student loan is financed at a higher rate, over the next 12? or so years, while the truck is at a lower rate, and has 5 years left of financing. My truck payment is about twice the size of the trailer payment, so in that sense, paying it off earlier would free up a much larger amount to go towards extra savings/debt.
Quote:
Originally Posted by golfgal
You can never earn back time--put as much as you can now into your retirement accounts and pay down the debt with whatever is left over. You are doing a good job saving, your expenses are very minimal. The little bit in interest over the next 2 or 3 years is a drop in the bucket toward what those funds will be during retirement. How many years to you have on your truck and trailer? If those are 5 years or less, keep putting extra toward your retirement funds and don't worry about extra on those.
Great graphic that show what putting more away early does in the long run.
I think putting what you can on your credit card for the points is a great idea--as long as you don't carry forward a balance.
Thank you for the information. I agree with you, and the other posters, as much as I don't like the debt hanging over my head, it would be a good idea to start putting more towards retirement, both into the 401k and maxing out the Roth IRA. I think in actuality, I could knock out my student loans this year, and still have enough to max my Roth IRA, and then start contributing 10% to my 401k when I am eligible in August.
As I mentioned in response to the other poster, I have about 5 years left on the truck, 12 on student loans, and I think 14? on the trailer. They finance them out like a typical mortgage, and I did mine at 15 years, of course I only plan on living in it 6-8 before I stop traveling and get a permanent job in one location, so I'd like to have it paid off by that time.
I would do trailer last, since it would be your home. i would do student loan first, since it's the highest rate (though depending on your annual income, you may be able to deduct some interest). seems like you're right on track. but i think it's critical to max out your retirement savings vehicles first. given your APRs, I'd focus on paying down as well. If that comes at a cost of a slightly less than max retirement contribution, i think it's worthwhile given that the rates are what i consider "high".
My reasoning for the student loan first, is mostly because it is not a debt on a tangible product. More of a mental thing than anything, as I feel like it has been a thorn in my side.
Completely understand. It's psychological - you just want it gone. I've done it in the past. But ...
Quote:
Originally Posted by houstan-dan
What is your reasoning for paying off the truck loan prior to the student loan?
Because the student loan interest is also tax deductible. I'm all about deductions
The truck loan is the only one you can't take further advantage of.
I would do trailer last, since it would be your home. i would do student loan first, since it's the highest rate (though depending on your annual income, you may be able to deduct some interest). seems like you're right on track. but i think it's critical to max out your retirement savings vehicles first. given your APRs, I'd focus on paying down as well. If that comes at a cost of a slightly less than max retirement contribution, i think it's worthwhile given that the rates are what i consider "high".
and congrats golfgal on the $5k prize!
I can see this making since. Seems to be about in line with most of the other suggestions here.
Quote:
Originally Posted by Gandalara
Completely understand. It's psychological - you just want it gone. I've done it in the past. But ...
Because the student loan interest is also tax deductible. I'm all about deductions
The truck loan is the only one you can't take further advantage of.
My income is far too much too high for my school loan interest to be tax deductible anymore. In fact, last year I was nearly out of the income bracket to contribute to a Roth IRA, unsure if I will be out of it this year. I'll have to wait and see.
I guess another benefit to marrying my gf. I'd be eligible to contribute at a higher income, plus I'd be in a lower tax bracket
I'd also build an emergency fund.. I wouldn't prioritize it higher than paying off debt but maybe split 1/3 of the money you have left over after all the required debt payments and monthly living expenses are paid off.
Use 1/3 of the money left to prepay the highest interest debt.
1/3 into your Emergency Fund
1/3 into your retirement accounts.
THEN once you have at least 2 years of living expenses in your emergency fund, go all out on paying your debt and saving for retirement, starting with the highest interest loan.
1/2 in retirement accounts (if they're not maxed out)
1/2 for paying off debt.
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