Need some advice...

iVillage Member
Registered: 11-13-2004
Need some advice...
7
Thu, 05-11-2006 - 11:19pm

Need some advice about my debt and my savings. I am wondering if I should take all my savings and put it towards my debt and just keep paying it off little by little. I have $12,000 in savings that is earning 4.5% at Emigrant Direct. Here are my debts that I would pay off; I would still have my big student loan left and a personal loan for $2950 left to pay:

credit card debt $3,920 @ 9.99%
Nursing Loan $1,076 @ 5%
Mobile home loan $6,000 left; variable interest rate.
Old 403B Loan $1,335 left @ 7.5%

Comes to a little over $12,000. Should I take the plunge and just do it, or should I leave the money in the bank for emergencies. I am a single mom and child support is sparadic, so I don't know if I am comfortable without an emergency fund, but without these debts and with my income, I could replace the money, but it would take at least a year. What do you think?

iVillage Member
Registered: 01-25-2006
Fri, 05-12-2006 - 12:06am

Hi! What do you think about splitting the difference? Looking at the numbers, I would leave the mobile home loan alone (is it tax deductible? I'm assuming so) and pay off the other stuff. I would then work on the personal loan. I don't know what your monthly income is but then I would take what I was paying on those 4 debts and apply to rebuilding your eFund back up to 6 mos of expenses. After that, I would start to work on the student loan and then the mortgage because of the tax deductibility issue. There is a limit on how much student loan interest you can deduct and it does phase out at certain income levels but the mortgage interest is fully deductible always. The only other thing is if for some reason you don't itemize, the student loan interest comes off the top of the income w/o having to itemize so if that is the case, I might do the mortgage first and then the student loans.

Hope that gives you something to go on. I would not totally liquidate that savings account...seems like an engraved invitation to Murphy but it doesn't make much sense to earn a taxable 4.5% while you pay double that on the credit card and nearly double on the 403b (plus you are losing earning power in your retirement on that).

Peg

iVillage Member
Registered: 09-20-2004
Fri, 05-12-2006 - 1:23pm

I would pay off the cc and the mobile home, and leave the two smaller debts...then you would still have a little leftover for an efund, plus those two smaller amounts would probably go pretty quick if the bigger ones were out of the way.
I wouldn't want to deplete the efund completely, esp since you are a single mom.

Let us know what you decide,
Heather

Avatar for endomagazine
iVillage Member
Registered: 11-09-2004
Fri, 05-12-2006 - 10:32pm

Hello,


Unsurprisingly, I would follow the Dave Ramsey method:


1) Keep $1000 in your emigrant savings account as an emergency fund. This will help keep Murphy away.


2) Pay off your smallest debt first, then work your way up. From your posted numbers, I would suggest paying off the nursing loan, then 403b loan, then credit card debt. This would leave you with the mobile home loan remaining.


3) Calculate 3 months of expenses, and sock it away in a *separate* savings account, not linked to your emergency fund. This is your "fully funded" emergency fund.


4) Pay off as much of the mobile home loan as you can with the remaining money, then continue paying off the mobile home loan with snowballs until done!


You are *very* close to having all of your debt paid off, while still maintaining some emergency funds as murphy protection. Congratulations!

Sincerely,
Lindsey Schocke


Geeks on Tap: Mission Accomplished

Sincerely,
Lindsey Schocke

Geeks on Tap: Mission Accomplished

iVillage Member
Registered: 11-13-2004
Mon, 05-15-2006 - 12:27am
Hi everyone, thanks for all your great advice. After much thought, I have decided to pay off the credit cards, which when I recalculated the amount, actually comes to $3678 instead of $3920, and the mobile home loan for $6000. I think paying off these two debts will have the most effect on both my fico scores and my monthly payments. Not having to make these two payments will free up about $500 for me per month and will drastically lower my debt ratio, which should help my fico scores. Then I can take that extra $500 a month and put it towards my nursing loan and pay that off about 2 months after. Then I can snowball the rest and work on replacing my emergency fund. I'm going to take out $10,000 to pay these two debts off and leave $2000 in savings as my starter emergency fund. It shouldn't take long to replace the money. I am getting a raise at the end of the month and right now I bring home about $2500 per month, and my child support is around $250 per month when I get it. I'm excited about this and can't wait to get started. Thanks again to everyone who posted!
Avatar for endomagazine
iVillage Member
Registered: 11-09-2004
Mon, 05-15-2006 - 9:06am

Hello,


I'm glad the advice was helpful, even if we all suggested different things. =) Congratulations on your upcoming raise! That should help you build your snowball even more. You mentioned that you would be paying off the mobile home loan and credit card debt with the $10,000 from your savings account, leaving $2000 for an emergency fund. That's great!


You'll have the following remaining:


Nursing Loan $1,076 @ 5%
Old 403B Loan $1,335 left @ 7.5%


Will you pay off the nursing loan, and then the old 403B loan with your snowball? You mentioned that it would take 2 months to pay off the nursing loan if you have no mobile home or credit card payments. I'd suggest paying off the Old 403B Loan immediately after that, as quickly as you can with your snowball, so that you'll be *debt free* and have *even more* to apply toward rebuilding your emergency fund. After all, you would be *so close* to being debt free, with a little more time.


Wouldn't it be nice to have *no payments*? Sure, you'll have utilities & food, but those are facts of life. =)


Sincerely,
Lindsey Schocke

Geeks on Tap: Mission Accomplished

Avatar for 2locachicas
iVillage Member
Registered: 05-14-2003
Mon, 05-15-2006 - 9:14am

No matter which way you dice it congratulations are in order....so CONGRATULATIONS!! You have done very well with your money and are to be admired. Most people(me included) are struggling to do with 2 people what you will manage to do alone this year...be debt free. that is great...

So pat yourself on the back and when it is all done treat yourself and your dc to something super fun!!

Loca

iVillage Member
Registered: 01-06-2005
Mon, 05-15-2006 - 9:43am

Sounds like a good plan.

 

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