Home     Forum     401k     401k Rollovers
    Register   Login   Members   Search   FAQs     Recent Posts    




Debt Payoff & Savings Plan

Reply to topic
Money Talk > Credit & Loans

Author Thread
Ronnie
New Member


Cash: $ 1.90

Posts: 9
Joined: 03 Oct 2014
Location: United States
Debt Payoff & Savings Plan  Reply with quote  

I would like to hear opinions on my plan - as quite honestly, my brain "scrambles" when it comes to money and how to figure out how to manage it. I have not done well managing money over the years. yes, I have excellent credit and i have never run into "trouble"... but, I should be a millionaire by now, no doubt. With my annual salary as it has been for years, had I been smarter, I would be sitting pretty. 2 divorces later, and some bad decisions and here I sit! So no looking back, I want to move forward and change this all around and get financially healthy - though not forgetting or avoiding, so as not to repeat.

I realize that in the long run what I am about to do will cost me more money (I think). however, keep in mind the first goal was peace of mind and stop the close to debilitating anxiety I was feeling over the possible closing of my company. It really woke me up to the fact that my life is dependent on my job and instilled upon me my need to be a bit more financially stable and independent. So my first and foremost goal is to save, save, save, so that I can have a good year of salary in the bank in the event i do lose my job. I can't bear the thought of losing everything at the age of 50. Realistically, it takes me @ 6-8 months to find a job in my line of work. Here is my financial situation:

1. I am 50 y/o and make $200K annually - total household income
2. I have only $10K in savings
3. I have $225K in retirement accounts (Simple & Traditional IRAs & Annuities) - plus higher than average SS benes to come at 67 - been f/t working since 18 y/o, with six figure salary starting in my mid 30s.
4. I have 12 years remaining on a 15 year mortgage at 3.25% - owe $210K - house valued/purchased at $300K
5. I own one vehicle and owe $13K on another (that was $60K at purchase 2 years ago)
6. I have living expenses of: a. $800 insurances: health, life, auto; b. utilities: $650; c. $2400 monthly mortgage; $1500 gas - 2 vehicles/food - family of 4/house essentials/entertainment
7. Other debt (credit card/truck/personal loan) = $47,500K: a. $13K @ 3% - $1000 monthly to 2/2016; b. $12K @ 9% - $650 monthly to 5/2016; c. 15K credit card 0% to March, 2015; d. $7500 credit ready to end 0% November and go to 18% interest

My plan is to take a home equity loan: of $47,500 at 7.24%/10 year draw/20 year repayment with $260 monthly interest only payment. I will pay interest only for 2 years, while saving $4K a month for $96K savings in 2 years. then year 3-4 will save $2K and put $2K to the equity loan to save another $48K and pay off the home equity loan. So by 2019, I will be debt free (outside of house), with a savings of @ $155K liquid cash! and still growing. I will have achieved my goal of anxiety freedom, as well as really greased my skids for retirement.

I know i should be doing something more/different...investing, putting more into retirement. i just don't know how to attack this, other than the simplistic way I detail above. This is where the "brain scramble" comes in... I've seen some of the folks on this forum state things that break through my fog/scramble... so anyone who is up to it... Let me have it...I am "always a student" and ever grateful!!
Post Tue Oct 07, 2014 8:33 pm
 View user's profile Send private message
Wino
Senior Member


Cash: $ 113.80

Posts: 560
Joined: 03 Aug 2012
Location: Dubai
Re: Debt Payoff & Savings Plan  Reply with quote  

quote:
Originally posted by Ronnie
1. I am 50 y/o and make $200K annually - total household income
2. I have only $10K in savings
3. I have $225K in retirement accounts (Simple & Traditional IRAs & Annuities) - plus higher than average SS benes to come at 67 - been f/t working since 18 y/o, with six figure salary starting in my mid 30s.
4. I have 12 years remaining on a 15 year mortgage at 3.25% - owe $210K - house valued/purchased at $300K
5. I own one vehicle and owe $13K on another (that was $60K at purchase 2 years ago)
6. I have living expenses of:
a. $800 insurances: health, life, auto;
b. utilities: $650;
c. $2400 monthly mortgage;
$1500 gas - 2 vehicles/food - family of 4/house essentials/entertainment

7. Other debt (credit card/truck/personal loan) = $47,500K:
a. $13K @ 3% - $1000 monthly to 2/2016;
b. $12K @ 9% - $650 monthly to 5/2016;
c. 15K credit card 0% to March, 2015;
d. $7500 credit ready to end 0% November and go to 18% interest

You have a mess, but you have a lot of income to clean it up. The first thing you have to do is stop borrowing money. You take home $10K per month even after your deductibles, yet you borrow and spend like you make $250K per year.

A home equity loan or debt consolidation loan are both loans, which is borrowing, and I just said, "Don't borrow any more." So, your plan, in my book, is a non-starter.

The 0% interest accounts need to be the first things you attack and clear up. Make minimum payments on everything, and put nothing into your retirement accounts until those are completely gone. The $7500 is going to cost you at least $1500 in additional fees if you don't pay it off. You may even have to dip into your savings to kill that one, but kill it you must. I would call them to get the payoff amount and date, and insure you send them the check at least two weeks before that date.

I would then make it my goal to pay off the March 2015 debt as quickly as possible, for the same reasons, though not as dire nor as immediate as the situation above.

After those two are gone, you should do one of two things:
List your debts from smallest to largest
OR
List your debts from highest interest rate to lowest interest rate

Neither of the above include your house. You pay it off last, no matter which method you use.

Whichever method you choose, pay off the top of the list as quickly as you can, while making minimum payments on the other items. I suggest the first method because research has shown that paying off smaller debts first is more likely to succeed than the "smart" way that is mathematically correct. Math isn't the problem here, or else you wouldn't have so much debt. Your problem is your spending habits, and those will only change if you make it a priority to do so.

I think you might want to listen to Dave Ramsey on the radio or on his podcast. You need to change your behavior, or you're always going to be broke. You can afford his book, and you should probably go to his class with your spouse. If you don't do something to change your behavior, you're going to retire on SS and maybe a little bit more, and probably still have debt hanging over your head.
Post Tue Oct 07, 2014 10:19 pm
 View user's profile Send private message
Ronnie
New Member


Cash: $ 1.90

Posts: 9
Joined: 03 Oct 2014
Location: United States
 Reply with quote  

Thank you Wino! I will definitely get that book and look into the class with my spouse, as you are so on target!
Post Tue Oct 07, 2014 10:27 pm
 View user's profile Send private message
littleroc02us
Moderator


Cash: $ 382.90

Posts: 1884
Joined: 09 Feb 2009

 Reply with quote  

You have such an amazing income @ 200k, you have to be smart to make that kind of money. That puts you in the 33% taxable income bracket. The good news is you make great money, the bad news is you've have a ton of debt and not much saved for retirement per ratio to your income. Luckily you can still have a good outcome, your only 50.
First off, you don't need any more debt, so eliminate the equity loan from your mind. Here is what I'd suggest. Assuming your monthly take home income is $11,600, you have a lot of water to throw at the flames. What I'm shocked about is that your mortgage payment is only 21% of your net income which is great, most people are in the 30's or 40's percentile.

Listing your monthly payments:
$2400 mortgage
$800 Insurances
$650 Utilities
$1,000 cc's and payments
$650 other

=$5,500 *This leaves $6,100 a month disposable income am I correct?

I would stop all investments for the next 3 years, you'll have time to catch up when all of your debts are gone. Paying off debt is a gaurenteed investment, whereas a shortterm investment of 3 years anything can happen.

If that math is correct according to what you've given us for payments, then if you list your debts smallest to largest. If you took that $5,500 an applied it toward the 47k in debts, it would take approximately 9 months to pay off. That frees up an extra $1650 a month. At that point you could take the $7150 disposable money and pay off your mortgage in 30 months.

That means by mid 2017 you have absolutely no debt and can invest like a mad man. I beat your 2019 goal and we didn't borrow another penny.

At this point you have 9k a month to invest for retirement. If we figure your 54 by this point, then you have 11 years to go after it like a mad man to retire at 64.

$9,000 monthly * 12 months=$108,000 * 11 years=$1,188,000 total invested.

So if you add 1.18 million for the next 11 years @ 8% investing in an Index Fund from Vanguard you'd compound 2.46 million at the age of 64. Unfortunately you'd have to retire later at 70 for compound interest to really start working for you, but 2.46 million is a good retirement for most. Drawing 4% of the 2.46 million in retirement is 98k a year and with no mortgage payment and a 300k paid off home, you should be doing just great.

Let me know if I missed something in your payments, I did my best to use the numbers you presented.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Oct 08, 2014 2:02 pm
 View user's profile Send private message
Ronnie
New Member


Cash: $ 1.90

Posts: 9
Joined: 03 Oct 2014
Location: United States
 Reply with quote  

littleroc, thank you for such a thorough analysis. I was not clear on some of the bills, so let me clarify.

If I do not do the debt consolidation, in addition to the credit card debt which equates to $500 minimum payments across all, I would still have to pay $1K a month for truck and $635 for pool until may, 2016. so in addition to mortgage, utilities and mortgage, I have $2135 minimum payment in "other debt".
Post Wed Oct 08, 2014 3:45 pm
 View user's profile Send private message
Ronnie
New Member


Cash: $ 1.90

Posts: 9
Joined: 03 Oct 2014
Location: United States
 Reply with quote  

Oh... and $1500 living expense such as food, gas for vehicles and general house items, school/clothing/repairs/incidentals, etc...
Post Wed Oct 08, 2014 3:47 pm
 View user's profile Send private message
littleroc02us
Moderator


Cash: $ 382.90

Posts: 1884
Joined: 09 Feb 2009

 Reply with quote  

quote:
Originally posted by Ronnie
Oh... and $1500 living expense such as food, gas for vehicles and general house items, school/clothing/repairs/incidentals, etc...


Ronnie,

In order to get back with new math based on these new numbers, can you itemize each of them laid out in a format such as this:

Fixed Costs:

Truck Payment=$1,000 @ 10 months

Variable costs:

Utilities=$650

And so on......

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Oct 08, 2014 4:14 pm
 View user's profile Send private message
littleroc02us
Moderator


Cash: $ 382.90

Posts: 1884
Joined: 09 Feb 2009

 Reply with quote  

quote:
Originally posted by Ronnie
littleroc, thank you for such a thorough analysis. I was not clear on some of the bills, so let me clarify.

If I do not do the debt consolidation, in addition to the credit card debt which equates to $500 minimum payments across all, I would still have to pay $1K a month for truck and $635 for pool until may, 2016. so in addition to mortgage, utilities and mortgage, I have $2135 minimum payment in "other debt".


Wasn't the truck payment already used in my tally from line 7?

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Oct 08, 2014 7:51 pm
 View user's profile Send private message
Ronnie
New Member


Cash: $ 1.90

Posts: 9
Joined: 03 Oct 2014
Location: United States
 Reply with quote  

Quote: In order to get back with new math based on these new numbers, can you itemize each of them laid out in a format :

Fixed:
2400 - mortgage 3.25% 12 years
994 - truck (3% 13K balance paid off by 2/16 - 16 months)
635 - pool (9% 12K balance paid off by 5/16 - 19 months)
800 - insurance (life; auto; health)
650 - utilities (phone, electric; water, internet; gas)
1500 - vehicle gas; food (4); incidentals; school supplies; repairs
422 - minimum all credit cards

CREDIT CARDS
Amex balance - 2788/0%-- 20% @ 11/2014 - $35 min. payment
Best Buy balance - 1007/0% -- 18% @ 11/2014 - $25 min. payment
Citi balance - 3396/0% --18% @ 12/14 - $51 min payment
Discover balance - 7091/0% -- 16% @ 2/15 - $183 min payment
B of A balance - 7406/0% -- 16% @ 3/15 - $88 min payment
HD balance - 3266/0% through 9/15 - $40 min payment

Note: i have been snowballing for the past 2 years. I HAD $55K in credit card debt. however, now i have a couple of cards catching up to me with interest rates

Thanks again, Littleroc!!!
Post Wed Oct 08, 2014 9:19 pm
 View user's profile Send private message
Wino
Senior Member


Cash: $ 113.80

Posts: 560
Joined: 03 Aug 2012
Location: Dubai
 Reply with quote  

quote:
Originally posted by Ronnie
1500 - vehicle gas; food (4); incidentals; school supplies; repairs

There's the prime candidate for finding money. This category is way overstated. You can't keep living like you're making $250K, which means some number needs to be cut back. I don't know the details, but unless you're a family of 17, the food estimates are way out of line.

You're going to have to cut back somewhere. If you're paying that much for food, you're eating out; even fast food adds up to a bit of money over a month. That means you're paying interest on your food purchases, because you put them on your credit card, which carries a balance. It almost feels like you're paying a monthly rental for your food.

You need to stop buying stuff you can't afford. It's not that you shouldn't be able to afford $1000 per month eating in restaurants. It's that you've already spent that $1000 on something else, which you need to pay off first. Once you're out of debt, bring your lifestyle back up, but without putting it on credit cards. This is going to require behavior change regarding your spending activities.
Post Thu Oct 09, 2014 12:05 pm
 View user's profile Send private message
Ronnie
New Member


Cash: $ 1.90

Posts: 9
Joined: 03 Oct 2014
Location: United States
 Reply with quote  

Thanks again Wino. I came to that same conclusion last night. I am going to do a deep dive into that account (i actually have an account set up specifically for this that my spouse controls). Eating out is definitely a culprit there, no doubt.

Another thought I was having is about the "equity line of credit". I don't have to use it. And of course, you only pay for what you use. I didn't have to pay to open it, and it costs $50 annually for 3 years to use, I can then close it after 3 years without any penalty. I have not closed on this. The bank is contacting me now to schedule the closing. I did not pay for the appraisal, title search, etc... nothing. Though I imagine if i don't open the account now, they may shift the $500 or so charges to me.

With credit cards soon to be ending their 0% interest and shooting up to the 18% rate, and the pool at 9% interest, is this equity loan at 7.25% a good alternative to transfer them to? So is a Hybrid plan to get out of debt a good one, where I only use the equity account to transfer in as interest rates go above 7.25%?

BTW, the credit cards are done! Yes, I keep them open for credit purposes, but the cards have been locked away. and there will be no more debt made.

The one thing I don't understand though, is that I won't be saving, so at the end of 4 years, I will be out of debt but still have no savings. When at the end of four years if I do consolidate, I would have @ $125K in savings and no debt? What am I missing in the end result?
Post Thu Oct 09, 2014 12:59 pm
 View user's profile Send private message
littleroc02us
Moderator


Cash: $ 382.90

Posts: 1884
Joined: 09 Feb 2009

 Reply with quote  

quote:
Originally posted by Ronnie
Quote: In order to get back with new math based on these new numbers, can you itemize each of them laid out in a format :

Fixed:
2400 - mortgage 3.25% 12 years
994 - truck (3% 13K balance paid off by 2/16 - 16 months)
635 - pool (9% 12K balance paid off by 5/16 - 19 months)
800 - insurance (life; auto; health)
650 - utilities (phone, electric; water, internet; gas)
1500 - vehicle gas; food (4); incidentals; school supplies; repairs
422 - minimum all credit cards

CREDIT CARDS
Amex balance - 2788/0%-- 20% @ 11/2014 - $35 min. payment
Best Buy balance - 1007/0% -- 18% @ 11/2014 - $25 min. payment
Citi balance - 3396/0% --18% @ 12/14 - $51 min payment
Discover balance - 7091/0% -- 16% @ 2/15 - $183 min payment
B of A balance - 7406/0% -- 16% @ 3/15 - $88 min payment
HD balance - 3266/0% through 9/15 - $40 min payment

Note: i have been snowballing for the past 2 years. I HAD $55K in credit card debt. however, now i have a couple of cards catching up to me with interest rates

Thanks again, Littleroc!!!


Just thought I'd drop a quick line and get back with the new math later. Busy day for me. This looks promising from my quick math, you have nearly 4k disposable income plus even more if like Wino says you can widdle down your eating out money. Talk to ya soon.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Oct 09, 2014 3:00 pm
 View user's profile Send private message
littleroc02us
Moderator


Cash: $ 382.90

Posts: 1884
Joined: 09 Feb 2009

 Reply with quote  

Before we get into the actual snowball and timelines for paying off all of your debt, I wanted to say that $1,500 for gas, food, school supplies and repairs is quite high as Wino stated previously. Here is how I would break down that catergory:

Gas Truck-$250 (This is based off my truck gas bills driving 40 miles a day)
Gas for Car-$150
Food-$600
repairs-$100
School supplies-$100
---------------------------
Total=$1200.00

Your salary per month comes out to approximately $11,600 and a total of $7523 for your bills. I'll just use a round number of 4k for disposable income left at the end of each month.

As for your monthly payments, I'm only going to list your debts that are less then half of your income and I don't care about interest rates, because paying off the smallest debts first help motivate you to continue. In addition I'm not including the date to payoff, because it isn't important since it will be paid off almost immediately. Here is the order I would pay them off.

1. Best Buy balance - $1007
2. Amex balance - 2788

Immediately with the 4k you can pay off the Best Buy account of $1007 and Amex Balance with the blink of an eye. That's month #1.

3. HD balance - $3266

Month #2 and another debt completely gone. Plus you have $734 extra to apply towards Citi Balance which leaves $2662.

4. Citi balance - $2662
5. Discover balance - $7091

Month #3 and your Citi balance is gone and leaves $1338 applied towards the Discover balance, which leaves $5753.

5. Discover balance - $5753

Month #4 and your Discover balance goes down to $1753

5. Discover balance - $1753
6. B of A balance - $7406

After Month 5 & 6 go by your B of A balance goes down to $1159.

At this point the minimum payments that you weren't paying anymore form the paid off debts would approximately pay off the remainder of this balance. So think about it, after 6 months you have all of your revolving debt gone.

At this point you now have $4422 to apply towards the truck and pool which is a total of 25k. In 6 months that debt is also gone.

The greatest part about this you don't have a payment in the world at this point except the mortgage and your total disposable cash each month is $6128. So at the age of 52 you'd have all of your bills paid off and if you invested that money in the market for 15 years @ 8%, along with your 250k, you'd have 3 million at the age of 67.

I hope I didn't miss anything, please read through it for any mistakes. You get the idea I hope. This how I've done it so far and the results are awesome.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Oct 09, 2014 7:45 pm
 View user's profile Send private message
Ronnie
New Member


Cash: $ 1.90

Posts: 9
Joined: 03 Oct 2014
Location: United States
 Reply with quote  

Littleroc and wino, really appreciate all the time and effort. I will go through this with a fine tooth comb and see if anything is missing. thanks so much!
Post Thu Oct 09, 2014 8:52 pm
 View user's profile Send private message

Reply to topic
Forum Jump:
Jump to:  
  Display posts from previous:      





Money Talk © 2003-2016