Financial question

[Bateluer]

Alright, I've been debating whether or not to act on this or not. I'm thinking it'll be more beneficial for me.

At the moment, I have a few sources in investments: 1) A TSP with ~7600 in it, nonliquid, 2) A mutual fund with ~3000, nonliquid, 3) A Roth IRA with about ~1000, also nonliquid, 4) Lastly, I have a savings account at ING with about 2700 in it. Obviously, I won't be touching the nonliquid accounts, but the ING account can be used. It'd actually have more in it, but I had to dip into it for school text books a month ago. I consider school expenses to be a worthy expenditure though.

Right now, I have a few sources of debt as well that I'm trying to pay off. 1) LASIK bill through CareCredit with a balance of 570, 2) One CC with about balance of 780, 3) My car financing has about 2k left on it. 4) Another CC with about 3k on it.

I'll put them in a table to make them easier to digest.

Savings

1) TSP - $7600 - Nonliquid - $150/month deposited
2) Mutual Fund - $3000 - Nonliquid
3) Roth IRA - $1000 - Nonliquid
4) ING Savings - $2700 - liquid - $250/month deposited

Debts

1) LASIK - $570 - Pay $125/month
2) CC1 - $780 - Pay $250/month
3) Car - $2000 - Pay $300/month
4) CC2 - $3000 - Pay $100/month

With ING lowering their interest rate again a few weeks ago, I've decided to pull the 2700 out and move it into my FNBO account because its got a better interest rate. I didn't mention my FNBO account above because it only gets a 25 dollar monthly deposit. Its main purpose is a as a personal spending account. I'll increase the amount I send to FNBO from 25/month to 250/month and reduce what I put in ING to 25/month, as well as moving the 2700 to FNBO.

Now, I could take this opportunity to pay off debts 1 and 2. This would free up 325 per month that I could allocate elsewhere.

Here's where things get a little more complicated. I want as much paid off as possible by June 2008. CC2 won't be paid off by that time, however, but everything else will be. I also want to generate as much into that liquid savings account as possible, in case I have to live off it for a time while I job search.

If I pay off debts 1 and 2, I could increase the amount of money I send to the liquid savings account from 250 to 500 and still have 125 per month to apply to paying off the car. With the 300/month payments, the car will be paid off in about Jun08 time frame. The extra
payment will knock some time off that.

If I continue paying things as I plan, the LASIK bill will be paid off in Feb and CC1 will be paid off in Jan.

There's also the tax return in Jan/Feb 08 time frame, but I don't want to count on that for anything. Odds are, it'll go against that hefty CC2 balance. Like I said though, I don't want to count on the tax return.

So, do you think I should pay off those two smaller debts now, or simply put that money into FNBO and continue the 250/month deposits?

 

[spidey07]

Pay off debts if their APR is greater than assets APR.

Otherwise, don't.

Also, purchase appreciating assets, lease depreciating ones.

-edit-
The fact that you are expecting money BACK from the IRS and are giving them an interest free loan, you might seek professional help on your finances.

 

[Bateluer]

Originally posted by: spidey07


-edit-
The fact that you are expecting money BACK from the IRS and are giving them an interest free loan, you might seek professional help on your finances.

I figured someone would make a comment like that. Here's some more details on that front.

I'm currently taking a number of college classes, which were paid for out of my pocket. This means that I can use the Hope Credit to all that money back at tax time.

 

[IronWing]

Is the mutual fund tax deferred in any way or carry some other closing penalty? If not, consider depleting that before depleting the savings account. You'll want an emergency fund on hand which is something savings accounts are good for. You could knock out a bit less than half your debt by applying the mutual fund money to it. I hate to suggest market timing but in the face of current market conditions, dumping a mutual fund for the sure bet of knocking out CC debt would be something I would look at doing. I would apply it to the highest interest rate debt first.

 

[DaveSimmons]

It might feel more satifsying to pay off the smaller debts first, but you should put the money towards the ones that have the highest interest rates. If that happens to be the smaller ones, then great.

 

[IronWing]

Originally posted by: DaveSimmons
It might feel more satifsying to pay off the smaller debts first, but you should put the money towards the ones that have the highest interest rates. If that happens to be the smaller ones, then great.

Normally I would agree, and in fact suggest same above, but in this case where he is facing unemployment at a known date in the near future, cash flow may be more important than total cost of the debt.

 

[Bateluer]

Originally posted by: ironwing
Is the mutual fund tax deferred in any way or carry some other closing penalty? If not, consider depleting that before depleting the savings account. You'll want an emergency fund on hand which is something savings accounts are good for. You could knock out a bit less than half your debt by applying the mutual fund money to it. I hate to suggest market timing but in the face of current market conditions, dumping a mutual fund for the sure bet of knocking out CC debt would be something I would look at doing. I would apply it to the highest interest rate debt first.

I looked at that option too. The fund is doing well and I started it at a low point in the market several years ago. Its beaten the market every year since by significant margins.

Debts 1 and 2 are interest free at the moment, but that will expire in roughly Mar08. The Car has a 7.5% interest rate and the large CC2 has a rate of 13.5%. As I said though, I need to pay off as much as possible before Jun08. If I were to route everything to the large CC2 balance, I would be left with 4 sources of debt at the end of my time frame, all of which would have interest on them.

I'd have to check the paperwork for the LASIK bill, but I'm pretty sure the interest rate won't be very pretty. CC1 will go to about 12%, if I recall correctly, after the interest free time is up. I actually transfered the balance over to CC1 from a 3rd CC that I've paid off already because Chase jacked the rate to 21.4% without any reason.

 

[Bateluer]

Originally posted by: ironwing

Originally posted by: DaveSimmons
It might feel more satifsying to pay off the smaller debts first, but you should put the money towards the ones that have the highest interest rates. If that happens to be the smaller ones, then great.

Normally I would agree, and in fact suggest same above, but in this case where he is facing unemployment at a known date in the near future, cash flow may be more important than total cost of the debt.

What Ironwing says is right, though its more uncertain employment. My enlistment in the AF ends, and I really don't want to re-enlist. Don't misunderstand me, the AF has some great benefits, but if I re-up, it will because I choose to, not because I am forced to.

 

[Gunslinger08]

If I were in your position and had reasonable assurance of a stable life for the next 6+ months, I'd dump the savings and mutual fund to pay off $5700 of the debt. Give yourself another month after that, and your debt is completely gone. Obviously this isn't a choice if you can't sell your mutual fund or have the possibility of being laid off/fired soon.

 

[Pliablemoose]

You're in really good shape, the amounts of debit you have are very manageable, and the principle is small enough on everything that it really doesn't matter what you pay off first.

But, as a rule of thumb, I'd suggest paying off your CC's first, and learn to live on your income instead of the damn credit cards.

Repeat after me, "disciprine..."

Seriously, get your spending & debit under control and life becomes much simpler

 

[Bateluer]

Originally posted by: Pliablemoose
But, as a rule of thumb, I'd suggest paying off your CC's first, and learn to live on your income instead of the damn credit cards.

Repeat after me, "disciprine..."

Seriously, get your spending & debit under control and life becomes much simpler

Aye, I made the mistake and accumulated these debts in 2005 and the first half of 2006. I got some sense knocked into me in the middle of 2006 and I spent the time since then correcting the situation. The debt hasn't actually increased, but I want it gone.

I know I'm in better shape than most of the US though.

 

[spidey07]

Originally posted by: Bateluer

Originally posted by: Pliablemoose
But, as a rule of thumb, I'd suggest paying off your CC's first, and learn to live on your income instead of the damn credit cards.

Repeat after me, "disciprine..."

Seriously, get your spending & debit under control and life becomes much simpler

Aye, I made the mistake and accumulated these debts in 2005 and the first half of 2006. I got some sense knocked into me in the middle of 2006 and I spent the time since then correcting the situation. The debt hasn't actually increased, but I want it gone.

I know I'm in better shape than most of the US though.

Don't be so happy.

You haven't gotten your life really started yet. Just an FYI, watch yourself.

Kudos for not getting started burdened with debt. But don't compare your situation with the rest of the population. It's apples and oranges.

 

[Bateluer]

Originally posted by: spidey07

Originally posted by: Bateluer

Originally posted by: Pliablemoose
But, as a rule of thumb, I'd suggest paying off your CC's first, and learn to live on your income instead of the damn credit cards.

Repeat after me, "disciprine..."

Seriously, get your spending & debit under control and life becomes much simpler

Aye, I made the mistake and accumulated these debts in 2005 and the first half of 2006. I got some sense knocked into me in the middle of 2006 and I spent the time since then correcting the situation. The debt hasn't actually increased, but I want it gone.

I know I'm in better shape than most of the US though.

Don't be so happy.

You haven't gotten your life really started yet. Just an FYI, watch yourself.

Kudos for not getting started burdened with debt. But don't compare your situation with the rest of the population. It's apples and oranges.

I don't recall mentioning my age . . .? Most people my age have substantially more debt than I do. Actually had to do a counseling session with one of my subordinates for failing to pay his credit card bill. Come to find out that he had 15k in credit card debt.