Feb Get Out of Debt Thread - Page 4

[seashells]

Originally Posted by applecider 

Originally Posted by MyTwoAs 

1) Dave Ramsey would say not to pay any additional on your mortgage and focus on paying off all of your non-mortgage debt.

Is that true even if you took out a 100% loan and are paying pmi? That is what I"m currently trying to decide. My non-mortgage debt is paid and we have a good sized ef. We also contribute 3% to a 401k but I'm trying to decide how to allocate the rest of the money. Some to the mortgage and more to the 401k? All to the mortgage until we can cancel the pmi? Not sure what to do.

If you threw it all to the mortgage, how long would it take you to get out from under PMI?

Can you fund about 15% of your income to the 401(k) and still have any extra left over for prepaying the mortgage?

Those questions would be relevant to my decision.

[MyTwoAs]

Originally Posted by applecider 

Originally Posted by MyTwoAs 

1) Dave Ramsey would say not to pay any additional on your mortgage and focus on paying off all of your non-mortgage debt.

Is that true even if you took out a 100% loan and are paying pmi? That is what I"m currently trying to decide. My non-mortgage debt is paid and we have a good sized ef. We also contribute 3% to a 401k but I'm trying to decide how to allocate the rest of the money. Some to the mortgage and more to the 401k? All to the mortgage until we can cancel the pmi? Not sure what to do.

I've heard DR field calls on the radio and the question comes up on the forum from time to time.  The "official" advice is still to get 15% into retirement and fund kids' college (if applicable) prior to putting extra on your mortgage (sorry I couldn't find a link, DR's website is a bit chaotic for me).  I have read where people pay down their mortgage to get rid of PMI as part of Baby Step 3b - which is saving up a 20% downpayment for a house.  Sooo...for those already in a house, they put off retirement and college savings and pay down their mortgage to 80% of the value so they can drop PMI.

I think this is definitely a situation in which you should tailor it to your specific situation - how long will it take to reduce your balance to get rid of your PMI?  Ask yourself if your comfortable holding off on fully funding your retirement until that point passes.  If you are, then go for it.  

I'm not a DR expert, though, so take what I say with a grain of salt.  I listen to the show daily because it helps keep me motivated and I am a member of the mytmmo.com community - but that just makes me knowledgeable, not a pro!  :D :D

[MyTwoAs]

Originally Posted by seashells 

If you threw it all to the mortgage, how long would it take you to get out from under PMI?

Can you fund about 15% of your income to the 401(k) and still have any extra left over for prepaying the mortgage?

Those questions would be relevant to my decision.

Ahh, didn't see your post - I have the same questions. :)

[applecider]

That's another thing I'm confused about. We can live off of about 2/3 of DP makes. So is that the amount I should be basing the 15% on? It just seems to me that by that point, our mortgage will be paid so I won't need such a high monthly paycheck. And now that the market has tanked, 80% of our loan value is way higher than 80% of our house value. Which do they go by for PMI? The pmi payment is about $100 a month. I will definitely pay down the mortgage before any college savings. DP did an apprenticeship and I got through college with no loans (community college) so I don't feel like saving for college is super important, but that's just me.

I just ran the numbers and yes, there would be some leftover for the mortgage even with fully funding the retirement (at the lower end). The other thing is that right now, DP is making prevailing wage, but when he is not working those jobs, he would just be making a regular wage and then I probably wouldn't have much left over at the end of the month.

I guess what scares me is DP's line of work. Last year he was laid off for a couple of months and it freaked me out. So now I feel like I should just SAVESAVESAVE and it is hard for me to put that money in places where I can't get it back (like the mortgage and retirement). I guess ideally I should throw a little at the 401k, a little at the mortgage and a little into savings.

[MyTwoAs]

The way DR explains the retirement funding is that it is 15% of the annual gross household income.  So if you make $100k then $15k goes into retirement savings.  Here's a quick and dirty definition of Baby Step 4 - http://www.daveramsey.com/new/baby-step-4/

If I were in your shoes, I'd probably have a beefier emergency fund (9 - 12 months maybe) since there was a recent (relatively speaking) layoff and you're scared about it (as I would be too).  So if another layoff happens you have money in an easily accessible liquid account to tide you over until things get back into gear.  

[seashells]

Originally Posted by applecider 

That's another thing I'm confused about. We can live off of about 2/3 of DP makes. So is that the amount I should be basing the 15% on? It just seems to me that by that point, our mortgage will be paid so I won't need such a high monthly paycheck. And now that the market has tanked, 80% of our loan value is way higher than 80% of our house value. Which do they go by for PMI? The pmi payment is about $100 a month. I will definitely pay down the mortgage before any college savings. DP did an apprenticeship and I got through college with no loans (community college) so I don't feel like saving for college is super important, but that's just me.

I just ran the numbers and yes, there would be some leftover for the mortgage even with fully funding the retirement (at the lower end). The other thing is that right now, DP is making prevailing wage, but when he is not working those jobs, he would just be making a regular wage and then I probably wouldn't have much left over at the end of the month.

I guess what scares me is DP's line of work. Last year he was laid off for a couple of months and it freaked me out. So now I feel like I should just SAVESAVESAVE and it is hard for me to put that money in places where I can't get it back (like the mortgage and retirement). I guess ideally I should throw a little at the 401k, a little at the mortgage and a little into savings.

You are saying you want to build up your fully funded emergency fund? Sorry, I forgot, did you already achieve that step? Yes, I think that the FFEF comes before the full funded retirement or the mortgage. If you do have an emergency fund but you're still worried, do you think you need to increase your fund? Do you have sinking funds for various specific "emergencies" like auto repair, home repair, medical deductible, etc? Maybe if you had those plus the FFEF you would feel secure?

Since DR is about motivation and security (emotions more than sheer math), if dividing your extra three ways is what makes you feel good, go for it :)

For me, if I felt that I could knock off the PMI in 3 months, I'd be motivated to do that, thinking about how much we'd save each month. But that's just me.

[applecider]

Oh, heck no. It will take at least two years to knock off the pmi.

[seashells]

At a rate of 2 years, I'd rather get the retirement funded up first, though I would probably sneak in a small extra principal payment anyway :) What's small for you is different for me; I usually send about $20-25 extra. I don't count that as dedicated debt paydown, but it will still shave off a couple years from the entire 30 year mortgage, plus save thousands in interest.

So is your emergency fund fully funded? If so, are you still feeling anxious about it? Is there a specific number you would like to see it at?

[MyTwoAs]

Ditto seashells!

[Turquesa]

More random DR questions....

I've been looking into the educational savings issue, and I know that DR prefers ESAs (Educational Savings Accounts) over 529s.  Any reason for this?

Also, I heard a rumor that ESAs may or may not have changed so that you could only contribute 500 annually instead of the traditional 2000.  Does anyone know about this?  Did this change end up occurring?  If so, I'm definitely going to do the 529.   

[imamomx2]

We just found out that my dh was getting an unexpected bonus for $4000!!!!!  That means after taxes we will have enough to pay off my student loans!!!  We will be debt free as of the first week of March - two months earlier than we thought!  We are so excited!!!!!!!!!!!!!!

[lavatea]

Awesome!

[applecider]

Originally Posted by seashells 

At a rate of 2 years, I'd rather get the retirement funded up first, though I would probably sneak in a small extra principal payment anyway :) What's small for you is different for me; I usually send about $20-25 extra. I don't count that as dedicated debt paydown, but it will still shave off a couple years from the entire 30 year mortgage, plus save thousands in interest.

So is your emergency fund fully funded? If so, are you still feeling anxious about it? Is there a specific number you would like to see it at?

I guess I'm not sure if it's fully funded. Last time he was laid off he got unemployment so it really didn't eat up much savings. Plus, I was able to really scale back on our expenses. So technically, yes we could get by on that amount for 3 months with no unemployment and longer with unemployment. So I guess that answers my own question! We also have the motorcycle we are trying to sell. Also, we are redoing our kitchen this summer (on the cheap) so hopefully the bike will sell and we'll use that money to do the kitchen. As to whether I feel anxious, I always feel anxious about money!! Wish I didn't though. I'm sure even if I had a million bucks I'd still be anxious about what to do with it.

[applecider]

Originally Posted by imamomx2 

We just found out that my dh was getting an unexpected bonus for $4000!!!!!  That means after taxes we will have enough to pay off my student loans!!!  We will be debt free as of the first week of March - two months earlier than we thought!  We are so excited!!!!!!!!!!!!!!

Woohoo!! Congrats! What's your next step?

[eirual]

Question (I posted the whole story under "my brain hurts" in the organizing/decluttering section):

Would you put a family of 3 into a 1BR apt in the name of saving $300-400/mo? We're debating between 2 properties. Both modest. The smaller of the two is a nice, but small one bedroom, conveniently located main floor apartment for 25% of my income vs. a larger (but still on the cheaper end) 2BR for 35% of my income.

We're rounding the bend on BS 2 and are looking to start saving for BS3 while DH is taking a 3yr. college degree.

I'm hoping we can go car-free too and knock another $300 off our monthly expenses, at least for a good portion of the year. 

In the long-run, we're getting close to our financial goals, but in the short-term I'm not making what I will be come the fall, I won't be working through the summer, and we still have tuition and a trip for my brother's wedding to save up for. DH will continue to work right up until he starts school in September. So our numbers are a little wonky for the next 6 months, but in a good way since we're both making an income for the time being.

[lookatreestar]

we are 4 in a 1br (usually the 3 of us as dh is usually at work). it feels pretty cramped sometimes, but i just get rid of more junk or we go outside and play. 
 

Originally Posted by eirual 

Question (I posted the whole story under "my brain hurts" in the organizing/decluttering section):

Would you put a family of 3 into a 1BR apt in the name of saving $300-400/mo? We're debating between 2 properties. Both modest. The smaller of the two is a nice, but small one bedroom, conveniently located main floor apartment for 25% of my income vs. a larger (but still on the cheaper end) 2BR for 35% of my income.

We're rounding the bend on BS 2 and are looking to start saving for BS3 while DH is taking a 3yr. college degree.

I'm hoping we can go car-free too and knock another $300 off our monthly expenses, at least for a good portion of the year. 

In the long-run, we're getting close to our financial goals, but in the short-term I'm not making what I will be come the fall, I won't be working through the summer, and we still have tuition and a trip for my brother's wedding to save up for. DH will continue to work right up until he starts school in September. So our numbers are a little wonky for the next 6 months, but in a good way since we're both making an income for the time being.

[imamomx2]

Well, we are going to buy a couple of fun things that we have been putting off for a couple of years.  Then it's back to savings - trying to get to our three to six months as soon as we can.  I was really considering quitting my job to stay home, but it's so nice to have the cash flow that we have...

[sdm1024]

Joining in!

Tax return came ($6700 ), and that was used to jump start our debt elimination process. Two CC's paid off. We also traded in DH's expensive car (payment was $460, two years left!) on a much, much cheaper used car that will be paid off in 8 months. Also took care of a few smaller bills that we just hanging around: $40 to the dentist, $80 to the doc after my physical (new year, new deductable!!). It is nice feeling like we're cleaning up.

We have been trying to get out of debt for a while. We've actually paid off CC;s before and ran them back up again. A big part was lack of discipline. The other was us not being on the same page. I was much more into it than DH, and it was just a mess.  He read DR's book over the summer and became much more motivated. It's nice feeling like there is a light at the end of the tunnel. We also found that giving us each an allowance helped. We each get about $40/week for incidental things. When we tried to not spend AT ALL (no eating out, no extra stuff) it just didn't work - we were nitpicking at each other over EVERY purchase. Another thing that helps us is to sort the mail before it comes in the house: all catalogues are put directly into the recycling and don't come in the house.

I don't think we are going to follow the DR to the T, however. I think we will start our large EF once the last two credit cards and the small car are paid. It will take us about 10 months to fund a 4 month EF. Then will direct the money to the two student loans (UGH) and the minivan.

[Turquesa]

Originally Posted by imamomx2 

Well, we are going to buy a couple of fun things that we have been putting off for a couple of years.  Then it's back to savings - trying to get to our three to six months as soon as we can.  I was really considering quitting my job to stay home, but it's so nice to have the cash flow that we have...

Can't help you with that one.  No easy answers!  I absolutely wrestled with the SAHM v. work-outside-home question.  I opted for the former because keeping my job wasn't worth it monetarily OR emotionally.  Maye this will help you?

[sdm1024]

Originally Posted by Turquesa 

Can't help you with that one.  No easy answers!  I absolutely wrestled with the SAHM v. work-outside-home question.  I opted for the former because keeping my job wasn't worth it monetarily OR emotionally.  Maye this will help you?

I went back and forth on this as well. Once we added up childcare, uniforms (scrubs aren't cheap anymore!), supplies, travel time, etc we found that we weren't really making much of a profit. I was working 36hrs/week (three 12's) and only really profiting $250 week after taxes, retirement contrib., and childcare.