What would you do with this money?

[heathenmom]

I'd like some advice from the financially-savvy ladies here. DH & I make decent money, but basically live paycheck to paycheck (we both have very small 401K's, and a savings account with about 50 bucks in it). We're trying to fix that a little at a time. I get a pretty significant bonus each year if my employer has a good year. It comes in about the same time that any tax refund is received. So, here's what we're looking at this year:

Net bonus -- $4300
Federal tax refund -- $1319
Total -- $5619

Outstanding bills, etc.:
2007 state income tax -- $359
2007 property tax -- $1711 (includes penalties/interest for paying late)
2008 property tax (due Nov - in savings 'til then) -- at least $1500
2008 homeowners insurance premium (due April)-- $550
credit card #1 (Mastercard) -- $522.07
credit card #2 (World Market) -- $1230.92
credit card #3 (Home Depot - no payments/interest until June 2008) -- $3500

I'd love to put some $$ into savings for a small emergency fund as well.

So, how would you prioritize the above? If it matters, all the credit cards have RIDICULOUSLY high interest rates.

[stacim]

Just to be sure I understand, the 2008 PPT and the 2008 ins. premium are due later this year, right? I would probably get caught up on the late taxes, pay off CC #1 and #2, roll newly freed up payments from CC#1 and #2 into CC#3, and put the rest into savings. I would also call CC#3 and ask them to lower your rate. If you are in good standing, they may be willing to lower it quite a bit. A lot of companies have retention departments that might be able to offer you an attractive rate to stay, if you mention that you are considering moving your money elsewhere.

If my math is correct, that would have you putting just under $1800 into savings.

[heathenmom]

Thanks for responding! I added a little more detail. The 2008 property taxes are due in November. The 2008 h/o insurance is due in April. I'd love to try to get the interest rates down, but since 2 of the 3 -- of course with the highest balances -- are store cards, I didn't figure it would do much good. Guess it can't hurt to try, can it?

[DandeCobb]

I would start at the top of your list and work my way down (putting away the money for the insurance and property taxes that are due later this year) by my math in my head you would have all the way down to the World Market card and that would be 90% payed off. then i would tighten my belt for a month (2 max to get that all the way paid off <and cancelled>) that would only leave you the Home Depot card that is interest free for another 3 months? With none of those other bills hanging over your head, you can start hitting that one bill pretty hard and should be able to make a pretty good dent in it pretty quickly. Good luck!

[WNB]

Pay the income tax and 2007 back tax now.
Put the amount of the 2008 tax into a 6 month CD or otherwise locked away so it's there in November for sure.
Pay the homeowner's insurance now.
That's $4100.

Those are expenses you don't have a choice about: they get top priority.

For the revolving credit vs savings - I guess it depends on what you've got in savgins already. If you have an emergency fund, then I'd pay off as much of the CCs as possible, because it's basically guaranteed that the interest fees on the CCs will exceed any return you'd get from investing the money you'd otherwise use to pay off the debt. Pay down the highest interest rate card first. If you can't get the Home Depot rate adjusted, dump all you can into the balance. Are you sure that you are not accruing interest during the period you're not required to pay?

[Herausgeber]

I'd pay them in this order, to eliminate the relative rates of danger to your financial well being that they represent:

2007 property tax -- $1,711 (includes penalties/interest for paying late)
2007 state income tax -- $359
credit card #3 (Home Depot - no payments/interest until June 2008) -- $3500 (when the no interest deal ends in June, you'll be retroactively charged for all the interest that accrued had that rate been applied each month. Look at your statement and you'll see just how bad the damage will be if you don't pay it off by the end of the no payments/no interest deal.)

Next priority is these, which need to come from some other source of income:

2008 homeowners insurance premium (due April)-- $550
2008 property tax (due Nov - in savings 'til then) -- at least $1500

Come up with a snowball plan to pay these:

credit card #1 (Mastercard) -- $522.07
credit card #2 (World Market) -- $1230.92

I'm sure you know this, but you should figure out the total property taxes and insurance premiums you owe, divide it by 12 (monthly) or 26 (biweekly) and put that money into a dedicated savings account each paycheck. This is separate from your emergency fund. Basically, you need to self-escrow since the bank isn't doing this for you.

[heathenmom]

Originally Posted by WNB

Are you sure that you are not accruing interest during the period you're not required to pay?

If you pay off the balance before 12 months, then there's no interest. If you don't, then it accrues interest from day 1 of the purchase. Did I mention how bad I HATE credit cards? I will never, ever, EVER let dh talk me into another store credit card as long as I live. :

[meowee]

Originally Posted by heathenmom

Outstanding bills, etc.:
2007 state income tax -- $359
2007 property tax -- $1711 (includes penalties/interest for paying late)
2008 property tax (due Nov - in savings 'til then) -- at least $1500
2008 homeowners insurance premium (due April)-- $550
credit card #1 (Mastercard) -- $522.07
credit card #2 (World Market) -- $1230.92
credit card #3 (Home Depot - no payments/interest until June 2008) -- $3500

I'd do it in this order:

back property taxes
current property taxes
state income tax
homeowner's
world market
mastercard

Put the rest into an emergency fund with the highest interest you can find, and in june pay at least 1/2 the HD card. Try not to put any more on CCs, try to work on a cash only basis.

[heathenmom]

Originally Posted by meowee

Try not to put any more on CCs, try to work on a cash only basis.

Oh, believe me ... after watching the documentary Maxed Out last weekend, I am D.O.N.E with credit cards. Just having them in my name makes me feel dirty.

[WNB]

Originally Posted by heathenmom

If you pay off the balance before 12 months, then there's no interest. If you don't, then it accrues interest from day 1 of the purchase. Did I mention how bad I HATE credit cards? I will never, ever, EVER let dh talk me into another store credit card as long as I live. :

OK - so you really, really have to pay this off before June 2008.
Scratch the 6-month CD to hold the $1500 2008 property tax, and homeowners insurance also: you are going to need to cover this out of your normal income if you want to cover the HD card with the bonus money and tax refund.

You should think of it as "no payments until June 2008" but NOT "no interest until June 2008". A $3500 loan at 15% APR = $525 in interest expense. That's eerily similar to the entire balance on your Mastercard. And I'm just guessing on the HD interest rate - it could easily be higher. (I suppose lower, too, but it's still a CC - probably not going to get that much lower.)

$5619
Minus:
1,711 (2007 tax)
359 (income tax)
3,500 (home depot)
====
5,570

That's not really a very happy picture, but I think that's your most rational allocation.

[heathenmom]

Crap. Crapcrapcrapcrapcrap. Yeah, the interest rate on the HD card is MUCH higher than 14%. Stupid F'ing lawnmower that we just HAD to have. I've had my head in the sand about how much of a hit we'd be taking by not paying that off before the deadline -- I've never had a card with that high a balance OR that high an interest rate.

Okay, deep breath. I wonder if I can talk with the ins co and switch to a monthly pmt instead of a lump sum. I know it'll be more $$ over the long term, but we gotta have h/o ins. And ... there's a month between now and November that has a 3rd paycheck for me ... that could 100% go towards 2008 property tax. I wanted to put it 100% into savings, but oh well ... desperate times and all.

Thanks so much for pointing out the obvious to me.

[nd_deadhead]

We pay a lot of insurance premiums (car, homeowners, health, life) monthly. Because it's deducted from the checking account, there is no penalty. I LOVE not having those big expenses every 6 months!

The other option, as someone else said, is to self-escrow your taxes and other periodic expenses: insurance premiums, vehicle registration, dental appointments. We do this with our property taxes, which are about 3600/yr. I have a dedicated savings account for this (plus a little extra), and $400/month is directly deposited to this account from my paycheck - I never see it. It is in our company credit union, so I have to make a special trip to get money out - I can't transfer by phone.

Meanwhile, you simply have to get that HD card paid off before the due date - anything else is a silly waste of money. I bought furniture under a similar program (3 years no interest), but I have been making monthly payments, so I won't get hit with a huge payment at the end.

So here is my recommendation:
State income tax, 2007 property tax, HD card. You'll have to scrape this year's homeowner's insurance from somewhere ($400 worth).

[Free Thinker]

Net bonus -- $4300
Federal tax refund -- $1319
Total -- $5619

Outstanding bills, etc.:
2007 state income tax -- $359
2007 property tax -- $1711 (includes penalties/interest for paying late)
2008 property tax (due Nov - in savings 'til then) -- at least $1500
2008 homeowners insurance premium (due April)-- $550
credit card #1 (Mastercard) -- $522.07
credit card #2 (World Market) -- $1230.92
credit card #3 (Home Depot - no payments/interest until June 2008) -- $3500

I agree the HD CC has to be paid now so you avoid the back-interest. I'd pay the 2007 Taxes and the HD CC for a total of $5570. You'll have $49 left, so that goes toward CC#1. I'd call and make the ins. payments monthly, the amount you save is minimal compared to what you are paying in interest on those CCs, take the $$ you would have paid on that and use it to pay off those CCs as quick as possible. One other tip I have is that if you still have anything NWT that you can return on those CCs, do it! Another thing I would do is put away $200 a month toward your property taxes. Good Luck!

[heathenmom]

The 2 store cards haven't been used since the initial purchases -- a lawnmower on the HD (June 07) and furniture on the WM (April 07). The CO card hasn't been used in nearly a year.

I know we need to self-escrow the property taxes and other big, annual bills. I just haven't had the discipline to do it. I like the idea of having it x-ferred automatically into our credit union savings account. That would definitely make it harder to get to. I'm just so frustrated with myself that we're in this mess. I know better ... I just let myself get talked into situations that aren't in our family's best interest.

[phathui5]

Do you already have an emergency fund in case something happens so you're not having to charge it when you need money?

[heathenmom]

No. We have about $50 in savings and that's it.

[stacim]

s

Don't beat yourself up. You're trying to get it straight now. It will still feel like some of the weight has been lifted to get caught up on a few things. Get yourself disciplined and you'll get on top of it.

Now that you added the extra details about the debt since my original post, everyone has already pointed out the need to get out from under that HD card. So, I don't really have anything new to add, just wanted to encourage ya.