I see that a lot of people are candid about the debt load, and to sugar-coat it is like sticking one's head in the sand.
We started 07 with no credit card debt. As 08 starts this is where the household stands:
AmEx $9,806.00 at 3.99% min payment $197
HELOC $4,800 (est) at 8% min payment $56
The debt stems from the high cost of COBRA insurance while DH was unemployed, real estate taxes which are high in our area, parochial school tuition - though it is discounted because of our annual income/number of children).
We have a moeny market account with Vanguard with $15,000 (our "savings" account which was the leftover severence and a gift from my grandparents). It is making around 5%. Our retirement funds at Vanuard and 401(k) are about $100,000 and educatin is about $20,000. There is roughly $5000 in a mid-cap fund at Vanguard that I am contemplating selling to pay off the HELOC.
My challenge is to tackle the debt, WHILE saving up the upcoming expenses for 08. I know that I will probably need to take from the savings to offset the deficit.
Psychologically, I can't spend the $15,000 as that is our safety net. I have seen too many of my friends/family live paycheck to paycheck and then be really screwed without money. We are one payment ahead on our mortgage (Not prepayment) so if things were really bad then we would have two months to come up with the mortgage payment.
Any ideas on things? Oh and yes, we are in our late thirties and contribute 10% to DH's 401(k) (matched up to 3% I think)
My Debt Load
December 27th, 2007 at 07:03 pm
December 27th, 2007 at 08:19 pm 1198786758
I think I would withdraw the $5000 in the mid-cap and pay the HELOC. That may or may not be sound advice, but I see your thought process there. You would still have your 15K and you could use the extra $56 per month payment to add to your monthly AMEX payment and get that sucker paid off sooner. You are @ 3.99% which is a decent rate, so you could feasibly make good progress this year on it.
December 27th, 2007 at 08:21 pm 1198786907
Now for the hard step - Action.
I would recommend the following
1) track everything you spend money on for a month
2) set up a realistic budget ofr second month (include some fun stuff in the budget like eating out and entertainment)
3) each paycheck you get, fund the different line items
4) the trick to the budget - DO NOT SPEND MORE THAN FUNDED
5) set up your second budget and tweak to save money and pay off debt
I am on my second budget and noticed that it's easier then the first, I have more money in my bank accounts even though the money has already been allocated to different things, I have prioritized my spending, and I have had money for unexpected things (I needed I guy yo take a look at by furnance a couple weeks back and had already funded $200 towards Home Maintenance - no need to tap the emergency fund).
This is something you and your husband have to do together and agree upon. I use mvelopes.com other people use youneedabudget.com
Good Luck
December 27th, 2007 at 09:43 pm 1198791799
December 27th, 2007 at 10:33 pm 1198794798
December 27th, 2007 at 11:35 pm 1198798523
December 28th, 2007 at 01:41 am 1198806069
Adden-dum(b)
After reading my post, it strikes me that I am indeed costing myself money by not paying off the HELOC. The market was down at the end of close, and what was $4,105 went down to $4,044 in a few hours. Once that goes up, I will sell and apply to HELOC, plus with some Christmas money received as a gift, I will get rid of that one!
The Vanguard Federal Money Market is making (after fee adjustments) 4.67% YTD interest. I had that money in my local bank at an introductory rate of 5.15% and as soon as that changed to 2% I transferred it over.
Thanks for your opinions!
December 28th, 2007 at 03:22 am 1198812173
HELOC.... Yeah, that's high there, and I agree with Steve, especially since the HELOC COULD double as your emergency fund if you need it to. At least, until you can rebuild your savings again.
On the other hand, if you really feel so strongly about having that 15k available as a cusion, then I understand as well. But yes, if you have no feelings either way, I would consider paying off the HELOC.
The 5k mid-cap that you speak of.... Is this a taxable investment? Sounds like it, but I can't be sure. If it's part of your retirement money, I would leave it alone.
Finally, I would generally recommend to contribute to the employer match in 401ks, and then turn the rest towards an IRA of some kind. Probably the Roth. I would look into that if you haven't already done so.
Overall, I think you guys are still looking great! I wish I had already that much saved up. Maybe someday I will.