3.99% AmEx Blue vs 5.75% mortgage interest
DH and I are on a stringent budget for now. We do allocate 10% to retirement and are trying to juggle paying down debt while saving for the expenses(property taxes and Catholic school tuition) which put us in debt during a bout of unemployment and COBRA insurance)
Would you put funds above the additional minimum payment on the AmEx Blue (which is $200) toward the mortgage which has the higher interest rate?
It is our ultimate goal to pay off the house. I know that by paying off the AmEx Blue I'd have an additional $200 to pay toward the mortgage. But that won't be paid off for awhile and nothing is being paid toward the bigger goal.
Ideas, please?
Question for you all ...
January 10th, 2008 at 02:52 pm
January 10th, 2008 at 03:11 pm 1199977904
Years left on the mortgage?
Years left until retirement, etc., would be kind of helpful to know.
I'd want rid of both of them, so, I'd probably go for the AmEx first, just because those rates can change and one slip up getting a payment in late could trigger an increase, etc.
Depending on the money available for payments I'd probably pay extra to both knowing me! Ha - I do have a big debt aversion.
How's the Emergency Fund situation? If something came up where would the money come from - current income or would you be forced to hit the CC again? It would be important to know that there was ROOM in the creditline to add more debt if absolutely needed. What I'm saying is, if you are already at the credit limit and were to have an emergency is there room in the Credit limit for more to be added? If that was the only backup plan and there isn't EFs available, I'd be sure there was some room on the CC for an emergency first, by paying it down a couple of thousands and then maybe I'd hit the mortgage w/extra principal payments.
But that could be all for naught, if you've no Emergency Fund set aside.
So, twere it me, I'd go first to have a thousand or two in an emergency fund, then pay down the credit card a few thousand and then the mortgage. Probably backwards than most might advise, but most likely what I'd do.
January 10th, 2008 at 03:12 pm 1199977931
Years left on the mortgage?
Years left until retirement, etc., would be kind of helpful to know.
I'd want rid of both of them, so, I'd probably go for the AmEx first, just because those rates can change and one slip up getting a payment in late could trigger an increase, etc.
Depending on the money available for payments I'd probably pay extra to both knowing me! Ha - I do have a big debt aversion.
How's the Emergency Fund situation? If something came up where would the money come from - current income or would you be forced to hit the CC again? It would be important to know that there was ROOM in the creditline to add more debt if absolutely needed. What I'm saying is, if you are already at the credit limit and were to have an emergency is there room in the Credit limit for more to be added? If that was the only backup plan and there isn't EFs available, I'd be sure there was some room on the CC for an emergency first, by paying it down a couple of thousands and then maybe I'd hit the mortgage w/extra principal payments.
But that could be all for naught, if you've no Emergency Fund set aside.
So, twere it me, I'd go first to have a thousand or two in an emergency fund, then pay down the credit card a few thousand and then the mortgage. Probably backwards than most might advise, but most likely what I'd do.
Wiser heads than mine likely to be along any minute with better advice!
January 10th, 2008 at 03:13 pm 1199978019
January 10th, 2008 at 03:26 pm 1199978794
One thing to add is that the interest on the mortgage is deductable but not the AmEx interest. So the comparable interest rate on the mortgage is closer to 4-4.15.
Lux is right about the variable nature of the AmEX while the mortage is fixed.
Given the 2 choices, I wouold pay of the credit cards first.
January 10th, 2008 at 03:31 pm 1199979116
January 10th, 2008 at 03:39 pm 1199979559
Hi Lux, Here is more info:
EF is $15,000 in vanguard Money Market (balance of severence and gift from my grandparents). Maing 4.something% (taxable) This isn't really factored into our equation because psychologically it is our safety net. Should something happen like extended unemployment, that is what I'm counting on.
The AmEx Blue is 3.99% over life of transfer. We aren't acquiring any new debt (and haven't since DH is now employed again and insurance is reasonable). We are tackling upcoming expenses and paying the minimum. Our credit available to us is scary ($5K HELOC, $50K on four other credit cards - two we've had 18+ years, plus $600 on AmEx Blue).
Retirement savings is at $100K, plus 10%. We are 39 and DH would like to leave corporate America at 50 and do something else. (Don't know the likelihood of that as we will have five or six in/headed for college - though they will all have two years at community collge provided courtesy of us - and whatever they have in college savings outside of prepaid tuition)
We are three years into a $300K mortgage and have a balance of $287K (managed to make six months additional principle payments). I will return to work at some point.
I'm leaning toward putting all into the mortgage because it just isn't budging, and even a few extra hundred could get us down significantly and the interest is higher.
Would you still pay down both?
January 10th, 2008 at 03:42 pm 1199979729
Credit card terms can change. I'd just pay that sucker off. The credit card is a far riskier proposition than a fixed mortgage.
January 10th, 2008 at 03:50 pm 1199980251
Thanks all for the opinions. There are certainly some wiser folks here than us. I'm not a very patient person and while I'd love to have more money coming in so I could do it all, it probably wouldn't change my mindset and money management philosophy!
January 10th, 2008 at 05:30 pm 1199986223
January 10th, 2008 at 05:34 pm 1199986455
January 10th, 2008 at 05:53 pm 1199987629
Once your debt is paid off, you already have more debt available to you should you have an emergency. That would still leave you with some emergency money left. I never knew about this type of thinking when we were getting out of debt. Although I did take money I inherited from my grandparents to pay off debt. I think they would have approved because they didn't believe in debt. So, alot is up to you. You are making money, although Vanguard's money market is down to 4.55 now. You are paying taxes on interest that you are earning so in the long run how are you ahead? Just another thought.
January 10th, 2008 at 05:55 pm 1199987749
Hands down the credit card first! Absolute worst case, the mortgage interest is tax deductible.
January 10th, 2008 at 06:27 pm 1199989656
January 10th, 2008 at 06:36 pm 1199990183
Aleta - that is a very good point. Even though the math makes perfect sense to me and in the long-run it is costing me money, I don't think I'll be parting with the funds.
I grew up in a wierd situation - my father is from a very wealth, extravagent family (and he is selfish). When he and my mom divorced, he was very irregular with the pittance in child support that he paid. I was very well dressed because of the clothes he bought. My mom struggled to keep food on the table. There wasn't a lot of money in the day-to-day life but over the top Christmas gifts. I had a mother constantly worried about money and a father who threw money away on things. As a result, I am practical in my choices and that money is like a safety net. Even if my practicality is costing me in the long-run.
January 11th, 2008 at 06:56 pm 1200077808