Suggestions or Thoughts

**rcwso** · 07-09-2010, 12:16 AM

I am married with 4 kids ages 2, 5, 9 and 11.
I currently have the following debt:

Mortgage $308,000 (we just purchased this home last month)
My student loan $35,000
My Wife's student loan $25,000

We do not carry any other debt or credit card balances.
We have about a 1 month EF.
I have a very stable job with no risk of loosing it.

We currently pay the minimum on the student loans each month because we just moved and are making sure we are settled in to the home with no issues. Of course, there already have been some issues but we have not had to use any of the EF money. Once things settle down in the next 2-3 months, hopefully, we will have between an extra $500-800 per month minimum to put toward debt or whatever. It could be more depending on how frugal we become. I also will be receiving a raise at the beginning of the next year, about $600 per month more.

Several years ago we started a Roth IRA for my wife and I and contributed about 15,000 dollars total between the two. I know I can take out those contributions without any penalty. Any earnings would be taxed and penalized but I would not take those out at all.

My questions:
1. Would you recommend taking the 15K out of the Roths to pay down the student loan debt?
2. Keep it in the Roths and just move on paying off the student loan debts and then continue on the DR plan?
3. Do anything else?

Thanks, RCWSO

**ladykemma2** · 07-09-2010, 07:23 AM

the dave way is:

stop the retirement contributions and pay down with gazelle intensity the smallest debt first. hammer first at the 25,000 student loan, then the bigger one. then 3-6 month emergency fund. then start up your retirement contributions again.

do you listen to the dave ramsey website? the TV show is gone but you can listen for free on the website. i find it keeps me focused. i listen to all three hours while cleaning house on saturdays.

do a written budget where every dollar has a name. i also cut expenses to the bare bones when i was repaying debt. cut off cable, restaurants, and anything not necessary for life.

if i had to do it over again i would have signed up for financial peace university. do you know about this?

**rcwso** · 07-09-2010, 09:10 AM

Yes, I am familiar with all of Dave's information. I have read his book and I do listen to the show on a regular basis. I also know about FPU but have not attended.

Let me clarify a couple of things. We do NOT currently contribute to any retirement. The ROTH IRAs we had started were a few years back and we haven't contributed to those in a while. I do not plan on contributing until we get the debt taken care of, meaning zero besides the house.

We have had a budget before we bought the house. We still do but are trying to see what our actual bills add up to each month. We budgeted the mortgage payment and all that but now it is trying to see where the pennies go for bills each month.

So now, based on that info my original questions still stand with regards to taking out my ROTH contributions to pay down the debt.

Thanks for the help.

**mateosbaby** · 07-09-2010, 11:43 AM

I wouldn't take the money out of the ROTH. Keep it there, and just start working on that debt as quickly as possible. I assume your wife stays home with the kids, since you didn't mention her income (that I saw)? Become as frugal as you possibly can to send even more to the debts.

I totally understand wanting to see where the bills end up every month with a new house. We are about to move, as well, and what I plan to do is call the utility companies and ask what the total was the year before (the previous 12 months). Divide that number by 12, then up it by at least $50 (for gas/electric) for "inflation." I'll do that for a full year until I know what our expenses are compared to the previous owner. In the meantime, it's all budgeted, so I will know how much extra we have to throw at the debt. Hopefully I will have even more than that next year once I know how much we spent all year on the utilities.

HTH, and good luck!

**frugalwarrior2** · 07-09-2010, 03:23 PM

Alot for me would have to do w/ your age,interest percentage on loans.
Could your wife do something for income? (w/ the kids or would that be too much).(I meant temp. to kill the loans a bit).

I wouldn't cash in the roth if the loans interest isn't too bad.
And I get the impression your younger?? Also do you have retirement contributed previously, you can fall back on?? Makes a diff if I'd cash roth in.

**rcwso** · 07-09-2010, 09:15 PM

My wife and I are both 37. We have made the decision to not have her work out of the home until the kids are all in school. Then she may do some part time work but wants to volunteer more time than she already does to the kids schools etc.

I work for the Gov't and have done so for the past 10 years. I plan on spending at least 20+ years with the Gov't for the retirement. So, yes, I do have a pension plan with my job. I do not contribute currently to the Thrift Savings Plan (TSP) but will do so in the future when I am out of debt except for the house and beyond. But I do have a guaranteed retirement after 20 years of service.

My plan has been to keep the money in the Roths and let them grow (or shrink) as they may. I was just wondering if anyone else had any ideas on that or seen it work out well.

We are planning on getting on a consistent payment with a few of our house bills. I found out they offer an equal payment plan by doing what was mentioned by dividing the total the prior year by 12 and keeping your payment as such. Then readjust each year as necessary. I will plan for a few more bucks on each for inflation and extra costs at the end of the year if they go up.

Time to keep at it and pay it down. Thanks, RCWSO

**mateosbaby** · 07-09-2010, 10:54 PM

Originally Posted by rcwso

We are planning on getting on a consistent payment with a few of our house bills. I found out they offer an equal payment plan by doing what was mentioned by dividing the total the prior year by 12 and keeping your payment as such. Then readjust each year as necessary. I will plan for a few more bucks on each for inflation and extra costs at the end of the year if they go up.

Time to keep at it and pay it down. Thanks, RCWSO

I have thought about doing this in the past, but the previous owners (in both houses we've lived in) spent a lot more on utilities than we did. I find it's just as easy to budget a set amount and take out just the amount for the current month's bill than to have them to try to estimate it for you. At least this way you have access to the money should something big come up. If they're keeping it for you, you don't have that luxury. This may be a difference in budgeting styles, though. I do all mine in Excel, with sinking funds that I "transfer" money into and out of each month. I very rarely spend the money I have saved for a specific purpose. Others may not be as disciplined as we are, so do what works best for your family.

**cottageliving** · 07-09-2010, 10:56 PM

I agree with your plan to keep the funds in the IRAs.

Just keep paying down your student loans as quickly as you can.

You are in pretty good shape so just keep up the good work

**frugalwarrior2** · 07-10-2010, 07:46 AM

well my question is-Is the interest on the college loan leaking money faster than the Roth can earn it. You still haven't mentioned your rates. I believe I would dump the larger college loan if the interest is double digits and hack on the second as quick as possible then see how I felt after. (meaning trends,financial air around ya).

**rcwso** · 07-10-2010, 10:52 AM

Both interest rates on the student loans are between 4.5 and 6.5. Not that bad in reality to what some are facing.

**frugalwarrior2** · 07-10-2010, 11:57 AM

very nice rates. I just hate debt so I would pay at least 1 off. Good luck w/ whatever you decide. Will there be anymore tax deductons.lol??

**bumplett** · 07-10-2010, 02:20 PM

First of all, congrats on the new home.

I believe that under these circumstances, I would keep the $ in the IRAs & simply focus on the snowball.

It sounds as though you have enough extra to get a good intensity going ~

JMHO.

**Greebo** · 07-12-2010, 08:40 AM

Absolutely do not take the contributions out of the Roth unless its to avoid foreclosure or bankruptcy. That money has ALREADY "gone away" - and in doing so it's giving you tremendous long term benefits that you will never make up for by paying off the student loans early.