debt snowball advice

[gmarie]

So I paid off the last credit card a few days ago! What a relief!

My next focus is taxes, and paying off the small misc debts. (2600)

After that, I'm debating what to snowball first.

We owe $9490 on our car ($300/mo, 8.2%). It valued at 8990, and in order to sell, I would need to pay $800 to fix a dent. It is a 08 gas efficient car w/ 50k miles. Paying it off early would also save on insurance since we could drop the collision.

DH drives a 2000 model w/ 180k that is valued at $2970. We paid 4k cash for it in 09 and have put over $1000 in it (included tires)

Our remaining debts are student loans:

$1,538 Sallie Mae (22.08, 3.5%)
$5,353 Credit Union (68/ mo, 5.7%)
$10,770.00 Greatlakes (121/mo 5.6,6.8%)
$31,830.00 - Sallie Mae (135/mo 2.47%,6.80%). this a balloon payment that will go up next year.

$3,000 - loan from Dh's mother to pay off an old school debt. She now says she does not want the money, but DH insists on paying her back. (I agree!)

We have a large snowball that averages 2k+/ mo. We also just moved and reduced our rent by $600/mo and will save about $9k this year in rent and utilities!

My income fluctuates, and DH's job does not feel very secure.
We have both been through job losses in the last few years (part of the reason we are in this mess!) so job loss is a huge concern. DH is a well paid exec chef, and can be the first to be let go when the owners are struggling to pay the bills.

So that being said - I'm leaning towards paying off the car loan first. Saving the $300/ mo plus ins seems like a good idea. And in case of a job loss, the student loan pmts can easily be put on hold, while the car payment can not.

What do you think? Should I just stay in order of smallest to largest?

OR, should we look into selling the 08 car? I feel we can get 10 years out out of this car, it is very dependable and under warranty. The older car is not very dependable and has 180k miles on it. Our families are 1-3 hours away so we do a lot of traveling for holiday's.

Advice please!

[Russ]

Here's a good explanation of the debt snowball.
* Dave Ramsey's Debt Snowball

to summarize.

The basic steps in the Debt Snowball debt reduction plan are as follows:

List all debts from smallest balance to largest. Note, there are people that advocates paying highest interest rate debt first, but that’s not the Debt Snowball method.

Pay the minimum payment on every debt, except the smallest debt.
Pay as much as you can towards that smallest debt until it is paid off.
Once the smallest debt is paid in full, repeat the process by paying as much as you can toward the second smallest debt.
The idea is that you’ll be able to pay more toward the “smallest” debt each time a debt is fully paid off.

[gmarie]

Thank you - I am familiar with his rules, but does it make sense in my situation to group the debt together (credit cards, then car, then student loans which total 52k)?

[Russ]

This is the order I would work though the first one need's more explaining. With a $2000 snowball you can pay off the first 3 in less than 5 months.

My next focus is taxes, and paying off the small misc debts. (2600)

$1,538 Sallie Mae (22.08, 3.5%)
$5,353 Credit Union (68/ mo, 5.7%)

We owe $9490 on our car ($300/mo, 8.2%)

[bumplett]

I agree with Russ.

That's the order I would work in also.

I wouldn't even consider selling the car if you have a $2000+ snowball going foward.

[HappyMama]

I agree with Russ and Bumplett. Good job by the way!

[Greebo]

Debt is debt. It's all one big bucket o debt. The ONLY exception is mortgage debt.

Follow the snowball. The car isn't gonna be more valuable because you pay it off faster, and odds are it's costing you less to hold that debt than the other debts anyway.

[gmarie]

It's not that I think the car will be more valuable, but we will also save $500/ yr by dropping the comp & collision plus free up $300/ mo in payments. And it feels less risky in an emergency situation to have student loans and not the car loan. (since SL's can be deferred in a financial crisis).

I'm not planning for disaster, just a bit nervous about DH's job stability.

And I'm curious, what do you mean by it's costing me less to hold the car loan than the other debts?

[mateosbaby]

This is just me, and I have a family to worry about, but personally, if my dh's job was not secure and we felt it was at risk, I'd be going for saving up the FFEF rather than the debts right now. (In fact, that's what we have decided to do right now - we aren't 100% sure with what's happening at his job right now.) With that big of a snowball, you can do some serious saving in a short time, and still not be that much behind in the "real" snowball, kwim? And if you end up not needing it, you can pay off a huge chunk just with that "extra" savings, too.

I know it's not the Dave answer, but I am not a risky person, especially when it comes to my income being there or not. If it's not there, your debt snowball won't even be a flake, ya know?

[gmarie]

I was going to respond that I still feel comfortable continuing the snowball since I think we could now get by with my income and DH's unemployment. (should my fears come true).

So that inspired me to do a sample budget of what that would look like... and I can't believe it - I am actually crying tears of relief right now!!

I based the budget on my lowest income. (guaranteed hours), and we would actually get (just barely!) if DH's income stopped w/ NO unemployment!! I am in shock. Our expenses have been SO HIGH these last few years. I can not believe we can have a balanced budget based on my lowest numbers only!! What a relief!!

**Note that the sample budget assumes we still have the car pmt, but we put SL payments on forbearance.

In reality, we would have UI, or DH could get a lower paying cooks job if necessary.

Ok, so I'm going to stop freaking out now and just snowball the debts in order!

[mateosbaby]

In that case, start snowballing!

[Greebo]

As far as dropping comprehensive insurance - if you can't afford to replace/repair the car in the event of an accident which is either your fault or caused by an uninsured motorist, DON'T!

[gmarie]

So you should keep full coverage on paid for cars?
You're right, I wouldn't be able to replace it in in BS2 w/ my 1k in the bank. But I could take my 1k plus my snowball and by a beater... Although for a savings of 500/ yr, it is really not worth it. thanks!

[mndtrp]

This is just me, and I have a family to worry about, but personally, if my dh's job was not secure and we felt it was at risk, I'd be going for saving up the FFEF rather than the debts right now. (In fact, that's what we have decided to do right now - we aren't 100% sure with what's happening at his job right now.) With that big of a snowball, you can do some serious saving in a short time, and still not be that much behind in the "real" snowball, kwim? And if you end up not needing it, you can pay off a huge chunk just with that "extra" savings, too.

The snowball is technically "extra money" that isn't needed for anything else, expense-wise. If her husband's income stopped, that $2000 she's putting extra towards debt could be used to pay the rest of the bills. She is aware of this, since she did her budget without her husband's income.

However, I am more like you, and prefer to have a much larger emergency fund in place. I've been fortunate not having much debt, until I got married last year. Now I have to work with the wife to debt snowball her mess.

It's interesting balancing peace of mind with cost effectiveness.

[waterbaby77]

I would pay the debt to family first, and then the car, because it is part of the 4 walls. Then work the snowball on the other debts from smallest to largest. I guess this deviates slightly from what Dave would say to do.