Which way would you choose?

**pammy** · 12-09-2005, 09:30 PM

Here's the deal:

As of this payday I finally got my $1000 EF back in place. We've been able (so far) to sack in $400 a month for it. So now that the EF is in place I got to decide the next step.

On one hand, I can now use $400 to invest for our retirement. They say the earlier you start it the better, right? It makes a big difference how early you start and how much you have to retire on. No matter how much I may mess up, if I paid myself first and invested it, we can retire without worry. There's something comforting about that.

On the other hand I could be using that $400 towards debt reduction. I know financial experts advocate debt reduction. And I'm all for it. But... in my case, I don't have cc debt. My expensive car is up for sale and when it sells I be using that amount for reduction. The student loan is locked in at very low interest rate. The rv loan... eh... still not sure if I will keep it or sell it. As it is we can make the payments just fine, still have a bit left over. It's this $400 I'm wondering about. Now, I've heard it, so I gotta throw this out there, give you guys something to chew on.. 'No one will fund your retirement'.

So, if you were in this position, which way would you go? Invest or reduction?

**SHOPGIRL** · 12-09-2005, 09:47 PM

Let me get this straight...You don't have any cc debt? Just student loans? Your loans are probably at a really low interest rate. If I were you, I'd max out the ROTH IRA. If you have a 401K, then I'd start investing in that. One of the best things I did was start investing for my retirement. I wish I would have started even earlier. Even a little bit really adds up. You can probably end up doing both, investing for your retirement and doing debt reduction.

**AmyBoz** · 12-09-2005, 10:05 PM

Retirement. I have to agree 100% that no one else will fund your retirement, and these days, there are no guarantees about Social Security either. Planning ahead is just as important as taking care of yourself now.

**Renee-2kids** · 12-09-2005, 11:16 PM

Retirement.

**Valerie in WA** · 12-09-2005, 11:37 PM

I'll be the voice of dissent. I would reduce the debt on whichever is at a higher rate - the RV or the student loans. Debt is debt, no matter if it's a mortgage or credit card or student loan, and I don't like debt. I am also not comfortable borrowing money to fund my retirement, which is what I'd be doing if I took that $400/month and didn't pay down the debt.

Now some will argue that your investments can yield a higher rate of return (%) than your debts are costing you. And those some will be right.

But that's looking at it from a math standpoint, not a what-should-I-do standpoint.

A compromise might be to put $200 a month toward retirement, and $200 plus any extra money toward the debt.

FWIW, we put $200/month into retirement, $1100 to the mortgage (minimum payment), $400 to the credit card (about 3 times the minimum payment), $323 to the van (minimum payment), $100 to EF, and $480 (for a year only) toward a new kitchen. When the kitchen is funded that $480 will be snowballed until ALL our debt is paid (even the house).

Also, are you sure a $1000 EF is adequate? Are your jobs very secure? My dh is self-employed in construction. Our EF goal is $4300.

I hope whatever you decide goes well.

**Minner77** · 12-10-2005, 10:13 AM

It would take too long to spell out all our finances, but in a nutshell, we have ALWAYS considered savings the same as any other bill. DH gets very upset if we save a lot, but still not what we usually do.

We have absolutely zero debt. None. (We sold our house and are renting while we build, but have decided to wait to build for a year. Long story.) We always pay Visa off every single month. We paid cash for our cars. We have enough in savings to live off for, well, let's say a very long time. Kids' educations are funded. Our retirements are high priority -- and gettting higher as DH's company has slashed his pension by 90%. (and his salary by 40% -- we're praying now it doesn't go lower!) We have several IRAs and 401Ks and other funds. (BTW, no help from parents -- did it ourselves, including paying our ways through college.)

And... I'm a SAHM, and have been for 11 years. But one of the smartest things we did was try to always live off just his salary when we were both working, and bank mine. It's what enabled us to live in financial peace and make some investments.

As I said, tho', the bottom line is that we always paid ourselves first, always! We've always lived well below our income level and saved the difference. Fortunately, we don't have to have the newest and the shiniest -- we'd rather be able to sleep at night!

I'll concede we made good salaries, and that helped tremendously. But we just moved from a neighborhood in which I could just about guaranteeeyou that we were the only ones who could easily afford the mortgage... and we had the fewest toys! No big screen TV, no boat, our kids were the only around without their own TVs and DVDs, no housecleaners, no Sam's Delivers, etc. etc. Everyone complained about being broke, yet kept on spending! Amazing, huh? They could learn a thing or 100 from you guys!

Blessings,
Mary

**pammy** · 12-10-2005, 10:27 AM

Glad for the replies!! *rubs hands together* So many questions:

Dh contributes 3% to his retirement and his company matches it. We get a monthly statement, it says 'Simple IRA' at the top. Is that a Roth? And is this different than a 410(k)? This is the maximum amount they will match. I know it goes towards mutual funds. Unfortunately, I don't know too much about it cause it's totally in his name. I can't even call and ask about it. grrr... I have GOT to get him to change that. Should we start our own, seperate from this one?

In order of finance charges:
rv-11%, owe about 10k
car-10$, owe too dang much, around 19k, but it's for sale
mortgage-8.5%, variable, owe $66k,
student loan-5.5%, locked, owe 19k
That's the total debt.

I got a month to work on this, as once a month I have the $400 to use.

We are a one income family, so we rely on dh's income. His job is very secure. The oilfield, it went bust in the 80's. They are booming really big right now, so I wanna get prepared. Kinda 'get in while the gettin's hot'. So debt reduction is a major issue with me, too. That is always where I'm confused. I've read that we need to have the $1000 EF first, reduce debt up to the mortgage, then up the EF til it can cover 3-6 months living expenses, right? Dh's company can go belly up and he's assured a job no matter what. If nothing else, I keep my radiology license current, just in case.

Maybe I should a combo of both, retirement and reduction. Some extra retirement is good. And some debt reduction is good. And for both, SOMETHING is better than nothing.

Great replies!

**pammy** · 12-10-2005, 10:27 AM

Glad for the replies!! *rubs hands together* So many questions:

Dh contributes 3% to his retirement and his company matches it. We get a monthly statement, it says 'Simple IRA' at the top. Is that a Roth? And is this different than a 410(k)? This is the maximum amount they will match. I know it goes towards mutual funds. Unfortunately, I don't know too much about it cause it's totally in his name. I can't even call and ask about it. grrr... I have GOT to get him to change that. Should we start our own, seperate from this one?

In order of finance charges:
rv-11%, owe about 10k
car-10$, owe too dang much, around 19k, but it's for sale
mortgage-8.5%, variable, owe $66k,
student loan-5.5%, locked, owe 19k
That's the total debt.

I got a month to work on this, as once a month I have the $400 to use.

We are a one income family, so we rely on dh's income. His job is very secure. The oilfield, it went bust in the 80's. They are booming really big right now, so I wanna get prepared. Kinda 'get in while the gettin's hot'. So debt reduction is a major issue with me, too. That is always where I'm confused. I've read that we need to have the $1000 EF first, reduce debt up to the mortgage, then up the EF til it can cover 3-6 months living expenses, right? Dh's company can go belly up and he's assured a job no matter what. If nothing else, I keep my radiology license current, just in case.

Maybe I should do a combo of both, retirement and reduction. Some extra retirement is good. And some debt reduction is good. And for both, SOMETHING is better than nothing.

Great replies!

**SHOPGIRL** · 12-10-2005, 11:00 AM

Your mortgage rate seems high. I'm surprised in the last few years you haven't looked into refinancing. (I'm assuming you haven't since the rate is so high). I'd call around in your local area to see what better rates they could give you. At the same time, if you refinanced your house at a lower interest rate, you could take a little bit extra and pay off your RV. Then, I would take your monthly RV payment that you use to make and add it to your house payment. Just make sure your paying towards the principal when you make an extra payment. Some banks allow you to pay bi-monthly, which would save you on the interest. Or, make sure you make at least one extra mortgage payment a year. That will cut down on your overall interest paid.

A Roth IRA is differerent from a Simple IRA. You can get a bunch of information about these off the Internet. Check out www.suzeorman.com. A ROTH IRA is money saved towards your retirement with after tax money. The cool thing is when you take it out, and you can take it out after age 59, you don't pay any taxes on it. You can put away up to $4,000 a year(this number changes per year). You can choose the investment it. Your bank can help you with this. I do both. I have a retirement account at work, and I have a ROTH IRA. I'm so thankful that I started investing for my retirement. It's never a good time to start because you always need the money, but the sooner you start, the faster your money will grow.

**SHOPGIRL** · 12-10-2005, 11:06 AM

Oh, and with all your loans, I would see about getting better interest rates on all of them. You may even be able to get the student loan at a better rate. If I had the extra $400, I would at least put $200 towards retirement. If you don't have a ROTH IRA, I'd have $200 a month invested in that. Then, I'd take the other $200 and put it into your EF. That seems low right now. It's the unexpected expenses that can get people in credit card debt. Then, it takes forever to get out of cc debt. Then, once your EF was a little higher, say up to $2,000, I would take the extra $200 and pay towards your loan with the highest interest rate or I'd invest everything into a ROTH IRA.

**pammy** · 12-10-2005, 11:10 AM

How did I double post?? *scratches head* Lol... oops!

Yes, I've heard it many many times, pay yourself first. That is kinda what this is to me, like a bill I pay. Question, should I consider what is already take out of dh's check part of that 'paying yourself first'??

I did recently look into refinancing. I talked to 3 different mortgage companies and what they quoted wasn't that much better than what I have. Some were worse. ???? Were they not even trying to get my business? The bad thing is I have excellent credit at my bank, yet they report nothing. So our credit scores aren't great, not bad, but not great either. I have the current mortgage at my bank, so I may check with them. I bought this house summer of '04, it's still pretty new.

I'm glad to say I no longer need the shinier, newer things, either. That's the bone of contention with me right now... lol... it seems like that blasted rv is the 'gotta have' item no one wants to let me part with. I don't need somethig that costly. I was pretty happy with my older '78 tiny camper that was paid for, but then the 'gotta haves' got me and bought this one. Grr... See, I get around here and I just wanna 'Sell, Sell, Sell' it!

Dh isn't into shiny new, either, especially not now, yet he is the main one won't let me sell it. I gotta keep peace, decide on it.

**pammy** · 12-10-2005, 11:15 AM

Yeah, the EF is low. But I also save $300 a month for expected unexpected expenses. Like car repair, home repair, vacation, fun money, house taxes, gifts, and dh's buggy fund (long story). I bought Christmas with this, change oil and got A/C fixed with this, am saving for things like refridgerator or washing machine should they break, new roof for the house, stuff like that. This way I already have money set aside for these things.

Goodness! Confused! Should I need both?

Just consolidated the student loans. Can I redo them this quickly?

Bout to open a can of worms here... What are the views on a home equity loan to include everything? Big no-no? Is that just more debt when it's all said and done?

**PrairieRose** · 12-10-2005, 11:22 AM

I'm all for retirement but I can tell you one thing......no house payment, no car payment, no other kind of payment (except on a business property that we're paying on hard and fast to get paid down) is really nice when I get up in the morning.

**Valerie in WA** · 12-10-2005, 01:00 PM

Originally posted by pammyboat
Yeah, the EF is low. But I also save $300 a month for expected unexpected expenses. Like car repair, home repair, vacation, fun money, house taxes, gifts, and dh's buggy fund (long story). I bought Christmas with this, change oil and got A/C fixed with this, am saving for things like refridgerator or washing machine should they break, new roof for the house, stuff like that. This way I already have money set aside for these things.

Goodness! Confused! Should I need both?

Just consolidated the student loans. Can I redo them this quickly?

Bout to open a can of worms here... What are the views on a home equity loan to include everything? Big no-no? Is that just more debt when it's all said and done?

First, yes you do need both the EF and the other $300 per month. You KNOW that you will need car repair, house repair, etc. So it's prudent to save that money. The EF is for UNexpected things: like you have an auto accident and have to pay your $500 deductible, or someone needs surgery and 10% of a whole lot ends up being $800.

Second, you can reconsolidate anything as often as you like. However frequent new accounts may be a red flag on your credit report.

Thirdly, I don't think home equity loans are a bad thing...IF two things are present: 1. You have truely mended your over-spending ways and will never do it again. AND 2. You do not exceed the value of your home. Some lenders will give you up to 125% of the value of the home - taking such a loan could be considered financial russian roulette. I would try to stay under 80% of the value of your home for two reasons. The first is that you won't have to pay PMI. The second is that if the market in your community bottoms out and values drop, you won't get stuck in a house for which you owe more than you can sell it for.

I agree with Shannon that you should seek out lower interest rates. Definately check with your own bank first. Also see if you qualify for credit union membership. We get excellent rates (and service) through our credit union.

**pammy** · 12-10-2005, 02:37 PM

You gals gave me lots to chew over, am very grateful! Gonna take a work run with dh, won't be back til tomorrow... at least 6 hours drive there and 6 hours drive back, lol. PLENTY of time to yak at him bout it all. Poor fella... he won't know what he got himself into inviting me, tee hee!