32 year old, pay debts faster or continue saving?

[Rianne]

Quote:

Originally Posted by Ready2Go If it were me, I'd cut down my retirement to the minimum...to get the match. And at your age I'd have all of it in Roth 401k, if that's available. Then, buckle down and knock out the debt as quickly as possible. Like $50k per year for 3 years. You'll have no life but, with kids, you have no life anyway! If you're not willing to do the $50k per year, I'd sell the house and knock it out that way in less than 3 years. My advice is to get the debt behind you as fast as you can. Good luck!

+1. Through 30 years of working and 32 yrs of marriage, eliminate debt at all costs. Leave debt to the financial wizards who know how to manipulate debt to their benefit. Just keep stashing every extra dollar to savings/investments. It adds up quickly. It is not complicated. Frugal living, saving a lot and spending little, got me to FIRE at 55 and DH at 57, although DH consults on his own time to keep active.

[bloom2708]

I would stick with pre-tax 401k up to the match. You need the tax savings now to help pay down debt.

You are in a spot where you have to make a plan to pay off this debt and not borrow again.

Perhaps buy and read The Total Money Makeover by Dave Ramsey. Jump on the plan and get "gazelle intense" on this pile of debt.

[BritChap]

This is probably stupidly simplistic, and not being American I have no idea what 'Roths' and so on are so I may be missing a trick there, but I have always taken the view that loans are sort of the inverse of fixed income investments. So paying down a loan that is at X% interest is like investing in an absolutely guaranteed fixed income investment returning the same rate. If you were given the opportunity to invest in something that guaranteed you an income of 10%, would you? Me too....so I would pay a loan like that down as a priority. If a loan is very cheap and you believe you can get an (after tax) return on an investment that is better than that, then you have choice to make, I suppose. But the other thing I would say is that I would say is that, for me at least, having no debt is a very, very nice feeling.

[gayl]

Quote:

Originally Posted by MSUIndy Financial Details: Before Tax Household Income - $120,000 (75,000/45,000) Debt Details (The Bad): Roughly $150,000 in Student Loan (104,000), Car (6,500), and Debt Consolidation Loans (39,000).

Provided the tax rewrite in Washington doesn't omit student loan interest deduction, throw raises against student loans but keep up retirement investing.

If student loans are no longer deductible then refinance house, throw that plus all raises against SL and let it play out over 20 yrs

[MSUIndy]

Quote:

Originally Posted by gayl Provided the tax rewrite in Washington doesn't omit student loan interest deduction, throw raises against student loans but keep up retirement investing. If student loans are no longer deductible then refinance house, throw that plus all raises against SL and let it play out over 20 yrs

Is your suggestion to keep up current retirement investing or to scale back to just the match at this point in order to pay down debts?

[gayl]

In that I'm a great fan of compounding and your income will definitely increase, I see no reason to lower retirement contribution unless the tax plan drastically changes. IMHO

Going forward: divide all raises by 4ths. (1) debt until gone (2) retirement (3) EF (4) lifestyle creep

[Golden sunsets]

Your net worth is $51,000 if I understand your numbers. I applaud your attempts to dig out of your situation but you have a long way to go. I think that you should focus more time on developing a budget and analyzing spending. Rice and beans. Beans and rice. How much are you spending each month? Where is every dollar going? Every dollar should have a name. Where can you cut back to free up money to pay off debt? Your debt(absent mortgage) is huge. With joint income of $120,000 you should be able to save $50,000 at a minimum per year. No vacations, no date nights, no frills. Become a spreadsheet nerd. Back into a savings number based on a strict budget and then:

1) make minimum 401k contributions to capture match
2) next throw every dollar into an emergency fund until your reduced budget x 6 is met
3) next throw every dollar at the 10% loan
4) as the car loan and consolidation loan are paid off redirect those pay down dollars to aggressively pay down the student debt. This is important. Your student loan debt is huge. I would not look at a "5 to 25 year repayment" plan on this debt. Knock it out Asap.
5) then start a 529 plan for the future education of your children. It would be my goal that my children not be saddled with school debt as you have been. It will seriously impede their financial lives as it has yours.
6) once these goals have been met you will be able to supersize your retirement and taxable investment savings.

You will need to have your DW's buy in for this to work. Have you listened to Dave Ramsey's pod casts? They are truly motivating and you sound line a person who would be receptive to his guidance. Start listening now.


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[MSUIndy]

Appreciate all the thoughts and responses from everyone. Have sat down with DW and we have laid out some short term and long term goals to chunk away at the debt monkey. Hope to be able to look back on this post a year from now with substantially less debt and momentum to get it knocked out once and for all.

Happy to have found such a good resource and motivation this site provides.

[Ready2Go]

Quote:

Originally Posted by MSUIndy I have read articles on both sides. What is the advantage of Roth here if I don't plan on being in a higher tax bracket during retirement?

Gosh...very simple for me. The OP is 32. He puts $10k per year in Roth for 20 years. Yes....that's $200k of after tax money, but 30 years from now that will conservatively be worth $500k. In 40 years (age 72), $1 mil.

There will be ZERO income tax on any of it!

[pb4uski]

Quote:

Originally Posted by Golden sunsets Your net worth is $51,000 if I understand your numbers. I applaud your attempts to dig out of your situation but you have a long way to go. I think that you should focus more time on developing a budget and analyzing spending. Rice and beans. Beans and rice. How much are you spending each month? Where is every dollar going? Every dollar should have a name. Where can you cut back to free up money to pay off debt? Your debt(absent mortgage) is huge. With joint income of $120,000 you should be able to save $50,000 at a minimum per year. No vacations, no date nights, no frills. Become a spreadsheet nerd. Back into a savings number based on a strict budget and then: 1) make minimum 401k contributions to capture match 2) next throw every dollar into an emergency fund until your reduced budget x 6 is met 3) next throw every dollar at the 10% loan 4) as the car loan and consolidation loan are paid off redirect those pay down dollars to aggressively pay down the student debt. This is important. Your student loan debt is huge. I would not look at a "5 to 25 year repayment" plan on this debt. Knock it out Asap. 5) then start a 529 plan for the future education of your children. It would be my goal that my children not be saddled with school debt as you have been. It will seriously impede their financial lives as it has yours. 6) once these goals have been met you will be able to supersize your retirement and taxable investment savings. You will need to have your DW's buy in for this to work. Have you listened to Dave Ramsey's pod casts? They are truly motivating and you sound line a person who would be receptive to his guidance. Start listening now. Sent from my iPad using Early Retirement Forum

^^^ Way over the top IMO. Saving 40% of your gross earnings for a young family of 3 is out there... perhaps some people do but they are outliers.... it is important to save but there is no need to be miserly... slow and steady wins the race.

To be clear, I think Golden sunsets is suggesting 6 months of spending as an emergency fund (not clear if budget *6 is annual or monthly, but I presume monthly).

And for heaven's sake do NOT listen to Dave Ramsey.... he is too way extreme.... if you're goign to listen to anyone, tune into Clark Howard... he is much more sensible.

[MSUIndy]

Quote:

Originally Posted by pb4uski ^^^ Way over the top IMO. Saving 40% of your gross earnings for a young family of 3 is out there... perhaps some people do but they are outliers.... it is important to save but there is no need to be miserly... slow and steady wins the race. To be clear, I think Golden sunsets is suggesting 6 months of spending as an emergency fund (not clear if budget *6 is annual or monthly, but I presume monthly). And for heaven's sake do NOT listen to Dave Ramsey.... he is too way extreme.... if you're goign to listen to anyone, tune into Clark Howard... he is much more sensible.

The biggest takeaway I've gotten is the need to get the emergency fund set up and get the debts down. We will tackle it as fast as possible for us. Bringing down retirement contributions to just the match will help facilitate this move quicker than I had otherwise planned for.

I have read some of Dave Ramsey but did not know Clark Howard, I will give a listen.

Thank you.

[ERD50]

Quote:

Originally Posted by pb4uski .... And for heaven's sake do NOT listen to Dave Ramsey.... he is too way extreme.... .

+1000

Dave Ramsey is so extreme on 'all debt is bad' that it is a detriment to his audience.

I happened to catch a few of his radio shows, and got into a debate with a 'fan' in another forum that posted youtube video links from DR. Ramsey uses all sorts of twisted logic and distorted facts to convince you that you must avoid all debt (even using a credit card that you pay off each month).

I realize there are people who can't handle debt, and should avoid it, but the best thing to do is to learn how to use it wisely. Now, if Ramsey paved a path in that direction for people, I'd be OK. But he is just adamant - no credit cards, no debt, period.

Why should someone who is stressed financially give up 2-5% rewards on just about everything they purchase? Makes no sense. They need those rewards more than I do!

I have not listened to Clark Howard (have heard the name), so I cannot comment on his approach.

-ERD50

[pb4uski]

Quote:

Originally Posted by ERD50 ....Ramsey uses all sorts of twisted logic and distorted facts to convince you that you must avoid all debt (even using a credit card that you pay off each month)....

Now that is truly crazy... not only would I give up the 2% rebate, I would also give up the benefits of using a credit card if I have a problem with the product or service that I can dispute the charge.... for major purchases I would have to forgo the credit card issuer doubling the manufacturer's warranty (I collected $700 from Discover about 10 years ago under this provision for a refridgerator) and with my current card I would give up "Price Rewind" where if the item that I purchase is available for less in the next 90 days then I get the difference from the credit card company (I collected over $74 from this in the past 12 months)... and since I have my monthly bill set up for autopay I have paid $0 in interest.

[Ready2Go]

By and large, Dave Ramsey teachings are not geared for your typical FIRE folks. His appeal is to people who have gotten themselves in deep problems with debt and for them...YES!, all debt is bad. He's studied the psychology of these people and his plan works for millions of them. You can disagree with it but it has it's place.

[ERD50]

Quote:

Originally Posted by Ready2Go By and large, Dave Ramsey teachings are not geared for your typical FIRE folks. His appeal is to people who have gotten themselves in deep problems with debt and for them...YES!, all debt is bad. He's studied the psychology of these people and his plan works for millions of them. You can disagree with it but it has it's place.

I don't disagree with that part of it, I thought I covered that:

Quote:

I realize there are people who can't handle debt, and should avoid it, but the best thing to do is to learn how to use it wisely. Now, if Ramsey paved a path in that direction for people, I'd be OK. But he is just adamant - no credit cards, no debt, period.

Ramsey makes it one size fits all, debt and credit cards are 'evil', period. In one of those videos he argues with someone who is like most of us on this forum, has resources, pays the CC off every month and gets the rewards, having the CC doesn't make him spend more, and Ramsey still insists this guy is playing with snakes, and should dump the CC. Ramsey says stupid things like "I never met a millionaire that told me he got rich from credit card rewards". Well duh! Is that a reason not to use them?

Sorry, I just can't respect someone who uses twisted logic to defend his twisted position. All he'd have to do is be upfront, and tell certain people - until you learn how to use debt to your advantage, stay out of debt! And start learning how to use it to your advantage, you will be better off then.

-ERD50

[pb4uski]

Quote:

Originally Posted by ERD50 ...Ramsey says stupid things like "I never met a millionaire that told me he got rich from credit card rewards". ...

PGO - perceptive glimpse of the obvious

[Golden sunsets]

Dave Ramsey's views on credit card debt are extreme and few forum members need his brand of debt starvation however some folks would benefit from following his methodical approach to digging out of a hole. The OP's debt consolidation loan of $39,000 was a red flag in my mind. Their education debt being potentially carried for 25 years was another alarm bell. Having said that the OP seems to be taking the advise to concentrate on debt reduction, his original question, very constructively. I felt he and his DW should focus more on budgeting in an effort to achieve their goals. You may disparage Dave Ramsey but for many his approach to budgeting has produced big results.


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[NgineER]

You have a lot of equity in your home, how about taking a home equity loan (deductible) and using it to pay off your consumer debt. Lower interest rate and tax deductible while consolidating consumer debt at a lower interest rate.

If you don't have enough money to contribute to both a Roth IRA and establishing an emergency fund, always contribute to the Roth first and any left overs to an emergency fund. The contributions can always be withdrawn in case of an emergency, so if you don't encounter an emergency, you'll add to the Roth IRA while slowly building the emergency fund.

Drop the account manager (I assume it will cost you somewhere around $100k before you retire) and read here or on Bogleheads about lazy portfolios or use a target date fund. I prefer separating the bods/equities to be able to rebalance in a correction.

[Golden sunsets]

MSUindy; If you have an hour, watch the program in this link:

Dave Ramsey's top 10 calls of 2017

[Huston55]

Quote:

Originally Posted by NgineER You have a lot of equity in your home, how about taking a home equity loan (deductible) and using it to pay off your consumer debt. Lower interest rate and tax deductible while consolidating consumer debt at a lower interest rate.

+1

As suggested in post #4