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Message
1
Posted on 12/13/17 at 11:26 am to DoubleDawg22
quote:
Our rate is higher than 4. Bought the house in ‘09 and had little to no credit at the time.
I'd look into refinancing then.
Posted on 12/13/17 at 11:27 am to Croacka
quote:
Most mathematical sense is to attack the highest interest debt first.
This chart may have some helpful insight
Posted on 12/13/17 at 11:31 am to DoubleDawg22
quote:
I don’t fully understand the minimum payment on everything that has a rate of 2% or less. Care to explain that?
Let's say you have a car loan that charges 1%. In English, that means it costs you 1% per year to have the money.
But because of inflation, it costs (and this varies) roughly 2% or so per year to hold money. Money loses value with time. Anytime you invest in something that pays back less than 2% or so, you are really losing value on the cash.
So by paying off a 1% note your cash is losing value. Pay the minimum possible and invest it in something better. For example, if you have an employer-matched 401(k) then contribute more to it. You get an instant guaranteed return (due to the match).
Posted on 12/13/17 at 11:31 am to foshizzle
I go back and forth on this because it would take roughly 2 years to get the closing cost back and when we are about to sell that doesn’t make a lot of sense to me.
Posted on 12/13/17 at 11:37 am to foshizzle
I currently don’t have a 401k or match but my second job does offer and as soon as I’m able I will be enrolled. Just started with this company and am currently pulling 60-70 hrs a week with both jobs combined.
Alright so, I’m paying $15 this month in interest on my car. If my company match equals $50 then I’ve turned a profit of $35 just using this one loan in comparison?
Alright so, I’m paying $15 this month in interest on my car. If my company match equals $50 then I’ve turned a profit of $35 just using this one loan in comparison?
This post was edited on 12/13/17 at 11:46 am
Posted on 12/13/17 at 11:52 am to DoubleDawg22
The debt snowball methodology is based on momentum and emotion, not math. It's human nature (for most people) to stick with any endeavor if they see progress, and give it up if they don't (like dieting, or learning to play the piano). If you are solely asking about the math, then pay the highest interest first, or consolidate into one loan. When I was focused on being debt free over 15 years ago, I paid my lowest balances off first because I wanted to see the progress. It actually motivated me to make sacrifices to pay off more debt so I could see more wins. And I did all this before I had even heard of Dave Ramsey.
Posted on 12/13/17 at 11:55 am to DoubleDawg22
quote:
when we are about to sell that doesn’t make a lot of sense to me.
Ah. If you're about to sell then no it probably isn't worthwhile.
Posted on 12/13/17 at 11:59 am to DoubleDawg22
quote:
If my company match equals $50 then I’ve turned a profit of $35 just using this one loan in comparison?
A match is free money. It's nearly always a good idea to take it unless you simply don't have enough cash to set aside.
Posted on 12/13/17 at 12:04 pm to foshizzle
Yes yeah was just explaining it back to make sure I understand correctly.
Posted on 12/13/17 at 1:14 pm to foshizzle
quote:
A match is free money. It's nearly always a good idea to take it unless you simply don't have enough cash to set aside.
And this is where I differ with Ramsey - he says do Emergency Fund (and I double that to $2000), THEN Debt Snowball - but he recommends NO retirement savings while you're fighting the snowball - I get the whole emotional momentum thing to a degree - and if you can't fully work the snowball (can't make minimum payments on all the debt, for example - essentially insolvency), then maybe.
But, I think that doing the 5% to get a free 5% is a no-brainer. So, I recommend that sole deviation from the baby steps. If you don't get a match, then I would say it's your call whether or not you do a minimal 1 or 2 percent (or a little more), but you're getting a better return on your money by eliminating consumer debt in most cases - and no question your cash flow will be much better sooner rather than later if you work the snowball (and NEVER get into consumer debt again - that's the real key to the Baby Steps - never owe again).
Posted on 12/13/17 at 1:19 pm to foshizzle
quote:
BTW there has been talk in Congress this year of tinkering with this but so far the word is that while a cap might be introduced it'll be a pretty high one for most so you likely won't have to be concerned. That said, keep an eye on developments.
Also, I read they are estimating something like 80% of people who itemize today, would stop under the new tax plan. If the standard deduction doubles as they say, that would be be the better choice for alot of people.
Posted on 12/13/17 at 1:25 pm to DoubleDawg22
quote:
I don’t fully understand the minimum payment on everything that has a rate of 2% or less. Care to explain that?
the money you borrowed for the cars (or any debt 2% or less) has a very low cost to hold/borrow....you are basically paying less in interest than inflation of the dollar, so you have very little incentive to pay it off
you should put every extra dollar you can afford to higher interest debts, like student loans, lawnmowers, boats, etc.
you of course have to pay the minimum on all of your outstanding debts, but every extra dollar should go to highest interest
once that one is paid off, you move to the next highest interest with every extra dollar you have
so on and so forth.....it's almost identical to the debt snowball with the only change being the interest rate and not the balance controlling the order of payoff
Posted on 12/13/17 at 1:41 pm to DoubleDawg22
quote:
Our Mortgage has the highest loan amount and the highest rate. Portions of my student loans have the higher RATES than the mortgage but the amount borrowed is significantly less than the mortgage.
Did you not read what he said? You literally just said that your mortgage was our highest rate, except for the other ones.
quote:
Would you explain how the rate of the home drops with the tax deduction? I’ve never heard of this before.
Think in terms of how much does that borrowed money costs you, and the costs of the alternative options.
The easiest way to connect A to B here is let's say you are charged 5% interest on your home loan of 200k. But that interest charge is a tax deduction. It didn't happen in a vacuum. You aren't entitled to it. It happened directly because of the debt, and it is directly correlated to the size of that debt. So it factors into the cost of that debt. And if you earn in the 25% marginal tax bracket, the cost of that debt just changed from 5% to 3.75%.
And that is almost always going to be the lowest debt among those who are talking about using snowball strategies.
By the way, all of this is directly contradictory to the Dave Ramsey approach. Its easy. Its simple. Its not the best, simply because it is hard rules that do not alter to personal situation.
Posted on 12/13/17 at 1:44 pm to foshizzle
quote:
Anytime you invest in something that pays back less than 2% or so, you are really losing value on the cash.
And this has a very important side note (this is directed to the OP, I know you know this foshizzle): If the interest your bank is paying is less than that number, you are losing money there too.
Some degree of liquidity is very important. But having too much in a bank in the current environment means you are actually losing hard earned money.
Posted on 12/13/17 at 1:52 pm to DoubleDawg22
If you are trying to payoff credit cards, the best way is to take out consolidation loan at your bank or credit union. If you have a vehicle that is paid off or that you have equity in, use that as collateral. If you own a home and have greater than 30% in equity in it, take out a HELOC. Some banks will do HELOCs with no closing costs and no appraisal fees. This is just my opinion.
Posted on 12/13/17 at 1:53 pm to Volvagia
Yep. I just didn't want to dive into the wonderful world of investment horizon vs. rate of return.
And I know you know this too, you phrased yourself nicely by using the word "liquidity" instead of "savings".
And I know you know this too, you phrased yourself nicely by using the word "liquidity" instead of "savings".
Posted on 12/13/17 at 2:41 pm to DoubleDawg22
to me I love snowball. me and fiance were debating this the other day. she says hit the high interest and use zero interest balance transfers to reduce interest all together.
I find what works for me is to focus on small debts make some progress and progressively pay more on the larger ones.
I find what works for me is to focus on small debts make some progress and progressively pay more on the larger ones.
Posted on 12/13/17 at 3:32 pm to oklahogjr
quote:
she says hit the high interest and use zero interest balance transfers to reduce interest all together.
She's right, but if you need
quote:
focus on small debts make some progress
to get motivated, then whatever gets you started. 0% balance transfers are a great way to go if you can qualify though.
Posted on 12/13/17 at 4:04 pm to foshizzle
quote:Make sure to read the fine print. Many cards charge a balance transfer fee to do this.
0% balance transfers
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