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Author: JOETAB24 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Any Advice? Date: 1/11/2005 4:26 PM
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My current financial situation.
Combined Income: 2937.82 monthly after taxes

1/10
Checking(0%)- 940.71
Money Market (.35%)- 28,129.10

Investments
403b (OPTFX/100$ per month/3.5% of after tax income)- 98.24 (as of 1/7)

Debts
Discover- 115.81
Car Loan- 12933.10 (1.9%/60 mos.)


Goals
considering establishing Roth IRA ASAP
would like to increase % in 403 b (just started)

FYI
wife will stop working in June. will stay home to raise new baby.our income will decrease $840.
-I am a teacher so my pay will increase next Sept. (by 4%? contract is up).
-When I earn my masters, I will get close to an additional $5000 increase. I currently have 18 credits and need 33. I will "max out" in 11 years at 85K (in today's dollars)
-we are in a "starter home." bought in 02 for 90K. It would probably go for 127-130 K today. our current school district is mediocre but has a good repuation. we are on the finge of the city and concerned about the neighborhood going down rapidly; some parts already have. I would like to sell but know we cannot at this point.

Questions
I am considering paying off the car and using the $266 from the car to start paying down the house. Is this the best way to use the inheritance? What other options do I have, considering all of the factors and the new baby? Thanks for reading.



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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43974 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 4:38 PM
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With your car loan at 1.9%, you can earn more than that in an ING savings account. So no, I would not pay the car off early. You already paid more than market value for the car to get that rate. So use it.
Your emergency account is the money market. You are not getting a decent rate. $28000 could be in an ING account, or a chunk of it in a CD. You CAN break the CD early if the money is needed for unexpected medical bills; with a pregnant wife this is a possibility.
You didn't mention the house as a debt, but no, assuming the mortgage is at a higher rate than 1.9%, you do better to pay extra on the house and take your five years to pay off the car at that very low rate.
Best wishes, Chris



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Author: JOETAB24 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43975 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 4:52 PM
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The mortgage is 6%.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43976 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 5:14 PM
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JOETAB24: "we are in a "starter home." bought in 02 for 90K. It would probably go for 127-130 K today. our current school district is mediocre but has a good repuation. we are on the finge of the city and concerned about the neighborhood going down rapidly; some parts already have. I would like to sell but know we cannot at this point.

Questions
I am considering paying off the car and using the $266 from the car to start paying down the house. Is this the best way to use the inheritance? What other options do I have, considering all of the factors and the new baby? Thanks for reading."


I doubt that paying of a car loan at 1.9% is the best use of funds.

You have posted essentially the same post on several boards; are you reading the responses.

I previously responded at post No. 14470 on Budgeting
http://boards.fool.com/Message.asp?mid=21882035

I am beginning the think that you have already made up your mind and are simply searching for someone to give you the response for which you are looking.

Why can you not sell at this point?

Is the mortgage an adjustable rate mortgage? If it was, then a huge payment should be reflected in lower required payments after the next regularly scheduled adjustment.

If it is a fixed rate, then you would decrease total interest paid but not improve cash flow with a large payment.

Paying off the car loan improves your monthly cash flow by decreasing required expenses, but given the rate and the 2.35% ING rate another poster noted, it does not appear to be a good financial move.

Regards, JAFO





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Author: JOETAB24 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43977 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 6:05 PM
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I feel stupid for posting again. Being a novice, I guess I thought my question was different enough to post again. I guess I am overwhelmed by the abundance of opinions that exist on this site. Sorry if I already appear to have my mind made up, I do not. I am just trying to learn as much as possible.



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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43978 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 6:21 PM
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" The mortgage is 6%. "

So you save more interest by paying down the mortgage rather than the car. That probably doesn't do anything for your cash flow, however, until the house is paid off.

At the low rate you are paying on the car, the question is whether to pay down the mortgage or invest. Clearly you should be putting into your 403b enough to get any employer match.

Best wishes, Chris


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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43979 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 7:24 PM
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JOETAB24: "I feel stupid for posting again."

I am not trying to make you feel stupid, nor do you appear stupid. Cross-posting is not even the end of the world, but for future reference, it is usually a good idea to note where you cross-posted (or note that you have made related posts and provide links).

"Being a novice, I guess I thought my question was different enough to post again."

You pays your money and makes your posts; plus I have no official status here. Your question, however, always seemed to be, should I pay off my 1.9% car loan?

"I guess I am overwhelmed by the abundance of opinions that exist on this site."

It can be overwhelming. I probably lurked for 6+ months before I ever posted. If you do not understand someone's response, follow-up questions are fine. Especially if the posters appear to want to engage a dialogue.

"Sorry if I already appear to have my mind made up, I do not."

No need to apologize; and I am glad to hear that you have not made up your mind.

"I am just trying to learn as much as possible."

Most of us are.

Most of the regulars are not paid to post here; and many read more than one board. As a result, it is a personal choice whether to respond (or not respond).

I cannot speak for all of them, but I certainly feel frustrated when essentially the same posts appears in multiple places without cross-reference, especially a few days apart and as if the earlier responses were not read. I, however, tend to ignore (without actually using the penalty box) those posters who intentionally frustrate me.

If you hang around for awhile and participate, you will develop a board personality and the regulars will respond accordingly.

I saw your newbie sign and do not want to scare you off, so I am responding in considerably more detail than I usually would.

Good luck, and BTW, congratulations on the expected birth!

Regards, JAFO



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Author: pekinrobin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43980 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 7:24 PM
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Please don't crosspost and if you must, please mark it a "crosspost" so we can skip it.

Thank you for being courteous.

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43981 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 9:01 PM
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pekinrobin...

Please don't crosspost and if you must, please mark it a "crosspost" so we can skip it.
---------------
There is no problem with crossposting, in my opinion. If you don't want to read the post or respond...don't. I was responsible for telling the OP to cross post in order to get a broader range of opinions. So, I am responsible for his crossposting - not him.

Regards,
Bill

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Author: rookieJoe Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43982 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 9:30 PM
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My situation is somewhat similar to your yours: married, wife stays home with kids, don't hold credit card debt, 1 low interest car loan, retirement savings are a priority, and a starter home.

A about a week ago we took our cash and paid off the house. Then immediately opened a home equity line of credit.

We were paying 6.74% on the loan (it wasn't enough to be worth refinancing). And we were making ~2% on the cash.

The available balance on the HELOC is more than the cash we had before, and we get/save an extra 4% (6% - 2%).

If you run the numbers in a spreadsheet, you will see that your debt will be paid off quicker if you put all your extra money towards the highest rate debt.

-Joe

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Author: JOETAB24 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43983 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 10:00 PM
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Congrats. on paying off the house. Is this your first house? How long did you have the loan? Do you plan on moving?

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Author: preben Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43984 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 10:23 PM
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Generally good advise has been given here already. I do think that nobody have touched on the feel-good factor of paying of debt rather than investing as a first step - maybe with the exception of the mortgage. This is just a rule of thumb of course.

So for a radical method I personally might chose in your situation: pay of the car + pay of as much of the house as possible without digging into the non taxed retirement account or a minor emergency fund of course.

With a 6% mortgage and a 2% car loan the average saved interest rate would be around 4% with the amounts we are talking(leaving taxes out of the equation). To get 4% you would have to take at least some risk while investing or lock up the money - but here you get it guarenteed and should you need the money (besides emergency fund) they are still available in your house (loan/small 2nd mortgage in worst case scenario).

Note that I hate debt and seeing interest going to others! ; )
Cheers, Ben

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Author: rookieJoe Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43985 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 10:30 PM
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Congrats
Thanks! We feel really good about it.

Is this your first house? How long did you have the loan?
Yes, we're 25, married 6 years, bought it when we got married. So it is a very modest house. It used to be a rental. And housing is cheap here (in the midwest). But I've done a lot to it. We got used to living on next to nothing while I was in college. So when I started making real money, we decided to keep living cheap.

Do you plan on moving?
Yup, in around 3 years. The plan is that the $ that was going to the house payment starts going to CDs, where it will wait till we move.

-Joe

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Author: Donna405 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43986 of 74759
Subject: Re: Any Advice? Date: 1/11/2005 11:05 PM
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Is your HELOC adjustable or fixed rate? If it is adjustable, just be wary. In addition, what is the margin? When does the rate change in relation to the prime? What prime is recognized, i.e., Wall Street Journal or Libor?

Donna

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Author: NHDad920 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43990 of 74759
Subject: Re: Any Advice? Date: 1/12/2005 10:21 AM
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As preben mentioned in his post the "feel good" factor is a major part in this decision. In terms of getting the most bang for your buck, paying off the highest rate debt first is the way to go and keeping low rate debt when you can get a higher rate of return investing makes sense too.

However, my wife is at home with our 10 mo. old , and pregnant again, so I am the sole wage earner. About two years before my wife left her last job to stay at home she was laid off from her previous job and got a severance package that was about 6 months of salary. Since we were already planning ahead for her staying at home we opted to pay off a 4.9% car loan and a 6.0% student loan with the money instead of investing because we were wanted to increase our monthly cash flow and my wife felt much more comfortable getting rid of some of our debt before giving up one income.

Now we're living comfortably in a house we'll probably be in till the kids head to college, we're doing it on one income because we have fewer monthly obligations, and as my salary continues to increase we're putting all of those gains into our retirement investments.

Good luck with your decision - at the end of the day do whatever helps you and your wife sleep well at night.


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Author: pekinrobin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 43993 of 74759
Subject: Re: Any Advice? Date: 1/12/2005 1:22 PM
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There is no problem with crossposting, in my opinion.

There is nothing wrong with a crosspost PROPERLY LABELED.

Crossposted that is not labeled is rude and in violation of internet etiquette. It is not fair to newbies not to tell them so.

If I was walking around with a piece of toilet tissue stuck to my pants, I would appreciate being told as quickly as possible. Wouldn't you?

My comment stands. Crossposts should be avoided when possible and properly labeled when unavoidable.

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Author: wcfenton Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44003 of 74759
Subject: Re: Any Advice? Date: 1/12/2005 3:34 PM
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There is no problem with crossposting, in my opinion.

---------------------------

There is nothing wrong with a crosspost PROPERLY LABELED.

Crossposted that is not labeled is rude and in violation of internet etiquette. It is not fair to newbies not to tell them so.

If I was walking around with a piece of toilet tissue stuck to my pants, I would appreciate being told as quickly as possible. Wouldn't you?

My comment stands. Crossposts should be avoided when possible and properly labeled when unavoidable.

--------------------

You haven't changed my mind, so my comments stand as well.

People new to these boards can be easily turned away with coarse comments and reprimands which are really unnecessary. Most learn how others post within a short period of time. However, if they see fit not to follow generally accepted procedural conduct...that's their individual right unless it is illegal, immoral, or against the rules of the house.

In this particular case, the poster was just following my suggestion - so I was the culprit. In my opinion, cross-posting CAN be very fruitful, especially if a person doesn't really know which board they should post their questions to. For the most part, we are talking about people trying to get answers to important questions that can significantly effect their lives. Etiquette has it's place, but it's far from a priority item.

So, if you want to be the self-appointed etiquette police - so be it. We all have our things in life that are important to us. As far as the toilet paper stuck to your pants goes...I don't know...I may just let you find that one out for yourself.

Regards,
Bill


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Author: rookieJoe Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 44010 of 74759
Subject: Re: Any Advice? Date: 1/12/2005 10:33 PM
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Hi Donna,

The HELOC is adjustable (3.99 for 6 months, then prime + 1). I'm not so concerned about that because there is no outstanding balance. We'd only consider it an emergency, and then we could decide between this or a couple other options.

By margin, I assume you mean what % of the home value? Its 90% of tax appraised value. But tax value is laughable (around a third of market value).

I think its WSJ prime.

-Joe

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