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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308519  
Subject: Re: Links to the right ====> Date: 7/5/2007 7:44 AM
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I also pay bills bi-weekly instead of monthly, so there are 2 extra $3100s thru the year, but its easier illustrating & calculating things based on monthly numbers.

So in the grand scheme of things, I'd rather pay more toward this debt & have it gone in 7-8 years than to fund retirement. At least for right now with some of the high-interest stuff. I'm 34, so there's still some time to leave what's there grow, cut 401k down to 4% (employer match), & only go with 1/2 into Roth vs fully funded. With conservative estimates, leaving everything as it is & going to 4% into 401k has retirement accts at $1 mil @ 65, assuming no change in salary & always having a 4% match until 65.


Okay, cutting the 401(k) down the matching amount of 4% is probably not a bad idea, since some of your rates are pretty high, plus your 401(k) loan repayments are being re-invested until they are paid off, so your . The Roth cut....I'm not sure that's a good idea. So here's a possible way to fund it: Since the two 'extra $3100s' (soon to be $4100s) are not going to be needed for minimum debt payments those months, they will just increase the payment to the highest interest rate debt (I hope), why not take one of those payments and split it between you and DH to fully fund your Roths?

At your current snowball payment, if you do that each year, it will slow down your debt payoff by 3.5 - 4 months (1/2 month for for each debt paydown year) By fully funding Roths during your paydown period, at an 8% return, each of you will have at least an additional $25k in your Roth plans depending on what the contribution limits change to. That's $50k in return for and additional 4 months

I will talk about the REAL DUMB move I made last year. Took out a $50k 125% 2nd mortgage @ 14% for 25 yrs. Had a bunch of stuff we wanted to do to the house (none of it needed done, just things to get it how we wanted it), a little CC debt, paid off a car, etc. No big deal - I figured keep it for a while & then just refi it to a low rate & pay it off in 5 yrs like a car loan. I can do that, right? WRONG. What I didn't realize was that those are impossible to refi - at least at a lower rate. Only good rates for HELs are <80% LTV & with that loan LTV will be above 80% for a LONG time. Unsecured personal loans for that much - if they can be had on my income (doubtful) aren't much lower in rate. So there really aren't any options other than snowball it. None of my CCs have a limit that high, they're all between $5k - $25k. AMEX will go higher if I send in last year's tax return, but they're at 18%. Even with enough good BT offers to move it all off there I'm hedging that I can get those offers again when the teaser rates are up in 6-12 months or I'm risking going from 14% to 18%+ & double the min payments. Some things are dumb. A 125% HEL is beyond dumb - aggressively stupid is more like it.

Okay, so the 125% HEL was dumb, but there are a few ways you may be able to remedy it.....

If you get a few long term (12 mnth or longer) BT offers on empty or new cards, figure out much you could pay off during the length of the BT offer, and transfer/paydown that amount. If you can just get the principal balance on the 2nd down to where both loans combined are at 100% of your home's value, you may be able to refi to a slightly lower rate HEL - maybe in the 10% - 12% range.

You said you used part of it to improve the house - did your home's value go up due to the improvements at all? If, between your improvements and any other appreciation, your home's value is close to the $223k you owe on the first and the 2nd, you may want to look at refinancing both loans into an 80/20 combo that would be at a combined lower rate than your current combined rate. Especially if your current 1st mortgage is an adjustable rate, this may be a good strategy.

In the meantime, since the 2nd isn't more than $100k, unless you are getting hit with AMT, at least the interest is tax-deductible. So your tax adjusted rate is probably closer to 10.5%, just from the federal deduction. And if you can deduct the interest on your state taxes, it's even less. So be sure to order it correctly in your debt paydown strategy, using the tax-adjusted rate.

AJ
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