My Financial Priorities
Lately my financial obligations have been really bothering me. When you add everything up, I pay out a lot of money towards debt each and every month. Mortgage, two car notes, credit cards. These all add up to a huge amount of money. So, in the coming months, I’m going to focus more on eliminating debt, and thus eliminating monthly obligations.
Credit Card debt comes first
Besides my daily expenses credit card, I have just $2400 left in revolving credit card debt. Fortunately this amount is at just 0% interest for a few more years. While I know that paying it off slowly would be best from a strict financial point of view, I’m tired of having credit card debt. I should have this paid off well before the end of the year. For the past few months, I’ve been tossing $400 at this card, and that’s why it’s come down from it’s high so quickly. Once it’s paid off, it’s like I gave myself a $400 per month raise.
Working to pay off a car loan
Between my wife and I, we have had a total of 10 cars in our lives. That wouldn’t be bad if we were middle-aged – but we are just 24 and 25 years old! Car payments and negative equity are terms we are intimately familiar with. In fact, I’ve only ever driven one car that I didn’t owe money on. My goal is to stop that trend, and break my habit. I will be making extra payments on my Civic Hybrid with the goal of paying it off several years early. Once my credit card debt is gone, I will have that extra $400 per month to play with. If I put it all on my loan each month, the term will be cut about in half. Once that’s paid off, it’s time to go to work on car loan number two.
I know the end goal is quite a ways off right now. It’s frustrating at times, because progress is so slow. But once I have these three debts cleared, my cashflow situation will be vastly improved, and I can really increase my saving & investing. I’m not in a terrible rush to pay down my mortgage early.. the rate is low ( 5.55% ) and it’s fixed. With little else in the way of monthly obligations, my mortgage won’t be a huge concern anymore.
So anyway, these areas will be my focus for now. I’ll continue to invest, but I won’t step up my investments like I had been planning. Debt first, for me. How about you – are you focusing on debt or investing, and why?
April 7th, 2008 at 11:23 am
I’m focusing on paying my debt off first. In order to get into the rich house, I have to getting out of the poorhouse is my first goal(shameless plug
It really doesn’t make sense to invest in things that get you single digit returns (8 percent is asking too much these days)when you have debt that has double digit interest. In the end you wind up with a negative rate on your return. It’s better to pay of the debt first, then once it’s paid off then concentrate on investing.
There are some exceptions though. You’re retirement accounts for one. I’d definitely contribute to the retirement fund first up to the full company match. IRA’s are a gray area for me right now though. On one hand you want to use all available resources to pay off your debt (high interest private student loans in my situation). But then again each year you don’t contribute to an IRA is opportunity lost in terms of compund interest. Damn if you do, damn if you don’t I suppose
April 7th, 2008 at 8:38 pm
If you have double digit debt, then that definitely takes priority over everything else. Some may disagree, but I’d say it takes priority even over retirement savings ( blasphemy! ).
Fortunately all my debt is in the low single digits. My problem is just that there’s so damn much of it! My monthly obligations are simply outrageous, and don’t allow me much flexibility. Too bad that means my investments will be light for now, but I think I’ll be happier going this route.
April 8th, 2008 at 9:56 am
Blasphemous indeed
But you’re right, if you have many different kinds of debt managing all of it as well as investing can be a chore(Talk about your balancing acts). That’s why I’m examining my monthly obligations to see where I can simplify, substitute, or downright eliminate them. It’s going to be an ongoing thing for sure, I don’t even think of it as a money-saving hobby, rather an investment in my future
September 2nd, 2008 at 10:05 pm
I am focusing on investing. We have taken out $25.5k in Student Loans over the past three years now. We invest in our 401k and IRAs because the loans are deferred until my DH is done and we need the tax break.
We are 29 and 31 and of course have a mortgage. We also have only had 1 cars in our lives now 8 and 9 years old. I think we’re pretty frugal and reasonable.
So we’re leveraging ourselves because my DH is doing a part-time MBA, and we’re pretty sure when he’s done his income will go up a lot making paying off the student loan debt easy.
September 3rd, 2008 at 8:48 pm
LAL – there’s a valid argument for choosing to do things your way. Previously I had the same viewpoint – after all, you can *generally* get higher returns from investing than you will pay on most debts. If you’re child free ( i have no idea if you are? ), then I say go for it. You sound like you’ve planned it out and aren’t doing things halfhazardly.
Me, I’m going to stick with the getting rid of debt plan. I’ve got a kid at home who depends on me, and my wife will be quitting work soon. Only having one income and a ton of debt will be stressful. If I can reduce that debt load, then I’ll feel less stressed, and can enjoy life more. After that, it’s time to invest like crazy