Save or pay off debt?

[Anonymous]

I'm working on putting myself on a strict savings plan (paying myself like a bill each month) this year, and hoping I can get DH on board too. I'm also considering trading in my Lexus for a Prius, something I can pay off in the same amount of time but for $250 less a month and put that away too.

We only have one 401K, DH's, with about $10K. It's about a year and a half old, and he contributes 4% to get the 4% match from his employer. I don't have a 401K, but have looked into automatic investing plans with Sharebuilder for essentially emotionless investing like his 401K.

I'm wondering if you guys think we should start putting our extra money into a savings plan, an investment plan, or use it to pay down our mortgage? I already pay an extra $325 to our mortgage every month. Home values in our area have dropped considerably, and we're bobbing around breaking even right now. On the one hand we could save on interest if we aggresively paid our mortgage down. On the other hand I worry that if values dropped enough it would make more sense to walk away from or short sale the house, and in that case I wouldn't want our savings tied up in it. We have no intention of anything like that at this point, I'm crossing fingers that values will start going up a little this summer, and we're comfortably affording our house. But given all the craziness in the economy and real estate right now, I feel like it should still be a consideration. What do you guys think?

[MarineVietVet]

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@Anonymous wrote:

I'm working on putting myself on a strict savings plan (paying myself like a bill each month) this year, and hoping I can get DH on board too. I'm also considering trading in my Lexus for a Prius, something I can pay off in the same amount of time but for $250 less a month and put that away too.

We only have one 401K, DH's, with about $10K. It's about a year and a half old, and he contributes 4% to get the 4% match from his employer. I don't have a 401K, but have looked into automatic investing plans with Sharebuilder for essentially emotionless investing like his 401K.

I'm wondering if you guys think we should start putting our extra money into a savings plan, an investment plan, or use it to pay down our mortgage? I already pay an extra $325 to our mortgage every month. Home values in our area have dropped considerably, and we're bobbing around breaking even right now. On the one hand we could save on interest if we aggresively paid our mortgage down. On the other hand I worry that if values dropped enough it would make more sense to walk away from or short sale the house, and in that case I wouldn't want our savings tied up in it. We have no intention of anything like that at this point, I'm crossing fingers that values will start going up a little this summer, and we're comfortably affording our house. But given all the craziness in the economy and real estate right now, I feel like it should still be a consideration. What do you guys think?

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This is strictly my opinion and what I am doing. My mortgage is the last debt I will work on paying off because it has my lowest rate (4.125%). In the interim I am concentrating on my other installment debts such as car loans and small home equity loan. I'm not personally concerned about the value of my house because where I live the prices have remained very stable but uncertainty about property values is definitely a legitimate concern.

Only you know your situation. I would pay down other debt first and put part of that extra payment into savings but that's just me. I'm sure you'll get other opinions about this. I wish you luck in whatever you decide.

From a BK years ago to:

9/09 EX pulled by lender 802
3/10 EQ- 800
4/10 TU -772

You can do the same thing with hard work

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[Anonymous]

I believe you should always pay yourself first.

I would set up a Roth IRA for yourself.  Check with your bank.

They should be able to advise you.  I know if you double your

mtg. payment it will pay off in the long run.

[demi]

I agree with the above posters.  However, I have my mortgage on a bi-weekly plan, so I do get an extra payment in a year, but I wouldn't pay any more than that.  I had originally planned on paying more, but I would rather the money be save, lots of home improvements still to do.  My house is only 1 1/2 years old, and worth way less than I paid...but I am in it for the long term anyway.   However, there is "nothing" to tap into for $$$ for landscaping, etc...the days of your house being a funding source are gone, at least for now.

Also, would rather build up that emergency fund.

[Anonymous]

Well you can always tap your 401K if you have to.

Although I don't advise it but at least it's there.  So in essence you are

saving and your husband is getting match.

I had times when I would put 50% in.  Glad I did.

[Anonymous]

From what I understand we can take penalty free withdrawals from the 401K in an emergency situation, so I have considered counting this as part of our emergency fund. We have great rates on our cars (3.9 and 4.99) and if I trade in my car it will be even better at 3.49. Other than those and the mortgage, we have no other debt. The mortgage is at 6.5%, so if we pay any additional money to our debt I think it should be to the mortgage, not the cars. The more I look at the numbers though, the more it seems that the money invested at a very reasonable rate of return (nothing too high risk) would do better than if used to pay down the mortgage.

I'm torn between the theories of becoming debt free as quickly as possible, and investing higher risk while we're young (we're still in our twenties). But I think taking into consideration the real estate market volatility right now, and the fact that we don't want to be in this house for more than 5 years longer, we should concentrate the money elsewhere - at least until the market improves.

I think I'm going to start working on more of an emergency fund to be kept in high rate savings or money market, and invest the rest, probably in ETFs. What kind of emergency funds do you guys have - 3 months? 6 months? 12 months?

Thanks to everyone for the advice you've given!

[MarineVietVet]

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@Anonymous wrote:

From what I understand we can take penalty free withdrawals from the 401K in an emergency situation, so I have considered counting this as part of our emergency fund. We have great rates on our cars (3.9 and 4.99) and if I trade in my car it will be even better at 3.49. Other than those and the mortgage, we have no other debt. The mortgage is at 6.5%, so if we pay any additional money to our debt I think it should be to the mortgage, not the cars. The more I look at the numbers though, the more it seems that the money invested at a very reasonable rate of return (nothing too high risk) would do better than if used to pay down the mortgage.

I'm torn between the theories of becoming debt free as quickly as possible, and investing higher risk while we're young (we're still in our twenties). But I think taking into consideration the real estate market volatility right now, and the fact that we don't want to be in this house for more than 5 years longer, we should concentrate the money elsewhere - at least until the market improves.

I think I'm going to start working on more of an emergency fund to be kept in high rate savings or money market, and invest the rest, probably in ETFs. What kind of emergency funds do you guys have - 3 months? 6 months? 12 months?

Thanks to everyone for the advice you've given!

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I can't imagine anything better than that. With no debt you can do with your money as you wish.

But.........that's just me and only you know your unique situation. You make a decision based on what you think is best for YOU.

From a BK years ago to:

9/09 EX pulled by lender 802
3/10 EQ- 800
4/10 TU -772

You can do the same thing with hard work

Credit Scoring 101
Common Abbreviations
Frequently Requested Threads
Whats In Your FICO Score

[Anonymous]

you really should look into the ROTH IRA.

[Anonymous]

Thanks Annie, I actually have a Roth IRA set up already. I will definitely consider putting some if not all of our investment money into it.

p.s. You said at one point you were contributing 50% to your 401K. Do you mean 50% of your income? That's some impressive savings!

[Anonymous]

yes.  I was in a good place then  I think I even did 100%

at one time.

I had some advice about CDs.  Get like 3 or 4 all different

expiration.  6 mo.; 1 year; 3 years; 5 years, etc.

The best rate I can find is local savings but it is so

much better than straight up savings.

Check out some Suze Orman sites or books.

EX  774

EQ 801