What to pay first, and with what?

[Anonymous]

I will soon receive a moderate tax return, have a small savings,  and a small 401k balance I could take a loan against to repay some debt more efficently and am looking for some advice on how to handle best.

In mid-2018 my wife and I got a personal loan for $10,000 at 9.5% for for debt consolidation.  Our minimum payments were a bit much as she wasn't working at the time. The loan is considerally less interest and the payment over 48 months quite managable.  She has since found employment and we have payd approximately $1600 towards the principle with a balance of roughly $8400. We recently had to put about $2700 on a credit card that has no interest until October 19,  2019 for vehicle repairs and a rental car. We haven no other credit card debt outside of the loan. I had an existing personal loan that has a $2800 balance at 13.5%. We have been trying to build savings and have $4000 currently but I'm conflicted about this because of the debt.

After all bills are paid (necesities - Food, gas, rent, utilities, insurance, loans, cars) we have  about $900 left over each month for entertainment, unexpected expenses, doctor visits.

So to recap below are my unsecured debts

1. $8400 @ 9.5% with 42 months remaining  $253/mo
2. $2800 @ 13.5% with 22 months remaining $92/mo
3. $2700 @ 0% promo until October 19, 2019  $25/mo

Possible methods of repayment

• Tax Return exected sometime in Februrary or March (depending on Govt. shutdown) $2500
• Savings $4000
• Approximately $4300 available in a 401k loan at 6.5% paid to myself.
• Monthly expendible income of safely $500
• April bonus of $1000 Conservatively
• Extra Payday in May, approximately $1300

My plan was to:

• Use the $4000 in savings and and 401k loan of $4300 ($222/mo for 18 months) to pay off the $8400 loan in January.
• Use the Income tax return to pay off the $2800 personal loan in February.
• Then, make payments of $500 (March), $1500 (April), and $700 (May) to the credit card.

Starting June 2019 the only "unsecured" debt I would have is 401K loan with 14 payments left and $1000 left over monthly after all planned expenses paid.  I could hammer down the 401K loan or rebuild savings at about $500-600 monthly .  In the short term, it only offers a gain of $100 roughly per month, but I'm paying the interest to myself and once the loan is paid it will add another $200 to my available income.

Thoughts?

[Kforce]

---

@Anonymous wrote:
So to recap below are my unsecured debts

1. $8400 @ 9.5% with 42 months remaining  $253/mo
2. $2800 @ 13.5% with 22 months remaining $92/mo
3. $2700 @ 0% promo until October 19, 2019  $25/mo

Possible methods of repayment

• Tax Return exected sometime in Februrary or March (depending on Govt. shutdown) $2500
• ( Yes see my recommendations below )
• Savings $4000
• ( I would also not use this unless it becomes necessary )
• Approximately $4300 available in a 401k loan at 6.5% paid to myself.
• (This would be my last choice, not recommended)
  
• Monthly expendible income of safely $500
• ( Yes see my recommendations below )
• April bonus of $1000 Conservatively
• ( Yes see my recommendations below )
• Extra Payday in May, approximately $1300
• ( Yes see my recommendations below )

 Thoughts?

---

I don't believe your debt level is  worthy of clearing out you savings and borrowing against your 401k.

Payment can be accomplished just using your income and extra funds.

Use your 500 each month reallocated at:

1. $8400 @ 9.5% with 42 months remaining  $253/mo / New payment $275
   
2. $2800 @ 13.5% with 22 months remaining $92/mo / New payment  $200
   
3. $2700 @ 0% promo until October 19, 2019  $25/mo / Keep at 25
   

Buy June 2019 you should have an extra $4,500 from tax refund, pay, and bonus

Balance on 13.5% loan of $1,939, pay off from the 4,500.

You will still have 2,560 and an extra 200/mo for additional payments

You will only owe 2,500 on the CC, Pay it off and get another 25/mo for payments

You now have the full 500/mo to pay off the 9.5% loan

Balance at this time will be $7,124

If you want to save a little you could use some of your savings but I would save most for a real emergency.

      Loan:   7124.000
       Rate:      9.500  %
       Pmt :    500.000
 
       Payment   Principal   Interest    Balance       yyyy/mm     #
   ---------------------------------------------------------------------
        500.00     443.60      56.40      6680.40      2019  7     1
        500.00     447.11      52.89      6233.29      2019  8     2
        500.00     450.65      49.35      5782.64      2019  9     3
        500.00     454.22      45.78      5328.42      2019 10     4
        500.00     457.82      42.18      4870.60      2019 11     5
        500.00     461.44      38.56      4409.16      2019 12     6
        500.00     465.09      34.91      3944.07      2020  1     7
        500.00     468.78      31.22      3475.29      2020  2     8
        500.00     472.49      27.51      3002.80      2020  3     9
        500.00     476.23      23.77      2526.57      2020  4    10
        500.00     480.00      20.00      2046.57      2020  5    11
        500.00     483.80      16.20      1562.77      2020  6    12
 
        500.00     487.63      12.37      1075.14      2020  7    13
        500.00     491.49       8.51       583.65      2020  8    14
        500.00     495.38       4.62        88.27      2020  9    15
         88.97      88.27       0.70         0.00      2020 10    16
   ---------------------------------------------------------------------
 
        Total                Interest                   Years
   ---------------------------------------------------------------------
       7588.97                464.97                     1.33

[FlaDude]

---

If you want to save a little you could use some of your savings but I would save most for a real emergency.

---

I don't believe your debt level is  worthy of clearing out you savings and borrowing against your 401k.

I agree wholeheartedly with this. Keep some cushion so you don't have to use credit for minor surprise expenses. If you stretch too thin, you will be more likely to hit the cards.

[TravelWithMiles]

I like the classic Dave Ramsey / Snowball method.  Keep 1K for your baby emergency fund, take the rest, blow away the 2800, then hit the 2700, then the other loan.  Don't touch your 401k.  Done and done in 11 months then you can rebuild you savings. Assuming simple interest to keep the excel easy and the extra payments as you mentioned in month 4 and month 5.  Hopefully all my formulas are right.

	D1	D2	D3
Start	8400.00	2800	2700
Payment Month 1	253.00	2800	700
Balance End of Month 1	8213.50	0	2000
Payment Month 2	253.00	0	592
Balance End of Month 2	8025.52	0	1408
Payment Month 3	253.00	0	592
Balance End of Month 3	7836.06	0	816
Payment Month 4	1029.00	0	816
Balance End of Month 4	6869.09	0	0
Payment Month 5	2145.00	0	0
Balance End of Month 5	4778.47	0	0
Payment Month 6	845.00	0	0
Balance End of Month 6	3971.30	0	0
Payment Month 7	845.00	0	0
Balance End of Month 7	3157.74	0	0
Payment Month 8	845.00	0	0
Balance End of Month 8	2337.74	0	0
Payment Month 9	845.00	0	0
Balance End of Month 9	1511.25	0	0
Payment Month 10	845.00	0	0
Balance End of Month 10	678.21	0	0
Payment Month 11	845.00	0	0
Balance End of Month 11	-161.42	0	0