Save or Pay off Debt?

[MinnieSweetheart]

I'll tell a story and then tell you my advice without knowing the answers to those questions. First, the story: The first house I bought was a short sale from a guy who thought this house was his dream house - he was going to die there. He bought the house at the height of the market in 2007 and paid ~$360,000 with 0% down, so a mortgage of ~$360,000. When the market crashed, he was okay for awhile. He had a good job and plenty of savings. Then in 2010 he lost his job and he made what I think was the worst decision he could have made. He decided to take all of his savings (~$140,000) and put it towards his house. The problem was, prepaying principle on your mortgage doesn't mean you stop getting mortgage statements each month, it just means you will pay it off earlier. So now he had no job, no savings, and he still had his mortgage and other expenses. Long story not-so-short, he racked up massive debt trying to keep his head above water but eventually lost the battle. If he had simply lived off his savings he would have had plenty of money while looking for a new job. Very sad story.

OMG!! Dave Ramsey gone all wrong. That is tragic. He doesn't actually advocate paying off debt when you don't have a job; he would say to put the snowball on hold. However, I think it's not so clear unless you listen to enough scenarios on the show.

 

[MinnieSweetheart]

So for debt we have our mortgage, we owe about $40,000, interest rate is about 5.5 if I remember right. We also have a second mortgage, we owe $6000. We have 2 car payments, one is a new purchase but at a very good interest rate and pretty low payment so that isn't getting paid off. The other we owe about $2500. We do have 2 other paid off vehicles and would consider selling one if needed. We have 3 credit cards and owe about $5500.

Its been a tough year, hence the medical bills and we have really tried to get things paid down. So right now I would say we only have about 1.5 months of living expenses in savings. Outside of our mortgage, our two biggest expenses are car insurance and our cell phone bill. I switched car insurance companies today and saved $130 a month. Our cell phone bills are under contract, we are looking into another provider that will buy out our current contract to have a lower monthly payment. We don't have cable/satellite but we do have internet, we are on the cheapest package so can't downgrade but can cancel if need be. Our water bill is super low anyway, our electric is high in the summer but with fall and winter coming it will drop $100 a month. We canceled Netflix and Hulu, our kids complained and volunteered to pay it themselves, LOL!

Until this last year we have never depended on my income at all, unfortunately dh had an emergency surgery last thanksgiving and our 20% of the medical bills were almost $30,000. So while we have payed alot toward them it seems like we can't make a dent because there are so many, hospital, surgeon, anesthesia, etc. I know these would be the first I stop paying if we both become unemployed.

I am currently an office manager and have worked heavily in customer service for years. I have a lead with a major insurance company who is hiring several positions. I have already passed all initial tests now just waiting to interview. This position starts at the same salary I am currently making with the potential to start at a hire rate due to experience. The medical insurance they offer is considerably cheaper than what I pay through work so that will be a benefit. However the hours are different and I will have to quit my part time job which I love and will lose that income. So in the long run I will lose about $300 a month considering all factors but will have a good job in case dh loses his.

I am so sorry to hear about that $30,000 surprise. That is really tough.

Going off just what you said here, I would pay off the $5,500 credit cards followed by the $2,500 car. I'm also unsure of what is left of the $30,000. Is that what the credit card bills are? I would be looking into paying that too.

It sounds like your monthly bills are fine, but I would make sure to cut spending significantly during a time of instability. By that I mean, minimal shopping and little to no eating out.

 

[taymaesmom]

Could we live off of just my income? No we couldn't. However dh would be able to draw unemployment for 6 months until he found something else. But if the company closed he would (and could) buy the information from our current company and start his own business. We have already done the math and we know the financial side of the company we work for very well and know within 2 months he could start making money. He is already in the process of getting everything in place, and his parents have offered the start up capital if we need it.

We have recently spoke with the owner's wife and she is determined to make a go of the company, so for the immediate future I feel ok. I am still going to pursue another job and am going to work hard at both saving money and paying off debt. I think I'm going to split our extra money and save some and pay off some of the smaller stuff. I'm going to cut the medical bill payments down to their minimum payments and pay the difference to other debt. I want to pay off the car loan ($2500) since its one of our higher bills and if I paid it off that money would help me snowball some of the other things.

Right now I have stopped feeling like the world is ending but I definately don't feel comfortable or stable. Everyone still working with us is determined to help the owner's wife make the company work and we have several plans to help her save money with the company. Honestly the company makes money, we aren't making much right now because we have been transitioning to a new company but we could be making alot more if we went back to what we do best.

Thanks everyone for the advice, I plan on using several of the ideas.