prioritization of debt

rppearso · #1 (**permalink**) 06-07-2009, 11:40 PM

Hello,

How should I prioritize my debt pay off?

Right now I have only 4 debts but they are rather large,

1st mortgage at about 6.5% total of about 135K
2nd mortgage at about 9.5% total of about 35K
Regular (state) Student loans at about 6.5% total 27K
Federal student loans at 0.5% total 20K

I would like to have my place payed off but have only saved about 5K in the last 6 months (truck repairs on a vehical that is payed for to keep it in tip top premium running condition otherwise I would have like 6K), however my student loans will be with me forever and I can not get forbarances on the regular ones without it effecting my credit and cant bankrupt out of them. I will be able to save alot more when my GF moves in and helps with bills and stuff. I am not to worried about the federal loans becasue the payments are super low and they can be defered for 6 months or more with a document proving you were laid off.

I guess the question is should I keep saving and balloon payment out the entire 27K and save myself almost 300$ a month or keep saving what I can and when my savings match the pay off ballance on my condo pay for my place out right so I have a place to live in the event of a prolonged lay off and a place to come back to regardless of what happens in life (turn off the utilities and drain the water and all I would have to pay is taxes and condo dues which are cheap enough to just pay off for years at a time once I dont have a mortgage. Of course I can balloon out 27K alot faster than ~170K and can put 300$ a month more towards the condo, the disadvantage of having the student loans is my parents are co signers and it would mess them up if I were forced to not be able to pay for even so long as one month (they are pretty cut throat), the federal loans there is no co signer. I dont have a ton of money saved right now so the game plan will not be critical until I have about 20K saved which will be early next year. I am still making good money right now and want to put it to the best use possible for the hard times to come and if the hard times dont come I can prepay my utilities for several years and buy a few toys I have always wanted once I 0 out my bills (other than food and vehical gas of course, which you cant really prepay lol) as long as im still making good money lol.

I dont want to make balloon payments on my condo unless its to pay it off because I could loose that extra money in a forclosure and then thats even worse than burning money.

JoeDuggins · #2 (**permalink**) 08-19-2009, 07:58 AM

The important thing to remember about saved money is that it isn't really saved if your total worth is less then 0. You need to close out debt in order of interest rates. Start with the 2nd morgue, talk to your financial institution about refinancing. Unless you have nightmare credit there's no reason you should be paying that high of an interest rate on a loan.

Now, given your college loan debt, I assume you're a well paid professional. Given the amount, I'd say your annual income falls between 85K and 100K annually. I think you may have some consumer debt as well. If you have 100k in annual income and 200k+ in debt, you're destitute, the bank just hasn't realized it yet.

I'd say, focus on your home. It's way too high an interest rate for that kind of loan, even if it's a 10 year. The only reason to pay off the student loans first would be a declaration of bankruptcy. You can't chapter 11 away student loans, ole sally has you good on that one. Anyway, hope this helps.

sapphirecapital · #3 (**permalink**) 08-20-2009, 12:51 AM

mortgages first, you have to live somwhere

Curtissmith · #4 (**permalink**) 08-20-2009, 09:06 AM

Pay off the debt with the highest interest first which would be your second mortgage. Leave the first mortgage last since you can write off the interest on your taxes.

Curtis
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