How should I prioritize paying off $54k in debt with $60k savings?

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KiwiRyanoob

New Member
Hey, just wondering if anyone has any advice/opinions on what order we should tackle this debt in. My husband and I bring home a little over 10k a month. Our bills and necessities (groceries/gas) come out to 6450 a month. Our debts (excluding the mortgage) are a Kia Carnival we owe 22,900 on, a Chevy Malibu we owe 12,500 on, a student loan for $15,250, and a no-interest credit card we owe $4,000 on. We have been so so so stupid with money. We make a decent living an d have a good amount of money in the bank, but we’ve never prioritized paying off our debts. Last month I decided we need to get this debt paid off stat so we can start investing. I grew up VERY POOR. I get so nervous spending large amounts of money. That said, right now we have 45k in the bank. I have 15k coming next month from my grandma who just passed away. I have 3 kids and one starts college in August. We’ve always said we weren’t going to pay for college, but I’d like to pay between 5k-10k this year to help. So where do we start? I asked my husband how much he would feel comfortable having in the bank and how much he’d want to pay off. We agreed we’d pay 30k to start and then keep 30k in the bank. My first thought is to pay off the Malibu and student loan. Then pay 2k toward the credit card so we can get that paid off sooner too. But then I’m not putting anything toward the college fund. Or I can just save 10k or the 15k I’m getting from my grandma toward college and spend 15k of our money and 5k of the inheritance and pay off the student loan and credit card. I just don’t know what the best plan is.
 
I got a ton of advice, so I’m gonna try to keep this simple.

1. Keep 3–6 months of expenses ($6,450 x # months) for emergencies, depending on job security. You can go past 6 months if you’re scared of losing your job, but I’d say no more than 12.
2. If you haven’t already, get HYSAs (high yield savings accounts). Look for 3.75% APY or more, and put your emergency money there. The bank pays you for keeping a balance, roughly “balance x APY%” per year divide by 12 to estimate monthly payouts. If money is gonna sit, it should be making money.
3. Since a large sum is coming, order debts smallest to largest balance: credit card, Chevy, student, Kia. You want to pay off and free up as many as you can.
4. Once that sum is used up, reorder your debts by (balance / payment). That roughly tells you how many months it could take to pay each one off. Don’t just pay the minimum, though. If you can pay more, the debt dies faster. Based on income minus expenses (10k 6.45k), you have 3.55k per month plus the minimum payments you cleared to knock out debt. Decide how much you wanna throw at it, pick the fastest one, pay minimums on the rest until one debt is gone, then repeat until they’re all gone. This debt could disappear so fast and then pay for college, a house, and retirement.
5. You may not like this advice, but get debt cleared (except the house) before helping with college. You gotta take care of yourself before you can help others, including your own kids. Your age affects how much you should focus on retirement. If you’re young, go half half on retirement, college, and keeping the mortgage paid minimally. The older you are, the more you should focus on retirement and maxing contributions each year.
6. Once you clear debt, decide what slary you want to live comfortably on. If you want it to be your current income (~$120k/yr), you’ll need 120,000/4% = $3M to retire (4% is the withdrawal rate). Adjust this based on what salary you actually want or how much you’re willing to withdraw (don’t go over 7%). Whatever you don’t pay on the house, your retirement should cover the difference before your kids inherit the rest.

Disclaimer: I’m not a financial advisor just a math nerd and financial education enthusiast. Take my advice as options, not directions.
 
That’s a tiny amount of debt for what you make Unless you’ve got some silly mortgage payment, that should be easy to pay off.

I make half what you do and got out from under 80k in interest bearing credit card debt without too much trouble.
 
If I’m being honest, I do pretty much everything the advice suggested except I only keep a 3–6 month emergency fund, and I would focus more on paying down the higher interest debt first. I really do agree with not putting money into my kids’ college funds until I’m debt free and able to fund my retirement first. Then I can start contributing to college funds.
 
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