Pay off debt or beef up savings?

[freeyourmindfromthelies]

Hey all, so I’m in a little situation and I’m not sure the best way to tackle it. My goal is to pay off debt and save up for a house when we PCS. I’ll be PCSing in roughly Oct 2024 so I’ve got some time. I also am not completely sure how much money I should be expecting to pay out of pocket when buying a house utilizing a VA loan.

Current debts:

Wife’s car-min payment $260/mo, been paying $300/mo w/ 7.84% interest rate (owe $5200)

My truck- min payment $390/mo, been paying $440-450/mo w/ 2.25% interest rate (owe $21000)

One credit card- balance: $4000 out of $24,000 limit , min payment $84/mo paying $250/mo w/ 5.99% interest

Savings: $6,000
Individual Trading Account: $2,500
TSP: $16,000

Collectively we make roughly 5,000/mo without BAH (live on base)

I want to tackle the credit card, then the car, then beef up my savings. Thoughts?

 

[theeyeofaneedle]

@freeyourmindfromthelies Pay off the credit card every month in full

Refinance your wife's car to a lower rate

What is the length of your vehicle loans in months?

 

[freeyourmindfromthelies]

@theeyeofaneedle Haven’t used the credit card in over a year and a half.

Would it be beneficial to refinance with 75% of the loan paid off?

 

[makubexx]

@freeyourmindfromthelies Yes, you’re paying almost 8%. How many months are left in the loan?

 

[modesty]

@freeyourmindfromthelies Are you making sure the extra car payments is going to principal only? Those usually have to be made separate.

 

[everyman]

@freeyourmindfromthelies Always pay off the highest interest rate first. If I were you I'd stop making extra mayments to the truck and credit card and put all that money into your wife's car as it has the highest rate.

If you pay the minimum on the truck and credit card, you could be paying $526/month on your wife's car. As soon as that's paid off you roll that entire payment into the minimum credit card payment and now you're paying $610 per month on the credit car.

2.25% is free money. Never every pay extra on that truck. Once your wife's car and CC are paid off you roll that $610 into your individual trading account each month.

Also, make sure you're doing at least 4-5% if not more per month into a Roth TSP.

 

[abbalovesyou]

@freeyourmindfromthelies Pay off debt.

 

[jewlyen]

@freeyourmindfromthelies Definitely pay off the wife's car before the credit card. You're paying more money in interest on it.

I'd also look at increasing your TSP sooner rather than later. You're probably fine to wait until after the PCS and you figure out the new budget for the new location.

 

[davidolonge]

@freeyourmindfromthelies Drop your CC and truck payments down to the minimum, increase the other car payment as much as you can.

It has the highest interest, and a relatively low balance remaining...getting it paid off first will be the best from a financial perspective. Once that car is done, focus on the credit card. The truck is a pretty low rate, so even paying the minimums and saving in a HYSA will probably be no worse than paying off the truck more quickly.

 

[ernesjohnson]

@freeyourmindfromthelies Those car loans are killing you. Once those are done you gotta go cash only. If I was in your shoes I would cut my losses to something much more affordable by selling the truck. Your wife’s car is much closer to being paid off and has a not so great interest rate. I’d use my savings right now to pay that off and build it back up later.

 

[kevonb129]

@ernesjohnson I agree and am surprised nobody else said the same thing. Sell your truck and buy something cheap. Odds are you don't use your truck for what it's made for enough to justify why you bought it, unless you work on a farm or you're a carpenter (doubtful since you're in the military). Get the beater, pay off your debts faster. A year after being debt free we we're able to buy a 1 yr old Honda Odyssey Elite for our family of 6 for 37k CASH. You can save so much money very quickly once your debt is paid off.

 

[kevonb129]

@ernesjohnson I agree and am surprised nobody else said the same thing. Sell your truck and buy something cheap. Odds are you don't use your truck for what it's made for enough to justify why you bought it, unless you work on a farm or you're a carpenter (doubtful since you're in the military). Get the beater, pay off your debts faster. A year after being debt free we we're able to buy a 1 yr old Honda Odyssey Elite for our family of 6 for 37k CASH. You can save so much money very quickly once your debt is paid off.

 

[kitty346]

@freeyourmindfromthelies Start paying minimums on your car and the credit card. Put everything extra on her car. Since it has the highest interest rate, that saves you the most money and gets things paid off the fastest.

Once her car is paid off, move all the money you were putting toward that to the credit card. Same to you car when the credit card is paid off.

You can find various “debt avalanche” calculators on line that will show you how soon everything would be paid.

Do you know where you’ll be moving? Why do you want to buy? How long will you be there? If you’re only there for a few years, it usually makes more financial sense to rent.

 

[mudmixer]

@freeyourmindfromthelies Pay off debt with rates higher than 3%. Starting with the highest rate.

Save up enough to pay your bills for 6 months and keep in high yield, I bonds, CD ladder, or a combination.

Max out your Roth TSP, then your Roth IRA. Increase your total amount by 1-2% every pay increase and you'll be surprised how painless it is.

 

[plans4good]

@freeyourmindfromthelies Have you considered using the eFPW worksheet? The latest I've seen isn't up to date (I believe it was last updated in 2021), but it is still useful for figuring out which method will realistically save you the most.

electronic Financial Planning Worksheet (eFPW) - FINRED or FFSC.

As for plan, seems to make sense, hit the highest interest first and work your way down. Otherwise, whichever methodology you prefer seems fine of the usual methods (avalanche vs snowball vs however you feel maximizes your collective profit margin).

 

[kc316]

@freeyourmindfromthelies I would increase your TSP 4% since you’re getting an increase next year. Always increase EVERY time you get a pay raise. Get used to living on less money.

I would drop your truck back to min payment. I would apply THAT additional to your wife’s car payment and make it $350. I would continue paying your CC as is.

If at the end of the month you have extra money throw it at your highest interest rate which is your wife’s vehicle.

 

[resjudicata]

@freeyourmindfromthelies Could do a balance transfer on that credit card to a 0% interest card. But like other have said your car loans are setting you guys back.

 

[peter_aka_00avenger00]

@freeyourmindfromthelies Neither. Beef up your investments.