What should I do with my reenlistment bonus? Getting the full tier 9 80k lump sum

[lookingfordavid]

Current plan is to pay off ALL debt and start from scratch. But wondering now if it’s better to invest some and pay off some.

Outstanding debt

Approx 40k in 2 vehicle loans.
Loan 1 approx 10k at 3%
Loan 2 approx 30k at 4.6%

Wife’s student loans
Approx 19k at 4.04%

Credit Card debt
CC 1 approx 1500 at 0.0% for life (Best Buy visa SCRA slaps)
CC2 approx 12000 at 5.9%

VIVINT home security loan
Approx 1500 at 0.0%

The CC debt is still being paid off from years back when I was a dumb young adult who piled up nearly 25k in CC debt. Paying down it aggressively over the last year now that the spouse has a good job. Moved entirely over to the AMEX Plat and fixed all the bad credit card habits.

Current plan is to pay off all the outstanding debt we have, it would free up approx 1500+ per month we currently have going towards car loans and credit cards.

At a minimum, I want to pay the credit card loans off, but I also really like the idea of being debt free and having both vehicles paid off.

Wife’s income is approx 65k a year, and I currently make approx 75k with BAH/BAS.

Just wondering if paying off all the debt is the best move, or if it would be better to pay off the consumer debt and pack the rest away into a HYSA or investments. Meeting with a financial advisor after I return as well to address retirements and funds. Wife works for the state and I will do the full 20 years under the old high 3 retirement plan, so a pension is in both of our futures.

 

[chemnitz]

@lookingfordavid Nothing wrong with targeting the debt. I would target the highest interest debt first. A lot of other factors come into play though. Make sure you find a fiduciary advisor if you go that route. There’s too many sharks out there using the military connection as a means to charge you fees you don’t need.

 

[wilberforce001]

@lookingfordavid Keep in mind your bonus is regular taxable income, and with that amount, it’ll probably push you into a higher tax bracket than you’re used to. Unless you’ve already done the math and 80k is your take-home bonus, you’ll wind up with closer to 60k, so not enough for all the loans you’ve listed.

That said, absolutely pay off the credit card debt immediately, and probably the larger car loan. After that it starts to get fuzzy since the interest rates are pretty low.

You can find HYSA rates around 4.6% pretty easy right now, and CDs around 5%. Mathematically, you’re better off paying the high interest debt, then keeping the rest in those vehicles until interest rates turn against you (you could also direct some to a traditional TSP/IRA account to lessen the tax burden). However, I think it’s not going to make a life-changing difference either way. I’d recommend checking out r/personalfinance as there is a robust wiki that covers windfalls such as this in detail.

 

[paullivesgaussabides]

@wilberforce001 This. My little 20k bonus last year was just shy of putting us in a new bracket. An 80k surely will

 

[jlw668]

@paullivesgaussabides A new bracket is not as scary as people think. The new tax bracket rate only applies to the income in that bracket.

 

[williamfrawley1887]

@lookingfordavid (1) Probably pay off wife's loan and all loans above 4%.

(2) Add up all loans for the 3% car and all zero interest loans. Put that amount into a high yield money market. Pay the monthly installments from that account.

(3) If you hear from an investment firm First Command, avoid them like the plague.

 

[kepha23]

@williamfrawley1887 There you go... Simplest and most effective advice right here.

 

[msoule4]

@lookingfordavid NVDA $700 Calls 2/9.

Shit, wrong sub

 

[kepha23]

@msoule4 Thetagang rules!

This have me a good laugh.

 

[belovedruth]

@lookingfordavid Max tsp then high interest debt

 

[cristiano316]

@lookingfordavid All depends on risk tolerance.

I might pay off the debt >4% and work on contributing to IRA and TSP

 

[soontobebride]

@lookingfordavid I'm currently debating something similar to this after my spouse got a decent paying job, but no windfall. The advice I've seen is all good about the interest rate portions, as well as maxing out TSP if you can.

One of the best things I've seen is not underestimating the psychological benefit to eliminating debt its effect on your day to day life and outlook.My debt rates are all between 4-5% so the math works out ok (currently maxing out TSP this year), but thinking about my money being my money after getting all of it paid off is a freeing thought.

 

[p5group]

@lookingfordavid What others have said here is important. The government will withhold 22 percent I believe automatically so your bank account will get 62k unless the 80k you mentioned is after tax.

Paying off your credit card debt is a MUST and should be done as soon as the check clears.

As for the rest, there's no issue paying it all off. HYSA's right now are above what you're currently paying in interest (wealthfront is giving me 5 percent APY) so you could make a tiny bit of money over what the interest on the loans is.

In reality that difference is pretty marginal, and the feeling and freedom of being debt free might be worth more than the couple hundred dollars you make by using it in a HYSA.

Edit: DFAS automatic withholding is 22 percent, not 20

 

[lookingfordavid]

@p5group It’ll be reenlisting in a combat zone so should be tax free correct?

 

[p5group]

@lookingfordavid https://militarypay.defense.gov/Pay/Tax-Information/CZTE/#:~:text=Bonuses%20and%20special%20pays%20are,served%20in%20a%20combat%20zone.

Yes it should!

 

[yuki213]

@lookingfordavid On one hand, there are HYSA’s and CDs out there still paying more interest than what some of your debts are charging - so you wouldn’t be wrong to hold off on paying those and collect the extra interest instead from investing the money. However, the joy of being completely debt free, plus the $1500 a month extra you aren’t paying on debt, is well worth not making a few hundred dollars in interest to me. I’d be debt free and enjoy how much stress it removes from your life. Then avoid accumulating more debts.

 

[saturneptune]

@yuki213 This. I’ve been debt free and happy.

 

[aria]

@lookingfordavid Here I am 10 years in and have received zero bonuses (enlistment and 2 reenlistments) as 25B). $80k lump sum seems so wild to me to get.

 

[lookingfordavid]

@aria Drop a packet.

 

[fordgt150]

@lookingfordavid I would throw $5k into an amazing vacation, and THEN use the rest to pay off debt, but making sure to take every penny that WOULD have gone to paying debt payments into savings from now on…