All Life Insurance Tips - What to do with cash and loans?

What to do with cash and loans?

I'm 30 years old and have the following in loans and cash. I have a very good paying job and no mortgage. I'm trying to determine what to do, save more cash or begin paying down debt. Obviously I need to maintain some cash base for issues that may come up. Cash: $6,000 in savings yield 4.25% $12,000 in stock market investments (up from $8,000 in Jan.) Loans: $10,000 left on undergraduate at 3.25% $41,000 left on graduate at 5.25% $14,000 left on car loan (3 yrs. to go) at 7% $5,000 in credit card debt 0% until September of 2008 I contribute to 401K, IRA, GE direct stock, kids college, and I have a universal variable life insurance. The life insurance policy is worth around $4,500. I have approximately $2,700 a month in expenses; this number includes the kids college fund, GE direct investment, and life insurance policy. To your point, I do have 6 months of expenses in cash. Thank you very much for your responses, it is appreciated. The credit card has a $10,000 limit.

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Before you pay closed end debts down, you will want to be sure that you have at least 2 months in expenses saved, if not 6 months. Then, if you still have not reached the credit card limit, you can begin to pay down the debt on the car loan mainly, with a small portion of the graduate loan getting paid down too. Instead of paying cash for that though, see if you can do a free balance transfer onto the credit card. This way you pay 0% interest until September, and you can put the money away in savings or a certificate account for several months (Some certificates allow you to add to them monthly, this is a good way to go, since you can earn a higher interest rate, even on a low balance at many credit unions, and you cannot access the money easily, so it helps you to be sure you don't spend it). If the 5,000 on the credit card is the limit, which is reasonable, then simply pay down the car debt slightly, but be sure to put money away in savings to cover the balance on the credit card when it comes due, so it doesn't adjust to a high interest leaving you stuck with 10%+ on your 5,000. Check what the rate will adjust to in September. If it is greater than 10%, it makes more sense to put the money in savings now and pay down the credit card instead of paying down the car loan. This is just one way to go. You may check with your bank to see if they have a personal financial consultant that you can meet with for free that will help you. Some banks do, and some don't, but it is worth a try. You sound very smart and responsible though, and it looks like you will be be very stable and successful financialy even if you play it conservatively.
I would make sure I have 3-6 months' living expenses on hand in cash. Then begin paying down the debt (highest interest rate items first). If you invest but continue to carry the debt, you're not "netting" very much.
So far, you've done some good things here. You have 6 months of living expenses in cash on hand, you are contributing to a 401k, IRA, and kids college. That's great. Now, let's tackle the debt. $14,000 in car debt...that's the easiest loan to get rid of financially, but the most difficult to get rid of emotionally. In other words, you bought a car you really like can't afford. Sell the car and take about 5 or 6 thousand out of your stock market investments to buy another car with cash. That still leaves you with $6,000 in stock market investments and all $6,000 of your savings. Now, as far as the rest of the debt goes, there are two methods most financial advisers recommend on getting out of it. The first method is the "debt snowball" method. This is how it works: * List all debts in ascending order from smallest balance to largest. This is the method's most distinctive feature, in that the order is determined by amount owed, not the rate of interest charged. However, if two debts are very close in amount owed, then the debt with the higher interest rate would be moved above in the list. * Commit to pay the minimum payment on every debt. * Determine how much extra can be applied towards the smallest debt. * Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off. * Then, add the old minimum payment from the first debt to the extra amount, and apply the new sum to the second smallest debt. * Repeat until all debts are paid in full. In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow (thus the name). The theory works as much on human psychology as it does on finance; by paying the smaller bills first, the individual, couple, or family sees fewer incoming payment requests as more bills are paid off, thus giving the impression that they are making headway towards debt elimination. The other method is to list debts highest to lowest according to their interest rate and paying off the balances in that order. Everything else is the same as the first method. The second method tends to be the one that saves you a little more money in the long run, but the debt snowball method let's you see the progress you are making and is less likely to be given up on. You can speed up the process even more by temporarily stopping your 401k contributions until you get that debt paid off. If you really, really want to keep the car you have, just work it into the snowball plan.