==This post originated by "Ron" and was moved from our old forum software to the new software==

Kim,
Thank you for hosting a sight like this. DR is my new best friend and my wife and I are reading the total money make while drinking the cool-aid. I want to give our situation and plan of attack and see if you agree with it.

situation and Debt:
home equity $125,000 mostly prime -1
54 mo. left on a $600 van payment 0% interest (I know DR would disaprove, but I just started to read the book)
$24,000 in savings
beautiful and on-board wife
4 great kids 12,10,7,5
good income

plan to pay off home equity:

$36,000 a year in non essetial/non bill paying income
$10,000 yearly IRS check
%10,000 401k contribution

totalling $56,000 to the home equity for the next 27months

the question is.....is this a good plan? I want to hang on to my $24,000 in savings for security. I also know that my emergencies come by the $5,000 not the $1,000 (big/old house and my car has a 190,000 miles on it and I drive 20k a year)other things I wonder about: stopping my 401k, should I just try to save/invest this money or would it save me more money to try and tackle my primary home mortgage (395,000 at 6%) or some other variation????? please help! Ron

Re: How I became debt free

Hi Ron, Welcome to the Life & Finances community forum. It is great to meet you.

Drink in the cool-aid my friend, it will change your life, your future and the future of your kids all for the better. I am here to poor you a fresh glass any time you need. smile

You are going in the right direction with a wife on the same page as you and $24k in savings that is fantastic!!

I have a couple of questions before I answer your “is this a good plan?” question. Your only debt is home equity, van and 1st mortgage correct? No other car payments, credit card, student loan, medical or other debt correct?

Once more question before I answer, do you and your wife have a working budget each month?

===Ron's reply===

Re: How I became debt free

Kim,

Thank you for your response. To answer your questions, yes. We have no other debt than:
$395k 1st mort
$125k second (home equity)
$600mo. van pmt
and yes, we have a budget/spending plan we think will be tight but we can work with. Ron

Re: How I became debt free

Ron,
That is great that you have no other debt than what you have listed.

As for the 401k, if it were me, I would stop that and put most of that toward your lowest debt, which would be the van.
With that said, let me ask you another question, the van at $600/mo for 54 mo is a huge payment for a very long time, is there a option to trade down? Maybe a older van, lower payments for a shorter period of time? With that said, I do realize you are most likely upside down as most vehicles are, but I did want to through that question out there.

Also, I would continue to put some portion of $$ away each month to continue to build your emergency fund. You are correct, if you have a older house as well as a car with heavy milage you will have large expenses when an emergency comes.

You mentioned you are getting $10k/year from IRS are you calculating tax refund from overpayment in taxes?
Off topic, under your user id it say you have posted 4 post but I only see this one. Am I missing some posts? I want to make sure I reply to each of your posts. (we are having trouble with our forum software and are in the process of upgrading)

Kim,

First, to answer the last question...this is my first time on a blog (if this is a blog) that is probably why there are 4 posts. I messed up and thought that I deleated and so on.

Second, the last thing in the world I want to do is address the van first because: I already made the new car mistake, it is an interest free loan, and I paid for a lifetime full coverage warrenty(I intend to keep van forever and a day and pay cash for cars into the future)can I pretend I paid cash because it is interest free?

Third, as for my emergency fund. How much more than $24k would you put in an emergency fund?

Fourth, IRS,My typical refund is huge because I am a 100%commisioned rep. and the company has to hold back money. Between work expenses, giving and interest expenses my refund is typically over $17,000 (7k goes to house taxes)

My wife and I are 100% focused and dreaming of getting out of the home equity. I sits on my shoulders like a huge weight.

Now that I have given a little more information, can I get the nod to start paying down my home equity????? please!!!!!

Hi Ron, thanks for the clarification on everything.

The only reason I brought up the van issue is $600/mo is a lot of money for a hunk of metal. Good that it is interest free, but I was more concerned with that monthly payment being so large. I understand you put your stake in the ground that you will pay it off and keep it forever, that is okay and here’s why... You have a plan!

When one is getting out of debt and/or managing money, it really isn’t about the math, it is about behavior. You and your wife are focused, have the dream and the plan, that will drive your behavior.

With that said, although your plan may not be the way I would approach it, both my approach and your approach will get to the same final ending….getting the equity loan paid off, then tackling the 1st mortgage….final goal being debt free.

I totally understand the weight of a financial burden. The whole point of money management is you have to do what works for you. If you focus on a van but the equity loan is your burden, you most likely won’t be successful at either one. You must work your plan in the way that will give you peace, a way that you can look at it each month and see progress that will motivate you so you will keep digging. I am so proud of you for coming up with the plan, reaching out for support and eager to run with it. Your plan will work, you and your wife will be successful with it.

Ron, you and your wife have a working budget, have tighten your belts and have a goal and a plan to reach that goal, you are already ahead of the game, you are more prepared than 90% of everyone else. Pat yourselves on the back you are doing great.

I was where you are once, I was in debt and at that time had no one to provide direction, but I did have a final goal and that was to be debt free…..SUCCESS, I am except for my new house which will be paid off at the end of 2011. I say this only as an example, that even though I didn’t follow a specific process of digging out of debt, my goal was to be debt free. The way I reached that goal might not have been the best, but it worked for me.

What can I do to continue to give you support? Please ask as many questions as you want.

Kim,

I was able to get on. Thank you again for the follow up and we will keep in touch to give you the good news along the way.

Fantastic, glad you got in. Please keep us posted on your progress. Use this site as your accountability partner. I am here for you to bounce off new ideas as well as struggles.