Tuesday, October 15, 2013

Debt pay off priority list

Now that I have a clear picture of where we stand as a family, it's time to figure out how to pay everything off in an equitable way.  What I mean by equitable is that since S and I are not legally tied together we need to make careful decisions about how we handle finances jointly should something happen that leave us as single parents (like death or splitting up).  This may sound pessimistic but I think it's necessary to use a better safe than sorry approach, similar to getting life insurance, I obviously don't want either of us to die but we need our family to be protected should that happen.  

Our basic plan is to pay off joint debts first with the other debts receiving minimum payments only, from there we'll split the money we have to pay towards debt each month so that 50% go to each of our debts.  

Here's what I've come up with so far (arranged in order of priority and pay off time frame):

1. Credit Card 3: $2,657- This is a joint debt in my name.  We used my card to cover the household expenses accrued during the maternity leave and the budget shortfall we had.  It has a relatively high interest rate of 8.9% so we need to hit it hard and get rid of it as fast as possible. 

2. Medical expenses: $2,565- Also a joint expense from the birth of our twins, and also primarily in my name.  Even though this one has no interest we have set monthly payments for the larger bills and owe the smaller bills upon receipt meaning this one will get paid off fast regardless of whether we would rather be putting our efforts elsewhere.  Besides, it will be nice to just have all these little medical bills out of the way so we can move on to bigger debt chunks.

3. Student Loan 3: $5,628- This is one of S' student loans we refinanced it together to get it out of default.  We have a set monthly payment for the next 3 years to pay it off but can throw extra money at it whenever possible to pay it off faster.

4. Credit Card 2: $3,975- This is a debt in my name and although it currently sits at 0% interest thanks to a balance transfer it will eventually start accruing interest at a ridiculous 15.4%!  We're going to try to pay this off fast but may need to do another balance transfer to get it done.

5.  Misc. small debts: $4,284- This is a bunch of small debts of S', currently none of them are showing up on his credit reports and they are not accruing interest so they have become a lower priority.

6. Student Loan 2: $21,100 and Student Loan 1: $35,230- Loan 2 is S' and Loan 1 is mine.  


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