The Budget Doctor Q&A
Answer: Thanks for writing. I am impressed that you are thinking so thoroughly about your options. Selling a car is a great way to save money. Assuming you can sell it for at least the amount of the loan, you will save money. The question of life insurance is more complex. If you are 25 with no children and in good health, I would suggest having $10,000 in term life until your debt is paid or you have children. If you are the main wage earner and have one or more young children, you need more insurance and $300,000 may be an appropriate amount. If you are over 50 and/or in poor health, you might have difficulty replacing your insurance and will need to keep what you have. In any event, you need to determine an appropriate amount of insurance for your circumstances and pay as little as possible for that insurance. Go on line and find sites that offer free quotes on term life. Get quotes for the amount you need and buy the least expensive policy you find if you can find a policy for less than $160 per month. There may be an issue with cash value if your policy is a whole life policy, but with very few exceptions, a term policy will make more sense for you. The 401k is a bit easier. You need to get your employer’s match. If that is 2% you need to contribute 2%. If it is 5% you need to contribute 5%. Everything else you have should go towards that debt. When attacking that debt, be sure to make the minimum payments on time on every account and to put every extra dollar towards the account with the highest APR. Attack that card first to save the most, then when it is paid off, attack the card with next highest APR. Do not get confused with silly strategies such as paying off the smallest balance first. Maximize your payment effect! I’m betting you’re going to succeed.
Good Luck! The Budget Doctor