In July we will be making our final payment through a credit counseling service to pay off credit cards. We're currently paying just under $1000/mo to this. With this freed up, we are looking at what to do next. We'll probably pay off one of the student loans (higher intrest rate, and a $3k balance), but what then?

We've been living (somewhat) paycheck to paycheck, but lately that's loosened up a bit. We've planned for a $2500 emergeny fund, and specific budget numbers for a few other things (vacation, holiday, headstone for our son) so we're trying to decide how to split up that $1000 a month. Do we put it all to one thing at a time, or do we divide it? Do we focus on paying off the student loans, or start saving for a down payment for a house? How do we make these determinations?

Any suggestions would be appreciated.

Ah, these are fun questions. They're difficult to answer, though. This is similar to my "do I pay off debt or save for retirement?" question that proved so divisive in April.

My own inclination in your situation would be to save for the emergency fund without dividing the money. Get that saved up. Then split the money to go after your other goals. Actually, if it were me, I might do a savings snowball. Basically, I'd use the debt snowball idea, but apply it to savings. Which goal costs least? Save for it first. Then the second lowest. Then the next, etc. I'll bet you could knock out two or three goals in just a few months. Then start saving your down payment.

I think the key, though -- and you probably already realize this -- is to keep that $1,000 designated for financial goals and don't let it slide over into indulgences. Does that make sense? You're already used to putting that $1,000 toward debt repayment, so act like it's not available for dining out or buying a new plasma TV. Use it to get ahead. That's what I plan to do with my allocated money once my debt is gone...

Good luck!

Personally, I would spend a year or two plopping that $1000/month into a retirement fund before I'd even begin to think about houses.

Trust me, I'm a homeowner, but homeownership can be highly overrated .

If all goes according to plan, the emergency fund* will be funded before the CC debt is paid off. (Although we may have to use some of it for the trip to Oregon.) The next step will definitely be to pay off one of the student loans. We'll have to look at the others as they have much higher balances and much lower interest rates.

My current thought for that $1000 is this: $300 for student loans, $200 for short/mid term financial goals (vacation, holiday, etc.), $500 for down payment.

I don't think I'd drop the whole grand on it, but I'm with Siobhan in giving retirement savings some attention.

After fully funding the emergency acct, I'd probably order a headstone. That would be most important to me. Then I'd pay off the debt's.

Question: What's the difference between vacation and a holiday? How are they seperate budget items? Any worth to the idea of extending your trip to OR for the wedding and considering it your vacation?

Yes, the headstone is very high on the list. It's something I need to research, but have not been able to mentally prepare myself for.

Vacation, to me, is traveling with my wife, for the sake of "getting the heck out of Dodge". We're both the sort of people who feel that we need to be doing something constantly, so if we don't leave town, we don't relax. Holiday (specifically, Christmas) is more along the lines of budgeting for gifts and gatherings. We've been making many of our gifts lately, but we also try to make a fairly sizeable donation to Toys for Tots in memory of our son. So, in my mind they are two seperate budget items.

As far as retirement, I have a decent 401k that i'm funding to the max that the company matches. We do want to work on something for my wife, however, as she only has a small 401k left over from a job before we got married. I'll have to add that to the list.

My brain is foggy today, I thought you meant 'holiday' in the sense of a british vacation. Hence the confusion about vacation/holiday as seperate.

Yeah, perhaps I should have clarified, that as an American, I don't actually speak English.

That is one upside to displaying users' locations. That way we (might) know what a person means when they say biscuit or chip or lift or holiday.

My 2c run quite a bit more conservative:

Payoff debts first (debtor ruled by their creditor...),
Build large emergency fund,
then, fund retirement "fully"

Let me elaborate: life loves to throw slurves. I like to be prepared for tomorrow's worst case scenario, than a distant future's best case scenario. Let me use my parents as an example. A few years after the dot-com bust, my dad was sort of forced into retirement. He'd been a VP of different companies for years so he had enough money. He started to work for himself on a new project. Then, my mom decided to take a 2 year break from teaching to write a novel. About a year later, she was diagnosed with cancer. You can imagine the medical expenses! Had it been just a year later, she might not have been covered by the school anymore--and this might be a much sadder story. It's a happy story though. She's fine now!

It's not something worth staying awake every night worrying about, but emergency money is desperately important. If you've over-contributed to your retirement fund, you'll have to dip into it, and could likely pay penalties which would more than do in the benefit of maxing. If you're saddled with debt, things could get really ugly. There was just recently in the news that poor 60 year old couple that financed a new Ford Explorer, and then the husband was hit with cancer, lost his job, and now they're close to default. (I think it was in the news because the bank had been taking their SoSo Security money--naughty!).

So morydd, and others, this is nothing more than a cautionary tale, and my own experience. Take from it what you can.

Because I'm easily discouraged, I would be inclined to give myself a reward for getting to the debt target and increasing my own spending allowance a little - something like $50 or $100 a month. I think that would keep me on track better.

I like JD's idea of a savings snowball.

If you know what you want for the headstone, and you're ready to deal with it, then I would suggest making that an early target. If you're not really there yet, then I think you should leave that for later. I don't know how much they cost, but I'll guess that you could get something nice for less than $2000, which is only 2 months savings. If thats the case (which I've no idea of) then you can do that whenever, just taking a short hiatus from your other goals.

Presumably, the holiday that you're referring to is happening at a particular time (e.g. Dec 25th) so you might want to save that first. If you'll be finishing your CC payments in July, then you should be able to get your student loan paid off in October or Nov, which would give you just under $2000 before the end of Dec to pay for Christmas etc (I don't know how much you're planning for that).

If you want to go on vacation next summer, that needn't be a really large expense, and could be saved up within a few months. Maybe put half the savings money towards that and half towards retirement. Then once you've saved for the vacation, start saving towards a house deposit.

My current thought is
[list=]Emergency fund ($2500)[/list]
[list=]Vacation ($1000) (our 5 year anniversary is in Sept.)[/list]
[list=]Student loan ($3000)[/list]
[list=]Christmas ($1000)[/list]
[list=]Headstone ($2000)[/list]
[list=]Retirement/Down Payment/Increase EF[/list]

I've tried to estimate high for everything, The Emergency fund, vacation and christmas funds will be topped off after use, in that order.

Anything I'm missing?