WWYD - Finance version
We finally finished paying off Scott's credit card (YAY) so now we have that money that isn't currently going into a designated bill. We currently have 2 student loans, a loan for his motorcycle, and a loan for my car. We have a little bit in savings but not much, and are saving up for a kid (either for fertility tests/procedures, adoption, or just "stuff").
Would you take that money and apply it to get rid of the various loans (I'm thinking bike then car since bike is less money and high interest) or put it into a savings account instead? We have about $4,000 in student loan money between the two of us and are both looking at going back, so it might be nice to mentally get that dealt with too, although we do get a tax refund on the interest.
I'm also thinking of opening a second checking and putting the money directly into there, along with additional money such as work bonuses, gift money, etc. That way the money we use for daily living will come from one account and the money we are saving for something specific comes from another and isn't (mentally) available for daily spending.
Thoughts?
Re: WWYD - Finance version
House / Baby blog
"The best and most beautiful things in the world cannot be seen or even touched, they must be felt with the heart." ~ Miss K ~
[QUOTE]You didn't have an option for it, but any extras we get, we put to principle on our home mortgage... it helps pay it off faster :)
Posted by kpwedkk[/QUOTE]
Eh, faster is in the next 27 years instead of 30 so it doesn't really help us in the near future.
House / Baby blog
"The best and most beautiful things in the world cannot be seen or even touched, they must be felt with the heart." ~ Miss K ~
[QUOTE]I vote for snowballing it. Invest in the bill with the highest interest as most as possible. Once that is done, you can snowball into the next loan. It is the most effective way of dealing with those debts.
Posted by Night_Sprite[/QUOTE]
This.
If you want to put some of it into savings, do so -- but from a purely financial standpoint, it's in your best interests to pay off the high interest debt first. You'll make less than 1% interest on anything you put into savings now, whereas you're almost certainly paying much more than that in interest on the bike and car loans.
Save the student loans for last; they're considered "good debt" by most lenders and the interest is tax deductible.
If the mortgage is amortized over 30 years and you pay it off in 15, then you save a HUGE chunk of interest. But if the mortgage is amortized over 30 years and you double up on principle, only to sell 12 years... well, you have more equity, but you also had less cash flow throughout the 12 years that you were making payments. It's kind of a trade-off (especially if you could have invested the cash at a higher rate of return than you earned in equity). So you can see, you really have to look at the actual numbers to decide if this option makes sense to you.
Katie - definitely savings are good - just in case there are emergencies!
"The best and most beautiful things in the world cannot be seen or even touched, they must be felt with the heart." ~ Miss K ~
40/112
Married in Vegas - June 2011
[QUOTE]Depending on how much equity you have in your house, if it's enough that it would cover any emergency needs, I'd set up a home equity line of credit for as much as you can get approved for; you aren't going to actually use it and it should not cost anything to create, you just want to have it available. Then you can put 100% of the extra money into the highest interest loan rather than setting cash aside for emergencies.
Posted by vegasgroom[/QUOTE]<div>
</div><div>I could get behind that theory too. I think they are new to their house, though, so I'm not sure how much credit they could get. Maybe I don't know anything..
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House / Baby blog
[QUOTE]<strong>Put half in savings and apply half to your highest interest loan.</strong> That way you are paying down debt and increasing savings at the same time. Should something happen where you needed the savings immediately, it wouldn't help you to have a lower debt balance, practically speaking. You need to build up some sort of safety net in cash, while still paying down high interest debt. That's just my 2 cents.
Posted by SarahPLiz[/QUOTE]
This is exactly what I would do. BTW how AWESOME does it feel to pay off the credit card?? I paid all of mine off a year or so ago and I felt like I won the lottery.
If it were me personally, I would squirrel away maybe 25% into savings until you can eventually have around a 6 month reserve in case one of you loses a job, and then put the rest towards the bike because it has the highest interest rate. Once that is paid off, go for your car.