(Closed) Financially Savvy Bees, help!–where to apply extra money (toward debt)?!?!?

posted 5 years ago in The Lounge
  • poll: Where would the funds be best applied?
    Put the $800 into savings! : (1 votes)
    3 %
    Put the $800 toward a few debts (divide it up)! : (1 votes)
    3 %
    Put the $800 toward one debt (please list below)! : (26 votes)
    84 %
    I have a better option (please list below)! : (3 votes)
    10 %
  • Post # 16
    Member
    498 posts
    Helper bee

    Pick the lowest loan amount with highest interest and apply extra $$ there. Once you knock one loan out, roll that amount into the next and systematically destroy your debt 🙂 good luck and congrats on the bonus! 

    Post # 17
    Member
    1081 posts
    Bumble bee
    • Wedding: October 2014

    annonbee857:  

     

    I will put the extra money to pay off your student loan since it’s the smallest amount and one less thing to worry about. Yes, the interest is not going to be significant but the money you save from the interest can put toward to other loan.  i’m believer to eliminate as much debt as possible, so your student loan will be first to go. 

    Post # 18
    Member
    698 posts
    Busy bee
    • Wedding: September 2013

    annonbee857:  I was going to suggest taking the $800 and applying it to the highest interest loan. But, if you have $2,800 to work with, I think what I would actually do is drop $1,000 into savings like you planned, and then take the other $1,800 to pay off your student loans completely.  

    I’d do this for a couple of reasons:

    1. It is so, so, so satisfying to pay off a loan and get one off the list, and you could do that here. Merry Christmas to you!

    2. Then, you could take the $150/month you’re currently putting on this payment, and drop it on the higher interest student loan each month, which will help cut down the amount of interest you’re paying on that one each month.

    Post # 19
    Member
    2514 posts
    Sugar bee
    • Wedding: February 2015

    IMO, put it on the highest rate consumer debt line first.  If you have 2 that are similar rates, my personal preference is to pay off the smaller one first, just to get that “paid!” feeling to keep going.  If you never pay anything off you can get into debt fatigue.  

    Once you pay off a loan, roll the regular payments onto the next highest interest account and pay that one off.  It’ll snowball and before you know it everything will be paid way down.  The key is not to take on any more consumer debt. 

    Another concern – do you have the funds available to pay the furniture loan off when it is no longer 0%?  I don’t see a big concern in keeping that loan open if its at 0% (my car is at 0% and it’ll be the absolute last thing I put any extra money on.  Why bother paying it off early?  I don’t save anything and I could be earning interest on that cash.) Just be careful with that loan, if they roll over the interest rates often jump much higher than a credit card (like up to 30%!)  But as long as they’re paid off in full, go for it.  

    Post # 20
    Member
    9218 posts
    Buzzing Beekeeper
    • Wedding: October 2013

    pay debt with highest interest first.

    Post # 21
    Member
    18628 posts
    Honey Beekeeper
    • Wedding: June 2009

    sostobe:  The other scary thing about those no interest things is that if they aren’t paid off before the end of the 0%, you owe interest from the very beginning!

    Post # 22
    Member
    766 posts
    Busy bee

    ykyegbride:  I would do exactly this.  As a finance person normally I’d advise paying off the highest interest loan first, but it’s such a small difference between 5.6% and 5.8%, and the psychological benefit of paying off a loan can be really motivating! 

    Also, not that you asked about this, but since you put all the info out there, I’d take the extra $100/month you’re paying on your first mortgage and apply it to the 5.8% student loan instead, since the rate is so much higher than the 4.25% on the mortgage.  Oh, and one final thing – if at all possible, look into refinancing your home.  Rates are below 4%, depending on your circumstances.

    Post # 23
    Member
    2838 posts
    Sugar bee
    • Wedding: October 2012

    Have you heard of the snowball effect? You pay off your smallest loan ASAP. Then take what you paid towards that loan and apply it to pay off your next smallest loan ASAP. Then you take all of that money (what you had been paying towards the other two loans) and attack the next biggest loan. You do this until everything is paid off as early as possible. You will save so much more money in the long run by not paying interest.  That may be better than spreading out your extra $1000 a month across all the different debts.

    Post # 24
    Member
    2514 posts
    Sugar bee
    • Wedding: February 2015

    MrsSaltWaterTaffy:  Oh, I know! It’s why I mentioned it.  If the money won’t be there (from an investment account) she needs to plan to have it there.  30% interest for the 12 or 18 months that it was 0% adds up before you’ve even gone a month past the end of the 0% term.    But if the money is available (say in an account earning interest) there’s no reason to pay it off more than a month or two before the end of the 0% term. 

    • This reply was modified 4 years, 11 months ago by  sostobe.
    Post # 25
    Member
    333 posts
    Helper bee

    If I were in your position, I’d pay off that $1,800 loan completely.  It’s accruing interest at 5.6%, and I bet that at the most, you’re only earning about 1% interest in your savings account.

    Like others have said, then start “snowballing” the payment you had for that loan into larger loans.

    It’s true that at 5.6%, it isn’t your highest-interest loan… But the difference between 5.6%-5.8% isn’t very much, and to me, it’d just be nice to have one high-interest loan out of the way!  

    Definitely don’t pay off that 0% interest loan early.  That’s the beauty of 0% interest, haha!  I’d be making the minimum payment required to have it paid off in August.  No need to pay it off early.  Put that money towards higher interest loans.

    Post # 26
    Member
    1157 posts
    Bumble bee
    • Wedding: September 2014

    I’d put it in the higher intrest student loan personally. Between the other consumer debt and student loans it’s a no brainer.

    I read an interesting article the other day about paying down a house faster. The interest is tax deductible so you’ve got that going for you, but also makeing a few hundred dollars here and there doesn’t really buy you much in the long run. If you have a 30 year mortgage and a low fixed interest rate (mine is 3.5%), the value of a dollar depreciates as the years go on. Inflation drives the value of your house up and your payments stay the same. So $800 today towards your house could be worth the same as $1200 a few years from now (based on percentage of income and value of the dollar). Food for thought. I still put more money into my house than the mortgage payment, but I thought it was an interesting concept. I will always pay down credit cards, car loans, and, if I had them, student loans before putting the money into the house.

    Post # 27
    Member
    437 posts
    Helper bee

    Have you thought about investing it in the market? Even at the lowest point this year, my return rate has been over 10%. With an investment account you can pull the money out anytime if you need it.

    Are you in the US? Do your mortgages have PMI? Would putting it towards a mortgage bump you to the point where you would no longer have to pay PMI? That could lower your required payment and if you continued to make the payments you are now they would be paid off sooner.

    Do you have an HSA that is not maxed out? That will give you a very nice tax savings.

    I am all for making money work for you. The debt my husband and I have could very easily be paid in full today, but the amount of money we make off investing it is far more than we spending in interest rates.

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