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Opinion Wanted re: My Financials

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Opinion Wanted re: My Financials

Old 03-24-08, 04:27 PM
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Opinion Wanted re: My Financials

So as it stands, I have a student loan with a balance of $2500 @ 8% interest, a student line of credit of $2900 @ 10% interest and an emergency/downpayment savings account with $3000 @ 3% interest. So about $5400 in debt and 3k in savings.

On an average month, I put $300 on my loan, $300 on my student line of credit, and $300 in my emergency/downpayment savings. My goal to relieve myself of the current debt is Dec 08. However, I thought of a new plan and would like your opinion on it.

I am thinking of taking the $3k from my savings to pay off the student line of credit in its entirety leaving me with only $100 savings for the time being but $2500 left in debt. So, now I can take that extra $300 that I used as the LOC payment and dump that on my loan, making it about $600 a month while still contributing the $300 to my Savings.

With this method, it would take me about 4 months to pay off my loan which would leave me debt free by August 08, four months ahead of my goal. This is also 4 months that I save on interest.

The main drawback is that this would leave me with no savings at this point, however, I still plan on contributing my $300 per month PLUS, come August, I will have an extra $600 freed up which I will be dumping in my savings with the additional $300. So with this plan, by the end of December 08, I will have roughly $4800 in my savings.

So is this the right idea or should I stick with my original plan? The only cons I see to this is 1) Leaves me with little savings for a little while, but I do have the gf/parents/friends to help if something major happened, 2)What-if's..what if my gf leaves me, lose my job, etc

I know another option is getting a credit card with 0% interest, but lets just skip that option for now.
Old 03-24-08, 04:29 PM
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Pay off at least the 10% debt.
Old 03-24-08, 04:34 PM
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Sounds like a good plan... especially if you have a safety net in case of emergencies.
Old 03-24-08, 04:35 PM
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Tough call, and it depends on how quickly you want to access that savings. The "downpayment" part of it is an easy call... but you also label it "emergency."

Those are two very different things. If it's an emergency fund you better not use it as a down payment on anything!

I would determine how much you actually need for emergency and put the rest towards your highest % debt.

Then you will be able to more effectively save up for a down payment just a little bit later but without the burden of the debt.

Then you should start a thread asking people how long they think it will take you to have 10K in your savings.

Last edited by Th0r S1mpson; 03-24-08 at 04:37 PM.
Old 03-24-08, 04:52 PM
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I would leave enough in "savings" that you need. example (car payment / rent)...

Then go with your 2nd plan.

OR... Use all of your savings (as you suggested), and then borrow if you run into an "emergency" the results are going to be the same. But if you don't run into an emergency you will be paid off 8/08
Old 03-24-08, 04:53 PM
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Are you eligible for the $600 stimulus package this May?
Old 03-24-08, 07:16 PM
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Thanks for the responses guys, like I said I am really leaning towards it.

Numanoid: I am in Canada, I don't think I can qualify for the stimulus package.
Old 03-24-08, 07:36 PM
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If you have the safety net of parents, then go for it. If not, keep enough for your deductible, put the rest towards the 10% loan.

At the very least, I would be putting as much as possible towards the 10% loan, while making the minimum payments on the 8%.
Old 03-24-08, 07:41 PM
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Pay off the debt. Use your credit card if there is a big emergency. Good for you.
Old 03-24-08, 09:39 PM
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Originally Posted by kvrdave
Pay off the debt. Use your credit card if there is a big emergency. Good for you.
For once I'd listen to this guy.
Old 03-25-08, 12:43 AM
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Yeah, it's rather unlikely that an emergency of ginormous proportions will arise in the next few months, and like you said, you have a family safety net anyway. Go for the big pay off.
Old 03-25-08, 07:51 AM
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Keep $1,000 in your savings for an emergency and dump the rest on your small loan.. Pay the minimum on the largest balance and everything extra you have during the month on your smallest (which in your case will be paid off in about one month - $500).

Now that your smallest is paid off do just as you said and take what you were paying on it and roll it over in addition to your minimum that you were paying on your larger loan. I would also add in that $300 you put into savings to throw on your debt.. Just keep the $1,000 as your emergency fund. If you ever have to dip out of it, then replenish it back to $1,000 before you move back on to hitting the debt heavily.

Good luck!

EDIT TO ADD:

Looking at your sig:

Savings - $5715.30
Debt - $5793.49

Is your other savings in that amount not liquid (ie: 401k or similar)?
Old 03-25-08, 09:24 AM
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I gotta go with tbird and Dave Ramsey on this one. It is sound advice.
Old 03-25-08, 09:34 AM
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Originally Posted by TruGator
I gotta go with tbird and Dave Ramsey on this one. It is sound advice.
Old 03-25-08, 09:52 AM
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I guess I don't see the point of paying off a smaller, lower interest rate balance before a slightly larger, higher interest rate loan. Is it to try to save a stamp?
Old 03-25-08, 10:43 AM
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Originally Posted by GoVegan
I guess I don't see the point of paying off a smaller, lower interest rate balance before a slightly larger, higher interest rate loan. Is it to try to save a stamp?
Proponents will tell you that it is a psychogical win when you pay one off and it will encourage you to keep going, so pay off the one that has the lowest balance to get a "win".

I don't necessarily agree with that and will always give advice to pay the higher interest debt off first, but if it takes those small "wins" to keep you going, go for it. It is one of the few things I do not agree with Ramsey on, at least for me personally, but I do think that for alot of people who have no clue how to handle their money, they may need the baby steps to give them confidence.
Old 03-25-08, 10:51 AM
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In other words... pay off the higher interest FIRST unless you are a wuss and think you might give up on your plan?

Your debt isn't insurmountable by any means. You're doing this at a good time and it shows a sense of responsibility. I see no point in paying off the lower interest debt first. You'd be throwing away money in the process. Throw everything at the highest interest, then kill the smaller loan, then take everything that you were prviously paying towards debt and put it right into savings.
Old 03-25-08, 10:52 AM
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Originally Posted by cdollaz
Proponents will tell you that it is a psychogical win when you pay one off and it will encourage you to keep going, so pay off the one that has the lowest balance to get a "win".

I don't necessarily agree with that and will always give advice to pay the higher interest debt off first, but if it takes those small "wins" to keep you going, go for it. It is one of the few things I do not agree with Ramsey on, at least for me personally, but I do think that for alot of people who have no clue how to handle their money, they may need the baby steps to give them confidence.
It's not ONLY for that reason.. Once the lowest balance item gets paid off you now have that payment you were putting on that loan so you can snowball it over..
Old 03-25-08, 10:55 AM
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Originally Posted by tbird2340
It's not ONLY for that reason.. Once the lowest balance item gets paid off you now have that payment you were putting on that loan so you can snowball it over..
I know how it works. Doesn't change the math or the fact that it is done for psychological reasons, which works for some, or alot, of people.
Old 03-25-08, 11:01 AM
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Originally Posted by cdollaz
I know how it works. Doesn't change the math or the fact that it is done for psychological reasons, which works for some, or alot, of people.
Right, but I'm saying that is not the only reason you pay off the lowest first.. You are acting like it's strictly for psychological reasons, which yes, is a part of it.. But the other part, which you did not mention, was to get the snowball going..

Say you started with the highest interest loan which happened to be the thousands of dollars higher in balance (OP's situation really doesn't apply since the balances are so close together).. Then it would take you a lot longer to get that snowball going.
Old 03-25-08, 11:04 AM
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But that's a psychological snowball. So it's still physchological.

Bottom line is, you will spend more money paying off the debt that way than going for the higher interest debt. You won't get to a single loan more quickly, but it will take longer (or more money) to get to zero loans.
Old 03-25-08, 11:08 AM
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Oh, ok. I had heard references to the "snowball effect" before, but I hadn't really seen the context. It seems like the imagery of a snowball of cash rolling down a mountainside crushing all the debt in its path must resonate strongly with people. It just seems like Ramsey should try to rework it a bit to be better financial advice while still being a motivational tool. I mean if you've got $500 each month to put toward your debt, there is no snowball. That figure is static.

I can't really come up with anything better, though. The best I've got is picturing the highest interest rate loans as a wrecking ball trying to knock down your house and the lower interest rate loans are crazed thugs chipping away at the foundation with screwdrivers. But that's really negative imagery which would probably just end up depressing people.
Old 03-25-08, 11:14 AM
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Why are you in such a hurry to pay off the student loan? The interest is tax deductible so you're paying less than the 8% rate.

Having said that, the loan amounts are so small that the interest rates are pretty irrelevant in terms of which to pay off first.
Old 03-25-08, 11:18 AM
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Originally Posted by GoVegan
Oh, ok. I had heard references to the "snowball effect" before, but I hadn't really seen the context. It seems like the imagery of a snowball of cash rolling down a mountainside crushing all the debt in its path must resonate strongly with people. It just seems like Ramsey should try to rework it a bit to be better financial advice while still being a motivational tool. I mean if you've got $500 each month to put toward your debt, there is no snowball. That figure is static.
Not unless there's revolving debt.
Old 03-25-08, 11:38 AM
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Originally Posted by kvrdave
Pay off the debt. Use your credit card if there is a big emergency. Good for you.
what he said

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