Tell All Tuesday ~ Slowly Forward Edition
This past week, all I did directly towards reducing our debt was made my monthly car payment. That dropped our debt total about $200, and the numbers in summary stand as such:
- Debt at start of blog (6/19/07) : $36,451.71
- Current total as of 09/23/08: $15,037.21
- Principal paid to date $21,414.50
- Broken down into:
- Credit Card: PAID OFF 2/7/08
- Student loan (at 7%): $11,084.68
- Spouse student loan(at 9%): $2579.15
- Car loan (at 4%): $1373.38 (made $228.32 minimum payment this week)
- NCN Network Chart % debt paid off: 58.75%
So things are slowly progressing. As far as money saved in my snowflake account to be applied to my spouse’s student loan next month, I currently only have $62, mostly from survey-taking payouts. This is because all of my taekwondo income this month is being diverted to pay for an instructor seminar I am attending at the end of October. I had started saving for this, but I was planning on attending next October instead of this one. But my spouse thinks he’ll manage with the kids for 3 days on his own, and it would be better for me to attend this year because not having this particular certification is holding my earning potential back. It will affect the debt reduction in the short term next month but next month is also my spouse’s 3 paycheck month so it should all even out. I will have tutoring income and blog income to add to my snowflake fund before I make our next student loan payment in October.
A question has come up in comments about our future debt elimination strategy and I wanted to address it. Once my spouse’s student loan is paid off (which I am hoping happens in November), there is a big divide between the balance of the car loan and the balance of my student loan, so will we go interest order or balance order for the remainder? In December, most likely just applying the $437.59 we have budgeted in our debt snowball every month for my spouse’s student loan to the car loan might completely knock it out. But I am going to do my best to resist that urge and apply it to my own student loan. Why? Because the 4% interest we pay on the car loan is much less than the 7% we pay on my student loan.
My spouse wants to quick one-two punch of eliminating two debts before 2009. Of course, he’s also less emotionally bothered by my student loan. So, I may lose this fight. We’ll see. Either way, good things will happen, and the car loan is scheduled to be completed in March anyhow. And I would love to knock my student loan balance down to four figures by 2009.
So on to next week, at which I will not have made any more debt payments but hopefully I will have collected a few more snowflakes. And since it will be the last day of the month, I should have an idea if I have any budget snowflakes to add to my debt-destroying snowball.
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September 23rd, 2008 at 3:49 pm
Personally, I’d go with paying off the car loan, if that snowball will completely knock it out like you said. Yes 4% is less than 7%, but so is 0! Plus, then when you direct your snowball towards your student loan debt, you have an extra what? $228? to add to it.
September 23rd, 2008 at 4:02 pm
I also would say to go with the car loan. I know that technically it is not the most ideal manner, but think of these few facts.
1. Excellent psychological boost, especially for your spouse.
2. You free up $228 a month from your debt obligations. If there was a terrible tragedy of some sort (ex. spouse loses his job) then you would have $228 per month in less obligation to creditors allowing you to make ends meet easier until the crisis passes.
3. I do not have your exact debt payment numbers handy, but I bet the 3% interest differential over the course of the year or so remaining on the loan is not that much interest money when you are making $800+ payments to it each month.
September 23rd, 2008 at 4:30 pm
If you don’t make extra payments, it looks like your car loan will be paid off in about 6 months or so. That’s in March or so.
You’ve probably already paid the bulk of your car loan’s interest by now.
When I look at my own car loan’s amortization schedule, the last few months are less than $5 or so toward interest, and the rest is for principle.
When you consider that, it does make more sense to stick with the student loans first, and probably just let the car note get paid off on minimal payments.
Still, quickly freeing up $228/month to put toward student loans is a pretty cool thing, and would come in handy in the event of an emergency.
September 23rd, 2008 at 6:16 pm
Is the student loan fixed? That seems to be a huge issue with some people: that their student loans, which aren’t fixed and not bankruptable, can balloon out of proportion. If its fixed, and particularly if you get a tax write off, you might want to make it last. Just my 2¢
September 23rd, 2008 at 7:07 pm
I think you could go either way. Going with the smaller one does give a psychological boost but technically is mathematically worse than going with the higher interest. It all depends on how strongly you can stick to paying off debt.
Brandon’s point #2 however is definitely a good reason to go with the smaller amount. Heck, it’s one of the reasons we have so many foreclosures. People thought they could afford a huge payment until something drastic happened such as a job loss or what-not. Then you end up homeless and with horrible credit.
September 23rd, 2008 at 9:02 pm
You’ve made alot of progress in reducing your debt. Congratulations and keep up the good work!
September 23rd, 2008 at 10:41 pm
Do you get some of the interest you pay to your student loans back with your tax refund? If so, then it’s not as big of a jump from 4% to 7%. Plus, that would be an immediate extra $200 something you can apply each month to your student loan.
Although, mostly it seems just a rather of personal choice at this point.
September 23rd, 2008 at 10:42 pm
That is supposed to say a “matter of personal choice”
September 24th, 2008 at 10:58 am
i’d go with the car first myself, for these reasons:
1) the car is a depreciating assets - paying those off quickly always seems good to me.
2) the student loans do get a you a tax break, albeit small.
3) you’ll free up that car payment money for other debt repayment and could perhaps up your savings each month - say put $200 into the debt snowball and the remaining $28 to your savings account.
4) yay that you have OPTIONS! you’ve made SO much progress. it’s really impressive.
September 24th, 2008 at 12:28 pm
Well, I know you didn’t ask for suggestions but I’m gonna give you a couple anyway! LOL
I would actually crunch the numbers to see the difference in options. If DH is really excited about it and the cost difference is negligible, go for it. He’s expressed a desire for the psych boost and you could probably give it to him for little cost. If it’s not negligible than he will have the dollars and cents reason it’s better to do it your way.
I will also echo what many above said…eliminating that big monthly obligation, even for just the extra 3 months is a good plan. Especially when the other option is tax-deductible interest at a pretty reasonable rate.
Peg
September 24th, 2008 at 3:21 pm
The seminar is an investment in yourself and your earning potential - so go for it without worry!
About the car: If in Oct, Nov, and Dec you pay the minimum $228, that’s $684 (less interest) (not much). If in Dec you add that $437 from the defunct student loan, then you are over $1100 paid for the car loan, with only one payment (plus fees) left for Jan. I’d have to say I’d be going for the psychological boost of being done with that car loan also. Plus freeing up that $228/month in case of emergency.
After January, you’ll be paying an extra $665 off your student loan, and it will shrink rapidly
Guess it’s whatever you two decide. Sometimes the mental boost is worth the lost interest. And there is just not enough that can be said about being out from under that $228 also a month…I’d sure breath easier once that was done! The pressure would be off!!! Good luck!
September 25th, 2008 at 12:31 am
Personally, i would kill the car loan. Its a confidence booster. Apply the extra money to the loans after that, and you’ll be out of debt before you know it. Great Job!
September 26th, 2008 at 4:29 pm
I’d pay off the car. You can knock if off quickly and clearing it out of the way will be emotionally satisfying. The interest savings are really pretty small and once the car is paid you can throw some pretty good money at the student loan and it will come down quickly. Good Luck!