Tuesday, December 05, 2006
Help solve my dilemma!
Really, it's not a bad one to have. But since I need to make a decision by January, advice would be appreciated.

I'm paid biweekly, but my budget is based on two pay periods per month. So twice a year (usually January and July), I receive an "extra" pay deposit. This allows me to pay off any charges accrued for Christmas or for my summer trip (that aren't covered by my holiday savings subaccount), and to do my semiannual wardrobe shopping. Most importantly, however, I take a big chunk and put it towards my finances.

In the past, it's been a no-brainer. I'd make an extra loan payment on my high-interest student loan. Now that I've refinanced that loan, I feel like I have more options.

Option 1: Make an extra payment on my credit union loan. It's a 5.9 % APR, and interest is not tax-deductible. If I continued to do this twice a year for the remainder of the term, I would shorten this loan by two months and reduce my interest by $180 or so.

Option 2: Make an extra payment on my Perkins loan. 5%, interest is tax-deductible (although for 2007, this won't be relevant). Continued extra payments would shorten this loan by 38 months and reduce my interest by over $250.

Option 3: Make an extra contribution to my emergency fund. 4.6% APY. I've already earmarked my net bonus to refill my fund, and expect a tax refund between $100 and $200 (despite increasing my withholding) that I also intend to deposit here. And I continue to make regular contributions to this fund. This is my least favorite choice.

Option 4: Make an extra contribution to my downpayment fund. 5.05% APY. This would certainly boost my savings toward my condo downpayment. I'm really leaning toward this option. However, since I'm not planning on meeting with a broker until January, I might be getting ahead of myself.

I do have a few other options (pay towards my lowest-interest rate student loan, set up a car fund, etc.), but these four are the ones that make the most sense to me.

What would you do?

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7 Comments:

Blogger TrixieBelden said...

I know it's your least favorite option, but I'd make an extra contribution to your emergency fund. This is assuming you have only one month or less of living expenses saved. It just sounds like you are really relying on that bonus, which I'm not sure when you get. I just think this is the safest (although not the sexiest) option with the information you've provided. Now if you already have 3 months of living expenses saved, I'd make an extra payment on your credit union loan. Student loan debt looks better on a credit report than other debt, so that's my rationale.

Good luck, it's a great dilemma to have!

Trixie

Blogger HC said...

Trixie,

Just to be clear, the bonus already came through. I know exactly how much it is, and will be transferring it to savings within a day or two.

I'll definitely give what you said some thought, though. Thanks.

Anonymous golbguru said...

You could get rid of that Perkins loan. reduction of 38 months is a very attractive incentive for doing that.

I am not sure how much are you looking to save for "emergencies". Usually a couple of months if good enough. Also I am curious why is your emergency fund as 4.6% APY and not 5.05% APY?

Blogger HC said...

Golbguru--

I believe in having two separate online savings accounts in case one of them has a server crash when I need to withdraw funds. So I have accounts with VirtualBank and with EmigrantDirect.

I could presumably move from VirtualBank to a higher-rate bank, but VB and ED are the most responsive in dealing with POD/beneficiary issues that I've found. For personal reasons, that's very important to me. If you know of another account with good beneficiary service and relatively fast transactions times, I'd be happy to know about it.

Blogger ableknife said...

I guess this comment isn't really situation specific, but there's a book called Women, Get Answers About Your Money by Carolyn Castleberry which has been really helpful for me. Regardless of gender, this book is a great resource.

Blogger Dimes said...

Shaving three years off the Perkins loan would be my recommended course of action. Second would be padding the emergency fund.

Blogger HC said...

Dimes and Golbguru--I think I'll probably try to scrape up a bit more than I'd planned and throw an even $200 each at the Perkins and at the condo fund. I'll still repay the Perkins much more quickly, but feel like I'm moving ahead on the condo, too. Thanks for the advice.

Ableknife--Thanks for the recommendation. I'll keep it in mind.

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