Work Related News Part II: Early Debt Reduction
Monday I discussed some of the good news resulting from my year end review. The bonus money has been allocated to our emergency fund and vacation fund. Now for the better news. I will be getting a raise effective April 1. After taxes and our daughter’s school fund, we will be seeing about $190 per month. This is wonderful news for out budget. It will allow us to say goodbye to forced credit card usage.
I have been spending some time going over where to allocate this extra income. We could be putting it towards many things. Here are the options that I could think of.
- Pay down new Home Equity Loan: $72,000 at 6.75% for 15 years with a monthly payment of $628.52
- Pay down card loan: Currently at $10,000 at 6.99% for 3 more years with monthly payments of $278.81
- Restart automatic asset builders in our Roth IRAs
- Save for a new(used) car which I maybe needing as early as 1.5 years from now, but could attempt to add another 2 years too.
So those are my options. Early on, I was leaning toward putting as much as possible towards the HE Loan. As I kept thinking, I was moving more to option 2. The auto payment is not tax deductible and at a slightly higher rate. Once paid off, I could move that monthly payment over to option 1. By paying an extra $125 per month toward the auto loan, we can pay it off in 2 years, shaving 1 year off the current schedule.
After the auto loan is complete, we can roll that payment into our HE loan payments and keep our current 7 year goal of paying off that loan. If we keep the HE loan to the current $628 payment and add the $400 auto payment and still come up with another $400 per month by then, it make the payment $1428. We will easily be able to payoff that loan in seven years. Of course this is contingent on many other variables that could hinder or aid in our plans, but it is nice to have the goals defined.
So, I think that we are going to go with paying off the auto loan first and then concentrate on the HE loan. What would you do given the same options?
Filed under: Budget, Debt, Finance and Investing, Making Money
