News:

To return to the forum homepage, please click the banner at the top of your browser.

Main Menu

Pay down debt or save? Interested in your opinion (includes poll)

Started by aILaGend, February 22, 2020, 01:42:24 PM

Previous topic - Next topic

What option do you think we should take

Save and claim the tax benefit
Pay down student loan
Pay down personal loan
Do nothing & keep available money in cash

aILaGend

Hi!

My spouse and I received our yearly bonuses and were wondering what its best: pay down debt or save? . Our options are:


  • If we save the money, we would get a 35% tax deferral on the amount saved, payable next year
  • If we pay down our remaining student loans, we would get a 25% discount of the principal outstanding. The current interest rate on the student loan is 2% yearly fixed and nominal
  • If we pay down the personal loans, we would reduce our monthly payments by 20%. The interest rate on the personal loans is 8.3% yearly nominal and fixed

Although the first option seems like the best, we feel we are over-levered and maybe, despite being less profitable, there is a case for reducing our monthly interest payments: 28% of our monthly income goes to personal loan payments.

More over, we live in a country outside the US, and upcoming political turmoil could create (1) a credit crisis, restricting our credit capabilities, (2) an economic crisis, which one of us might lose its job in the short-mid term. 

Here is our current balance sheet:



   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
AssetsValueLiabilitiesValue
Cash1,398Credit card (0% interest)17,079
Short term investments22,018Personal loans (8.3% interest, yearly)89,582
Car 5,030 Student loans (2% interest, yearly)18,714
Long Term Investments (restricted)42,324Mortgage (CPI+3% interest, yearly)239,049
House 266,604
Total Assets343,644Total Liabilities 364,424

   
Net worth (20,868)

Irish247

This decision was probably made long ago, but I'm confused on the 8.3% personal loan. Why don't you get a different cheaper loan and knock that down? You could use the additional funding to lower the gross value and maybe leverage your house with a HELOC to get a better rate. 8.3% seems high to me...

aILaGend

Hi Everyone!

I hope you all have a great 2022.

Just wanted to update my balance sheet and get your thoughts, if possible. Any thoughts and suggestions are more than welcomed.

Since my last post, I ended up allocating cash following the rule of higher return. That is: (1) top up savings with tax benefits, and (2) pay down debt.

Starting 3 months ago, I've decided to focus cash allocation on building a 12 month emergency fund, changing the allocation to (1) top up tax benefits savings, (2) build emergency fund. Current job is taking a toll on well-being, while job prospects look dim. 


   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
AssetsValueLiabilitiesValue
Cash
2.0
Credit card (0% interest)
10.0
Short term investments
17.8
Personal loans (8.3% interest, yearly)
24.2
Car
4.7
Student loans (CPI + 2% interest, yearly)
13.3
Long Term Investments (restricted)
135.6
Mortgage (CPI+3% interest, yearly)
257.4
House
290.1
Total Assets
450.3
Total Liabilities
304.9

   
Net worth
145.4

PD: If numbers seem off (amounts and interest rates), is because I'm not from the US, so things are different :)

aILaGend

Quote from: Irish247 on June 16, 2020, 09:14:00 AM
This decision was probably made long ago, but I'm confused on the 8.3% personal loan. Why don't you get a different cheaper loan and knock that down? You could use the additional funding to lower the gross value and maybe leverage your house with a HELOC to get a better rate. 8.3% seems high to me...

Hi! Thanks for your comment!

Yes, you are right. The interest rate seems high, but that is the best I could get. I live outside the US, so interests are higher relative to the US