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Financial Freedom => Financial Advice From The Community / Reader Profiles => Topic started by: aILaGend on February 22, 2020, 01:42:24 PM

Poll
Question: What option do you think we should take
Option 1: Save and claim the tax benefit
Option 2: Pay down student loan
Option 3: Pay down personal loan
Option 4: Do nothing & keep available money in cash
Title: Pay down debt or save? Interested in your opinion (includes poll)
Post by: aILaGend on February 22, 2020, 01:42:24 PM
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)
Title: Re: Pay down debt or save? Interested in your opinion (includes poll)
Post by: 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...
Title: Re: Pay down debt or save? Interested in your opinion (includes poll)
Post by: aILaGend on January 08, 2022, 06:44:36 AM
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 :)
Title: Re: Pay down debt or save? Interested in your opinion (includes poll)
Post by: aILaGend on January 08, 2022, 06:47:42 AM
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