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
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:
Assets | Value | Liabilities | Value |
Cash | 1,398 | Credit card (0% interest) | 17,079 |
Short term investments | 22,018 | Personal loans (8.3% interest, yearly) | 89,582 |
Car | 5,030 | Student loans (2% interest, yearly) | 18,714 |
Long Term Investments (restricted) | 42,324 | Mortgage (CPI+3% interest, yearly) | 239,049 |
House | 266,604 | | |
Total Assets | 343,644 | Total Liabilities | 364,424 |
|
| | Net worth | (20,868) |
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 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.
Assets | Value | Liabilities | Value |
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 :)
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