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Where to put Extra Money?
I'll try to give you all the info, hopefully it doesn't get confusing.
We are selling one of our vehicles to my BIL so at some point this summer, we will have $5,000. Our plan has been to put all our extra money into our truck payment, but DH's Student loans just got transferred so now they are split up by year instead of lumped together as subsidized and not.
We have about $15,000 on both the truck and 4 different unsubsidized student loans, but one of the student loans is about $4,500 so I kind of want to pay that back since we can do it all at once.
Interest on the truck is 4.99% (super high, right? DH thought it was like 3%), and the loans are 6.8%.
We have 3 years left on paying the truck if we do minimum payments, and 9 years left on the loans. If we put the money into the truck, we can have it payed off around when we get our tax return next year.
The payment on the truck is $418/month (we pay $500) and the loan we would pay off is $54/month.
If we put the money toward the loan, we will probably refinance the truck, but we don't really see a point in refinancing if we are paying it off in less then a year.
What do you all think? And, for the record, these are all from DH before we got married. He isn't the best with money which is why the truck payment is so ridiculous.
Re: Where to put Extra Money?
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brij is a smart lady. This sounds like a good plan.
You should also continue to put that $54 payment towards the next loan once you pay the first one off. You're already budgeting without it, and it will help you pay down your loans more quickly.
"You know you're in love when you don't want to fall asleep because reality is finally better than your dreams." - Dr. Seuss@MrNibbles
This is a fair point, but I'm not sure the tax savings is worth it.
Essentially what you're saying is that if they stick close to the $2500 max, or the interest accrued if they've already paid down the interest and are working on the principal, each year, they reap the most tax benefits.
But if they're working on principal, the tax benefits of waiting to pay are just not worth it. In this case, it's not a matter of avoiding hitting the max, it's just the limits of how much interest needs to be paid. If they put off paying until later, then the only tax money they'll save by waiting is about 1%/yr (we got back about 16% of our interest payments this year, I assume that's right for them as well - 16% of 6.8% is 1%) of over the life of that $5000 in loan debt. This is not as good as the 1.81% they'll save by choosing to pay of $5000 in loans instead of on the truck.
If there's still a few thousand left in interest on the SLs, you could be right, and OP, if that's the case I'd be interested in thinking about the math. But at these balances, I highly doubt there's that much interest left.
"You know you're in love when you don't want to fall asleep because reality is finally better than your dreams." - Dr. Seuss