What should I do?

klid · #1 (**permalink**) 06-30-2010, 06:44 AM

I think I know the answer to this, it seems obvious, but somehow I am reluctant to do it, so I thought I would ask here and see what people say, and I might be convinced...

Personal loans (unsecured):
$7800 owing at 14.95% interest (Repaying $140 per week)
$5300 owing at 18.75% interest (Repaying $40 per week)

Savings:
$3500 attracting 3.15% interest (which I don't really need is just a nice to have)

Income - mandatory expenses:
About $350 per week

My plan was to get $5000 savings and just keep it, then knock off the lower interest loan with my extra income (because the min payments are higher) and then knocking off the final loan.

What I think makes more sense is to put the savings to the high interest loan now, and use all extra income to pay off that one quickly, and then use extra income to solely pay off the lower interest loan.

But would really appreciate any suggestions or insight!

littleroc02us · #2 (**permalink**) 06-30-2010, 10:21 AM

I think your insight is great. I was just in the same predicament. I had just repaired my car for $1300, but put it on my Discover with the intent of paying it off right away. Well, I had $3500 in the bank and I didn't want to touch it. But what I realized is that it felt wonderful to pay it off in cash and be debt free. When you are debt free it is easy to build up your emergency fund and to save cash for other needs and wants. Pay cash for the smallest debt and then apply more as you go.

DavidBibby · #3 (**permalink**) 06-30-2010, 04:54 PM

My advice to you would be to take $2500.00 of your savings and apply it to whichever loan you intend to pay off first. Keep $1000 in your savings as a small emergency fund. Then you can pay off the loan with your extra income over the next couples of months with whatever level of aggressiveness you deem appropriate. Once that loan is paid off, use your (now higher) extra income to pay off the next loan. Finally... use your (even higher) extra income to quickly build back up your savings.

The reason you don't want to completely cash out your savings is that, psychologically, you'll feel like you'll have to "start over" if you do. You don't get that feeling however, if you leave an amount that you are comfortable with keeping there.

If it takes me 2 extra months to pay off my loan because I left $1000 in savings.. I could live with that - security wise.

klid · #4 (**permalink**) 08-24-2010, 07:31 AM

Thanks, what I ended up doing was applying the whole $3500 towards the smaller loan with higher interest and over the next 4 weeks I have totally paid it off! And am just left with this one loan now, much better

alfredjony · #5 (**permalink**) 09-05-2010, 04:27 AM

i will advise you to invest your 3500 $ in some good biz. you will be able to get more than 20% rate of return if you did good research before investing.

otherwise, the advice of Davidbibby is awesome

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