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A Debt Payoff Conundrum
Happy July 2nd! July is a three paycheck month for me, and since yesterday was payday (and I do my budgeting today), I decided to count that paycheck as last month’s income. Not only does doing so help to pay things off a little quicker, but it should keep me from blowing all that extra money. However, it comes with a catch. A big catch.
After all my bills and spending money and whatnot, I have $1,172 left to budget for July. I owe the landlord $600. I owe the investor $1150. You see where I’m going with this. The landlord sued me a year ago, so there’s a judgement. That isn’t going away until I pay, and I’ve only owed that money for a year now. The investor, on the other hand, hasn’t sued me yet, and probably never will, but he’s a friend, and I’ve owed him this money for 4 or 5 years now. I want to get that taken care of pronto, as I’ve already missed a couple promised payoff dates. I could come pretty close to paying off the credit union or AES with this money, too, whose payments could then be snowballed (especially the credit union, with it’s high interest rate and high payments).
Writing this now, I realize it should be pretty clear what I ought to do, but I defer to you, dear readers, to help me make sure I’m doing what I ought to be doing.
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{ 3 comments… read them below or add one }
nice to see two posts today! and what a great conundrum! extra money for payoffs! ok enough with the exclamation points.
my thoughts when reading the conundrum post were two fold….1. people before institutions. paying your old friend would feel so good wouldnt it? but is that the smart financial thing to do, probably not. getting rid of high interest payments would probably be smarter. then i thought 2. what about paying the landlord the 607 then paying your friend the rest? that would feel good too and would renew your old friends faith in your intent to pay. is there any interest accruing on your landlords judgment?
i have a similar dilemma in my own life. i have a small credit card bill thats accruing 20% interest (less than 500 owed) and i have an old, old student loan thats taking like 4% interest. im paying extra on the student loan just because i want to get rid of it. not the best thing to do but i’ll feel relief when its paid off.
at the end of your post you said its pretty clear what you should do. im curious what you came up with.
keep up the good work jake!
Your thought #2 wouldn’t work because he wants one lump sum payment, so I’d just be paying the landlord and saving the rest for the friend, which follows the original order. In terms of #1, yes people before institutions, I agree. Whether or not it’s a smart financial decision is almost irrelevant, as the entire snowball concept doesn’t focus on doing things the absolute best way, but the most gratifying way. I know you know that!
My last line was what I thought was the obviousness that I should pay off my friend right away. However, I wrote that before I thought of AES and LFCU loans. Perhaps some numbers are in order:
$1,172 available
—————-
$607.20 – 0% – Landlord
$1,150 – 0% – Investor
$1,293 – 2.48% – AES – $50/mo
$1,467.62 – 13.99% – LFCU – $165/mo
As much as I’d like to get rid of the first two for personal reasons, I’d really, really like to get rid of the LFCU loan for the sake of not having that huge payment anymore. And, you know, it’s a painful reminder of how stupid I’ve been, still paying for a truck I don’t have, and only had for about a month. Mi madre also suggested making an emergency fund out of it, since I still don’t have one of those, but I still don’t really trust myself with one, and I’m pretty satisfied with being over a month ahead on all my payments (even though that’s not money I can spend in an emergency). If anything the whole emergency fund deal really irks me because I know it will set me back so much further from my payoff goals.
OR, here’s a genius idea, my emergency fund could come from blog income, just like the computer fund did. Good idea Jake, you should really roll with that. Yoi…