I am again struggling with the temptation to pay off debt in order to have short-term financial stability. It could, however, threaten our long-stability.
With our emergency budget in effect, we are within $180 of making ends meet based on Mr. Stapler’s income and my unemployment check. I recently estimated our taxes and discovered that we have enough in the bank that could pay off a loan. That would wipe out an extra $95 of monthly expenses, bringing us within $85 of making ends meet each month. It would also wipe out our un-allocated savings, which means that our Roth IRAs are our emergency cushion if we can’t rustle up the money to meet expenses.
Spending: We haven’t been spending our entire budget on certain line items, but we did have an expensive car repair (in the neighborhood of $1,000. Ouch!), and I will sheepishly admit to spending more than our $10 gift limit already. The annual Toys R Us board game sale was just too good not to pass up, so now I have a full gift closet but 42 fewer dollars. We absorbed the car repair cost, but it does make me keenly aware that an unanticipated expense could crop up any time.
Earning: On the plus side, I picked up some freelance work with a local attorney, and he promises that he could give me more work, although he can’t hire me full time. I also earned about $100 with my some of the affiliate links I have posted. Thank you, dear readers! However, my unemployment runs out in March, so we will be about $2085/month away from making ends meet once that expires. I would love to think that someone is going to hire me between now and then, but given the job outlook for my field, I find that highly unlikely. Mr. Stapler and I are working on starting up an online business, but I don’t know whether we will have paying customers by March — although, it is a possibility.
Motivation: The last factor I’m considering is whether living so much closer to the edge of our fiscal cliff (read: dipping into our Roth IRAs in a true emergency) would make me work harder to find paying work or to get more customers for our start-up. The reason why I think this might be the case is because of an experience last year. Mr. Stapler submitted a proposal for a well-paying freelance gig right around the same time as I was going through salary negotiations. After emerging from a stressful meeting where they lowballed me and I somehow got the guts to counter with a salary $15,000 higher, I called Mr. Stapler and debriefed him. The following conversation ensued:
R: “Well, that was my afternoon. How was your day?”
Mr.: “I got the XYZ job.”
R: “Yay! Awesome! Congratulations!
R: “Wait . . . when did you find out?”
Mr.: “This morning.”
R: “Why didn’t you tell me sooner?”
Mr.: “I wanted you to be hungry when you went into your meeting.”
That’s how well Mr. Stapler knows me, and I love him for it. That, and the fact that his freelance job did most of the heavy lifting in paying off our first loan. Although, it helped that I was hungry enough to ask for a higher salary.
So … do I dump the $12k into a loan to wipe out a monthly payment? Or would emptying that out of our cash stash be a mistake?
From your post on your loan status (https://staplerconfessions.com/index.php/paying-off-200000-in-student-loans/) it looks like you’re talking about one of the “spouse’s private loans”.
It sounds like you’re suggesting that the extra $95 per month then gets rolled into household finances? Or are you seeking to directly apply that $95 to another loan? $1100 a year to be used wisely, for sure.
Since you’ve committed to bringing your overall debt down, it seems that you should be taking advantage of the opportunity to do so when you have it.
But that’s just my take! Thanks for sharing the details on your dilemma!
Yes, one of Mr. Stapler’s private loans would get wiped away. I can’t say the $95 would go back into household finances, because it doesn’t really exist right now. We’re theoretically in the hole each month unless we rustle up cash with a side hustle or cut our expenses more. But we’ve been able to meet our bills because we have the cash in the bank and I have been freelancing a little bit.
ALSO — what’s the difference in principle vs. total payments on that loan, if you kept paying at the current rate? What’s the investment payback to eliminating the outstanding interest?
According to mint.com, we would save $3,012 in interest if we paid it off today.
Hmmm… hard to argue with a 25% return on your investment… but you need to be sure you can continue to add income over the next few months to replenish the cushion.
It seems kind of risky to me at this point to pay off the loan if your unemployment will be ending soon. If it were me I’d look for some side work or concentrate on the business and then when those things were in good standing I’d pay it off.
Good luck with which ever decision you make!
Thank you. That is definitely what the angel on my shoulder is telling me to do! But the devil on the other side is whispering “spend it!” It’s so hard to sit by while the interest racks up.
Definitely going to side with Alexa and your angel here. There’s too much uncertainty around your income to give up that kind of liquidity. That said, as soon as you are more gainfully employed then dropping $2k into that loan would be fine and whet your appetite to reduce it further. Would not let EF drop below $10k though unless it’s a true emergency. Paying off a loan early is NOT an emergency.
Thanks for the perspective. I am so impatient! :/
I think I would need to know I had some sort of regular income before using my savings. I’d rather be safe than desperate, even if you are better under pressure. It would be a huge mental hit to dip into the Roth I would think.