So I’ve made a decision. It was tough, it was complicated and it was emotional. But hey, when isn’t a financial decision just that?
In my post last week, I found myself in a predicament: I woke up one morning to find that I had enough cash to pay off all of my student loans. So I asked you all for your feedback: Should I cash in my savings to pay off my debt?
I was overwhelmed by the comments and feedback. Not only that, but a lot of congratulations bout the progress I’ve made with my money. I was too concerned with making the right decision with my money that I forgot to pause and reflect on my situation. I mean, I’ve got a good chunk of money saved up! This is an awesome problem to have. Go me
After considering my opportunity costs, emotions and financial goals for the next few years, I’ve finally decided how I’m going to handle my debt dilemma:
1. Cash in $3,000 of my savings to pay down my debt
I couldn’t bear to part with all of my savings. That said, I really hate my student loans. So I’ve decided to use some of my savings. This will get me below the $10,000 loan mark – a huge psychological barrier for me At the same time, my long-term savings will stay above $10,000 – another psychological win! This will also shorten my payoff timeline by 6 months, meaning it’ll be less than two years until I’m debt free (woo hoo!). I’m also pretty confident in my ability to save up $3,000 again in the next year or so and replenish those savings.
2. Start saving for longer-term goals in an index fund
One of the reasons I started putting my long-term savings in a Smarty Pig account was the awesome interest rate. But times have changed, and I’m no longer getting a good rate of return. I’ve got a few years yet until I want to cash in my savings goals: a wedding, a house, the works. So I might as well take advantage of some medium growth opportunities that I’m currently not getting in my savings account.
3. Keep saving for what really matters
My trip to South Africa and Mozambique next year is a big short-term goal that I’ll keep saving for. But I also realized that I want to add another category to my savings: a family fund – a flexible pool of savings I can use to spend on my family, with my family or for my family if I need to. I realized that this is one area of my life that I’m not dedicating enough resources to.
Thanks again to everyone for their awesome feedback. If you haven’t checked out the comments already in the original post, I highly recommend you take a look – there are a lot of great suggestions!
Original Photo Credit: ClipArt ETC