Author Topic: Credit vs investing, starting as a mustachian  (Read 990 times)

BobTheBuilder

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Credit vs investing, starting as a mustachian
« on: September 09, 2016, 08:28:09 AM »
Hello folks,

i've been enjoying this blog and forum for a while now from abroad from Germany, as I yet have to find a equally awesome blog in old europe.

That being said, a few days ago I contacted my bank to get the interest down on some financial baggage I have left from my student days. I had one credit at 8.9% with a balance of 2700, which (re-)financed the final period before my degree when I could not work enough hours. I also had 2000 balance at 4.9% left on a car loan I took on a used Hyundai i30 which is worth about 5500 and that gets me to the research facility I work in (ph.d. in progress). Of course, we carpool the 42 miles (one direction) so I have approx. 8000 miles a year to go.

Curiosly, the bank would only give me a better deal if I took 10,000 on a period of 5 years, with 4.9% interest. I can do extra payments as I wish, so my idea so far was this:

Pay down the old credit lines (4700) and immediatly lower the remaining sum on the new credit (10000) using the remaining 5300. The monthly minimum payment is 190, which is actually down from 210 for the 2 older credits combined.

I can't stand paying interest, but i also have only a few hundreds in savings and no investments as of now.
I also plan on using any windfalls on additional payments.

I also have to start paying back a zero-interest federal student loan starting in October, which eats away 105 per month from a total sum of 10,000. For this loan, if you make payments ahead of time, you get a rebate. Paying off 5000 gives a rebate of 950, paying off all of it gives a rebate of 2850. At 5% interest rate for the above mentioned bank credit, paying off 5,000 makes no diffence in interest vs rebate. It does not matter when you decide on paying it off completly.

Would you advise to keep a certain part of the 5300 liquid or even invest it?
My current budget has some wiggle room of approx. 100 for extra payments. So far I was planning on getting liquid savings of 1000 first before upping the payments.

I would really appreciate any input you might have.

frugalcoconut

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Re: Credit vs investing, starting as a mustachian
« Reply #1 on: September 09, 2016, 07:27:45 PM »
I'm in the U.S. and I'm admittedly not a numbers guru, but...

What if you took the 10000 loan from the bank, paid off the 10000 federal student loan in full to get the 2850 rebate (which seems like a pretty awesome deal), then use the rebate money to pay the entire 2700 balance at 8.9% ... and then you'd be left with the 2000 car loan at 4.9% and then the new bank loan.