Author Topic: Where should I put my holiday bonus?  (Read 3437 times)

fruitfly

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Where should I put my holiday bonus?
« on: January 06, 2016, 06:09:07 PM »
I'm a very new mustachian (and I probably need a full case study where you all can facepunch me) and I got a nice US$2,500 holiday bonus. I'm paralyzed on how to spend it. So I thought "hey, asking strangers on the internet is a great idea!"

Here is my current debt matrix:
Name        Total             Interest
401k        $741.88        5.25%
Car           $2,556.43        4.99
Craft3      $20,000.00     5.99
HELOC      $24,376.61     5.99
Phone     $533.26   
Student Loans
D4           $16,158.19     6.55
C3           $15,214.87     6.55
E5           $13,167.87     4
B2           $11,110.68     2.07
A1           $1,197.14       2.07

Should I just wipe out the car? Or is it better to put it towards something higher interest? I kind of want to be free of the car (spiritually) but what makes the most amount of sense financially?

Civex

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Re: Where should I put my holiday bonus?
« Reply #1 on: January 06, 2016, 07:28:21 PM »
Like you mentioned in your post, where you allocate your bonus depends on a few things. The smartest thing to do from a pure numbers stand point would be to put it towards your highest interest loan(s.) This would be your Craft3, HELOC, D3, or C3, but depending on your income, the HELOC and student loans may be deductible, and if they are, I would pay the HELOC and student loans last.

Another approach is the Dave Ramsey approach, to pay off the smallest loans first, to create a, "debt snowball." My (basic) understanding of this, is that this quickly decreases your total monthly payments, while giving you the emotional boost of getting rid of loans.

If I were in your situation, I would likely pay off the 401k loan, phone loan (holy, how do you have a $533 phone loan???,) and put the rest towards the car payment with the intention of paying the remainder your car note over your next paycheck or two.

Hope this helps!

galliver

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Re: Where should I put my holiday bonus?
« Reply #2 on: January 06, 2016, 09:05:57 PM »
I'm guessing the phone loan is a monthly payment plan with one of the big providers, making it either interest-free or interest-included (i.e. paying it off early doesn't save you anything)? When I was getting my phone I was going to buy it up front but was offered $10/mo off if I did the payment plan (with no change of price of the phone) so I didn't see a good reason not to.

OP, in your shoes I'd either pay off the car or the 401k loan and SL:A1. It's largely emotional, though, because chipping away at a larger sum with a lump sum of money would just feel like it disappeared, but this way: 1-2 loans knocked OUT! And overall I'd take inspiration from the snowball method and knock out the 3-4 smallest ones (not sure if I'd do the phone, at 0% interest...probably just put that in a savings account so it's effectively "out" because I can pay it off anytime.) Then I'd switch to interest-first because the other ones are same order of magnitude so it'll be longer times between payoffs anyway...


nereo

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Re: Where should I put my holiday bonus?
« Reply #3 on: January 06, 2016, 09:37:54 PM »
Well, the "snowball" method has been mentioned, so there's that.
Personally though I'd favor just throwing it at your largest interest loan.  In this case "C3".

IN all seriousness, you have a hair-on-fire debt emergency going on.  A $2500 bonus isn't going to cut it; it won't even cover the interest in your debt in the first 6 months of 2016.  Time to buckle down, go into emergency mode and start attacking that debt.  A full case study would be helpful.

jengod

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Re: Where should I put my holiday bonus?
« Reply #4 on: January 06, 2016, 09:43:29 PM »
Snowball it: Phone, 401k, student loan A1.

Do you have anything you can sell?


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LeRainDrop

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Re: Where should I put my holiday bonus?
« Reply #5 on: January 06, 2016, 11:26:53 PM »
Phone, 401k, A1, Car

fruitfly

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Re: Where should I put my holiday bonus?
« Reply #6 on: January 07, 2016, 10:48:04 AM »
Thanks, everyone! Yes, I know it is a bad debt situation (nereo, I will do a whole case study soon). I'm working on paying off everything but somehow the big payment stresses me out.

The phone loan is indeed a financed new phone, interest free. They did offer some sort of incentive to finance rather than put out the $400, I can't recall what.


Proud Foot

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Re: Where should I put my holiday bonus?
« Reply #7 on: January 07, 2016, 02:27:59 PM »
What is the monthly payment on each of these? Obviously paying towards a higher interest rate is better financially but if getting your car paid off gives you a greater peace of mind I would do that. Then I would take that monthly payment and start applying it to the highest rate loan.   

Blonde Lawyer

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Re: Where should I put my holiday bonus?
« Reply #8 on: January 07, 2016, 03:35:07 PM »
Do you have any emergency savings? If not, I'd stash the $2500 to cover unexpected events like a major car repair or a broken fridge so you don't go into more debt if those things happened.

justajane

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Re: Where should I put my holiday bonus?
« Reply #9 on: January 07, 2016, 03:44:27 PM »
In your circumstances, I would snowball like everyone else has suggested. With that much debt, you need a win. This morale boost will hopefully motivate you to save even more. Looking forward to the case study!