Hi Money Minder,
Hey there! I’m Bob, just your regular family guy with a wife and two kids. So, here’s the deal – my wife has a 25k car loan and 30k student debt hanging around.
Her car payment is about 400 bucks a month, and the student loan is around 275. We’ve got 18k in emergency savings and about 40k in a High-Yield Savings Account.
Now, she’s eager to get rid of those debts, while I’m thinking we should just use the interest from the HYSA to cover the minimum payments each month. We’re also thinking about putting some of that money towards the car payment.
We’ve agreed not to touch the emergency fund, but we can’t decide on the best way forward. What do you think, Money Minder?
Edit: I’m feeling a bit anxious about throwing all that money at once and reducing our savings.
Cheers,
Bob
Response from THE MONEY MINDER:
"Hello There,"
Congratulations on maintaining a healthy emergency savings and high-yield savings account, that’s no small feat! It’s understandable to feel nervous about making significant payments and potentially depleting your savings. However, let’s look at the numbers objectively.
Paying off your wife’s 30k student debt might seem daunting, but it’s crucial to consider the interest being accrued on the loan. By paying off the loan, you eliminate future interest payments, ultimately saving you money in the long run. Additionally, freeing up that $275/month can be redirected towards building your savings back up.
As for the car loan, while it’s essential to consider reducing the monthly payment, it’s also crucial to weigh the interest rate on the loan. If the interest rate is high, using a portion of your savings to pay down the car loan could save you money on interest payments over time.
One practical approach could be to pay off a substantial chunk of the student loan with the HYSA funds, ensuring you keep a comfortable amount in your Emergency Savings. This way, you address a significant portion of the debt while maintaining a safety net for unforeseen expenses.
Ultimately, the best move depends on your comfort level and financial goals. It might be helpful to create a detailed budget and consider consulting with a financial advisor to create a plan that aligns with your priorities. Remember, you’ve already taken significant steps towards financial stability, and with careful planning, you can navigate this decision successfully. All the best from THE MONEY MINDER.
