Woo hoo! Paid off another debt yesterday!

[elessar78]

Paid off a personal loan to my wife's parents last night and it feels great! The loans were for a car down payment and grad school from before we were married. It's so good to get those off the books. Now all that's left is a credit card ($4,700) and a car payment (approx $6,500).

While it feels great, it has also left me a little anxious because our once comfy savings account is feeling a little "thread bare" but that's just a matter of perception. I left enough in there to cover most emergencies.

Now, my next step is a little unorthodox but our objective is to replenish our savings and save $10K as fast as we can (generous estimate: one year, conservative: 1.5 years) before we resume attacking the other CC and car payment.

I've always kept a little "trophy" of every debt I paid off (paid in full letters) but since this is a personal loan I don't think I'll get one.

[JoshuaHeckathorn]

Congrats...paying off personal loans (especially to in-laws) can be quite liberating!

I'm curious. Since you have "enough" in your EF, why do you feel compelled to save an extra 10K before paying off your high-interest credit card debt? Will it be worth paying interest for another year or two just to have a little extra padding in your savings account?

If you have a reasonable EF saved, I would recommend moving immediately to the credit card and knocking that one out too.

[elessar78]

Saving another 10K provides us with a fund that is 3 months worth of expenses. Which is a comfortable number for me.

Philosophically, I like cash because it let's you weather storms better than a paid off credit card. I think paying off debt is moot if you leave yourself exposed to other situations that may lead you to need to borrow money again.

[jpg7n16]

Congrats! Always good to relieve the stress of owing people you care about.


I'd suggest keeping 1 months EF, pay off credit card, then build EF to 2 months, then pay off car, then build EF to whatever you ultimately want it to be (3-6 mo).


I don't agree so much with the avoids debt piece of your last statement. Because it keeps debt to avoid debt - which is a wash. Essentially, you are borrowing to avoid borrowing.


Assuming the credit is available to you:

A) have $10k in cash, $5k in debt - if $6k emergency happens, pay in cash and you are left with $4k in cash, $5k in debt. (and have been charged interest on the debt in the meantime)

B) have $5k in cash, $0k in debt - if $6k emergency happens, you can pay $1k in cash and borrow $5k to cover, leaving you with the same $4k in cash, and $5k in debt. (but no interest in the meantime)

So you gain nothing, and lose interest charges.

Psychologically, most people think of cash as "mine" and debts as "someone else's" - so we'd rather keep "our" cash than pay it to "them" for "their" debt. When it's actually our cash AND our debt.


Having said that, it won't make much difference if you guys are serious about getting out of debt. So whatever you gotta do to be debt free - good on ya

[BillysSavingsClub]

The best thing about clearing a personal loan is the burden between the two people is lifted. I definitely have felt stress dealing with money owed with others, and because of it, I swear to never do it again. Who knows though.. congrats on your success clearing it!

[elessar78]

It definitely eases the tension. NOt that my in laws were ever over-the-top but there would sometimes be comments about what we could and could not afford. Not in a mean way, but my FIL is a huge Dave Ramseyian so anything other than a dinner at Applebees (not that we did that often) or an appliance purchase was met with some sort of remark.

[JoshuaHeckathorn]

I like jpg7n16's suggestion to build your EF in combination with paying down your credit card debt faster. I know it may feel better to have the extra cash in your bank account, but it's really not worth paying the extra interest.

[snafu]

Good on you getting an in-law loan paid off! I suggest you work through a CC calculator to determine the dollar amount interest to see if your philosophy is worth it's cost.
Credit Card Payoff Calculator

[whitewater30]

Congrats, its a great feeling. I paid off all of my debt (excluding mortgage) before I got married in 2009. We enjoyed our first year of marriage, but started paying off debt in mid July 2010. Happy to say that we will be debt free (excluding the mortgage) by March 2011.

[savelikedave]

Congrats, you can pay them off in a year! Just stay focused.

[Aleta]

Congratulations on paying off the personal family loan. I would rather owe a credit card than a relative. We once borrowed a small amount about $250. years ago for closing costs on our house and ever so often we have had to listen to how much my husband's relative has helped others. By that I know he means us even if it was 35 yrs ago and we paid it back on time.

I know what you mean by keeping an emergency fund available. A year or two ago I would have advised you to start with $1,000. like Dave Ramsay says but now there are those who are having trouble getting loans so the money saved on the side is good for now. I would definitely get rid of the loans as soon as possible but a lot has to do with the security of your job as well.

[Hector]

Congratulations on paying off personal loan.

I am little confused about your EF. You mentioned that you have enough EF. You also mentioned that you would like to save 10k worth 3 month of expense. Exactly how much is in your EF? For how many months?

Your car debt is $6500. What is the market price of that car?