Should I wait to pay off or use part of my EF?

[Radiance]

Hello!

I got some extra monies and I applied to my personal loan which has a monthly payment of $350 and it is 16.50%.

That brought the balance down to $500.53!!!!

ok, ok
I have $1500 on my EF.... Would you pay it off from there?
The other option is to wait two more months and leave my little EF alone.

What do you think?

[creditcardfree]

Because your emergency fund is low and it will take two months to replenish if you paid the loan off, I would leave the EF alone and pay on the loan when you can. The interest rate is high, but doesn't accumulate to much on that balance.

It's exciting that you are so close to paying it off! Congratulations!

[disneysteve]

I agree with ccf. The difference either way will be minimal even with that rate. I would hold on to the small EF and take the 2 months to get rid of the loan.

[Radiance]

Thank you, I guess I was overly excited. I am glad I asked.

But you are right, almost there. It will be like having a $350/mo salary increase! Which can go straight into paying off more debt!

[jIM_Ohio]

I would empty savings and pay off the debt

your risk is an emergency in 2 months, and with an EF of $1500, its not like that covers many emergencies anyway...

[creditcardfree]

I would empty savings and pay off the debt

your risk is an emergency in 2 months, and with an EF of $1500, its not like that covers many emergencies anyway...

Well, it does depend on the emergency and your current financial picture. $1500 could cover a rent payment, utilities and groceries if too sick to work for a short period of time. It could cover a major car repair.

In my mind you have your beginner EF and you should not dip into it unless it is an emergency. Your focus now is debt. If you used EF and pay off the debt, then you need to go back to the EF to replenish it and then go back to paying off more debt. Either way you go...you still have at least 2 months before you can add that $350 payment towards other debts. I say stay focused with the debt and know that you are very close to the next step in your snowball!

Now, if you have something to sell to get this $500 debt paid off sooner, I say go for it!

[disneysteve]

In my mind you have your beginner EF and you should not dip into it unless it is an emergency.

Jim's answer certainly isn't wrong. OP would still have a $1,000 EF and by not paying the $350/month anymore, could have the EF up to $1,700 2 months later. That said, I tend to agree that an EF should be for emergencies. Prepaying a loan is not an emergency. I think this is about mindset. If you get into the habit of dipping into the EF to pay for things that aren't urgent, you may find you never build up an adequate EF. Even if it will cost you a few extra dollars in interest, I'd keep the EF and make the last couple of loan payments as scheduled.

[creditcardfree]

Jim's answer certainly isn't wrong.

I completely agree.

I think this is about mindset. If you get into the habit of dipping into the EF to pay for things that aren't urgent, you may find you never build up an adequate EF. Even if it will cost you a few extra dollars in interest, I'd keep the EF and make the last couple of loan payments as scheduled.

This is where my line of thinking is, too.

[MonkeyMama]

I'd agree on paying it off, but the interest in negligible at this point. I think I'd wait 2 months.

OR as compromise - pay it off next month. Best of both worlds.

[creditcardfree]

OR as compromise - pay it off next month. Best of both worlds.

Wow! Sometimes I just don't think outside the box...I like this idea best.

[JoshuaHeckathorn]

I agree with Steve that it's all about mindset. But for me, I would side with Jim and just pay it off. You see, I have this mental inability to let money sit somewhere earning 1.3% interest (or less) when I can use it to pay off something else costing me 16.5% interest. It doesn't matter if we're talking $500, or $50,000, it's still a numbers game for me.

But if you can't decide which way to go, a compromise, as MonkeyMama suggested, is always good.

[ActYourWage]

Pay it off!!! It is a great feeling knowing it is gone!

[sofocused978]

I'd just go ahead and pay it off and get that monkey off my back. Just the feeling you get from losing that payment will bring you some joy and you will still have $1k set aside for EF. If you were following a Dave Ramsey type debt snowball plan you would be right where he advocates. $1k EF until debts are paid.

[Granite]

I vote for paying it off

[Slandgie]

I vote to pay it off....you have the money to do it! Earning 1 or 2 percent in the EF versus paying 16.5% tells me to pay off the loan.