Remember when I asked you what I should do with my $3,300 payout check from my former job? While I ended up with only $2525.25 due to taxes (still, that number pattern is pretty awesome), I did as most of you advised: I put $1000 into my Roth IRA, then the rest went to our largest student loan with Sallie Mae. (Note: Again, Sallie Mae has screwed us over. A post will have to come with all of the ways that Sallie Mae – oh, excuse me, Navient – screws us over.)
When we closed on our house, we managed to walk away with a little over $8,000. The fact that we made ANY money at all, considering we were only in the house three years and we had to pay both real estate agents and other fees, etc…. well, that’s pretty much a miracle.
What to do with it? I’m interested to know what you would do, but this time I’m not asking for advice, as we have determined how we will deal with this windfall!
We do have some savings goals and Debt Eradication goals. We have a trip to France for a conference in July 2015, we want to save for retirement, and we want to have at least $1000 in an emergency fund.
However, we also have debts. Lots of student loan debt – over $60,000 of it.
But… another savings goal is important, too. We want to save for a down payment – and do it PROPERLY this time. We want to avoid PMI – or at least come close. So that $8,000 will be put into a savings account. After researching, I discovered that our very own bank (a credit union for state employees) has a 1% interest rate money market account! There are no fees unless your balance goes below $250. $8,000 earning us 1% interest is not – in actuality – better mathematically than paying down debt with it, when the student loan stands at 6.88% interest. However, we have decided that we will probably want to buy a house in the next ten years, and having that money in a savings account making us at least some interest seems right for us right now. I considered a CD through our financial institution; we could have gotten a 3-year for 1.25% interest or a 5-year for 1.5% interest, which is quite tempting. However, again – we decided that being able to add more to that account as we go coupled with the freedom of having the money liquid is better for us right now.
We are basically going to treat this cash like it’s not even there – stash it away in this account and let it grow both by interest and by us directing some more over there each month.
I recently read a blog post in my Feedly by someone who just took money out of her IRA to pay down student loan debt (she posted over at an early retirement blog site, and got that surprising advice from those folks!) and it really did make me think. Then I went back to my saved items in my Feedly feed and couldn’t find it! If anyone remembers the post I’m talking about (it was just within the past day or so, I think!), please let me know in the comments! (EDIT: It was Melanie from Dear Debt! Thanks go out to Brooke from pftwins.com!) Anyway, I enjoyed reading what she had to say. One other positive with putting this $8,000 aside in savings is that we can get to it easily and do something different with it if we change our minds. I like having that freedom! Because 6.88% student loans is a lot of interest accruing on us….
In other news…. I’m so excited to see what our budget will look like for REAL as we continue this fall – things are a bit tight for October (we’re living on last month’s income, and it wasn’t so hot by the time I zeroed out our credit card bills). However, I think that come November, we should be able to put away about $500 for the travel fund, about $75 in the emergency fund, and hopefully around $200 extra in student loan payments (that’s on top of the $507 we already pay as our minimums). Then, if we can add some here or there to help our house fund grow, then that’s the icing on the cake!
Although we have made our decision (for now!), what would you do in this situation? Apply the entire amount to student loan debt? Put it in savings? A combination thereof?
Image edited from http://www.freedigitalphotos.net/
Mintly: Our Journey Through Debt 
Hi, I’m pretty sure the post you are talking about is this one by Melanie at Dear Debt: http://deardebt.com/september-2014-recap-update/
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Indeed! That’s exactly the one. I’ll update the post now. Thanks!
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Melanie did say she had mixed feelings on it, but in the end, it was the right decision for her. It is super hard to look at those interest rates! I believe hers were in the high 7% range, which is awful. I think my highest is at 6.5%, which isn’t pretty either. If I randomly got $8,000 it would go straight to my student loans. Our emergency fund is set right now, thankfully, so that’s our only priority besides living below our means. It’s all about what feels right to you, and if saving for a down payment is a priority right now, then it makes sense to leave it there. Like you said, if you have a change of heart, you can alter those plans!
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I admit, it’s very disconcerting to look at our cash accounts in Mint and see that they’re so much higher now. I have to admit to still feeling as if we should just go by the numbers (putting it directly to our debt), but every time I’ve rushed into a money “plan” I’ve gotten tripped up somehow. 🙂 Getting older means changing priorities, and then there’s always the fact that life changes quickly, too – my husband is applying for 10 different jobs this week, and if something DID take off for him, that would mean some big adjustments down the line as well! Sigh….
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In this situation, I would put it all to student loans. 🙂 In our situation, I would put it all to our mortgage… if I could somehow come across $60K that would be fabulous! LOL. Best wishes!
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I think I’d do the same thing! Although we don’t “need” a new house, I would definitely love to buy one the right way this time!
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I have a “house emergency fund” where we’ve been putting the rent money we’ve collected. I purposely don’t feed this account into Mint so I’m not tempted to include this emergency money in my spending/payoff calculations. Once we’ve got about $3500 in there, I’ll start using the rent checks for student loan payments, but until then I don’t want to see it. If your savings account is linked to another account that you have on Mint, you should be able to hide it from view, if that helps.
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I read about your “house emergency fund” on a recent post of yours – I think having a separate-from-your-emergency-fund fund is a good plan! Also, I hear what you’re saying about not putting the account in Mint. I thought about it a bit and I’m not sure if I can do that or not – knowing that there’s “data” out there that I can’t view might be harder for me than seeing the money and trying not to use it for a different purpose! I like the concrete plan you have about getting to a certain number in your fund, then directing the rent checks to your debt payments! I might consider hiding it from view – it’s in its own account so it would be relatively easy, I think! Then I could show it whenever I got the hankering to see it. 🙂
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Since you are earning such a low rate of interest on this cash, I would put the money towards student loans but make sure you have a healthy emergency fund first, more like 3 – 5K. What is the timeframe you are shooting for to get the student loans paid by? Would it be better to get those done, and then focus on saving for downpayment straight after that?
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That’s a great point. We are looking at 5 more years with us snowflaking/snowballing our debt payments, we think. We have the one credit card that holds about $3500 of our student loans due to a transfer we did so we could pay it off more quickly/easily than sending extra payments to Sallie Mae/Navient, because they make it so difficult to send extra payments directly to the principal.
I hear what you’re saying about getting the student loans paid off (it’s over $60,000 total, including the credit card) – it’s a tough decision. We recently have lowered our living expenses quite a bit (the mortgage is now a lower rent and our gas cost should lower significantly – though I’m waiting to see how this month shakes out before I say by how much), so that will give us a little more wiggle room in our savings/debt eradication plans. I’m hoping we can complete the student loan payoff in LESS than 5 years, but even waiting that long to buy a house may not be what we want to do.
Honestly, I’m quite happy not owning a house right now. The truth is that my husband could get another job any year (and he actively looks and applies every year), and he wants to buy a house in about three or four years IF we actually get settled in a location we like. There are so many factors at play that it can be hard for me to balance it all and determine the best course of action. I like the idea of keeping the money in an easily-accessible place, should we decide that we do want to do a lump-payment on our student loans instead of holding it for a downpayment. We shall see….
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