in Personal

Money Choices

So I set a goal for myself at the beginning of 2007 – that goal was to be debt free except the house by the end of the year.  (Yeah – I drank the Dave Ramsey kool-aid…well, mostly at least…)  After the first few months, I figured out how to trim my expenses even more and figured out that I could actually pay off my student loans by my birthday (end of September).  At the end of 2006, I paid off all credit cards and any other foolishness I had – so I only have 3 “debt” items laying around these days: student loans (~$15K total), 1st mortgage, and 2nd mortgage.

I’m on track to pay off my student loans by the end of September, but it’s really tempting to pay off the 2nd mortgage first.  Both are about the same amount (second mortgage is a few thousand higher, but that just means waiting a month or so to pay it off if I chose that route), but the interest rate on my student loan is 4.25% while the second mortgage is at 8.25%.  Because of that (and the terms around each loan), my student loan payment is $125 a month and my 2nd mortgage is $190…so paying it off first would free up $190 instead of only $125.

But here’s the catch (and the reason I’ll probably still pay off the student loans first) – in a worst case scenario, I could probably sell the house and at least break even (if not, I wouldn’t owe much).  In that case, both mortgages would be taken care of, but the student loan will still be there. No matter what happens (practically…there are a few legal things that I’m going to ignore), I’m stuck with the student loan for up to 14 more years (the remaining length of the loan).  It seems really risky to me to pay off the second mortgage before the student loans.

Realistically, my plan would be to pay off the student loans first (just to have them out of the way), buy some new camera equipment (as a celebration type thing…and because I “need” it…), fill up the 5K for Roth IRA 2008, then focus on knocking out my 2nd mortgage as quickly as possible.  If raises go as usual next year at work, I can probably expect I would have the income to do all of the above between now and Jan 1 2009.  It’s just a question of what else will happen between now and then.

Anyway – I’m 80% sure I’m going to go ahead and pay off the student loans as planned, but it’s still a hard choice because of the interest rates (and the fact that I could invest it and do decently as well).  But when it comes down to it, I’ve really liked not having credit card payments and it feels great not to be paying on my everyday items anymore.  I can only imagine what it will feel like to have the house paid off one day…  The really amazing thing is that it’s not that hard – oh, it’s hard, but not that hard.  At the very least, it’s been interesting having to make all these choices now that I have a “real world” income.

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