When I started this getting out of debt journey my first focus was getting rid of the bad debt, I paid off my credit-card, saved up a mini-emergency fund and over the past few months I started focusing on saving more and getting rid of my student loan.
After reaching $500 in my mini-emergency fund last November I decided to keep the ball rolling on the savings. Saving is addictive and I’ve begun to make it an automated process by having amounts withdrawn from my account automatically on the day I get my pay. I’ve realized this week however that my attention is now shifting from continuing to save to paying off the Student loan and perhaps it makes more sense for me to start dumping even more money on my student loan.
Both methods (savings vs debt repayment) will get me to my goal but I’m getting a real kick out of seeing my student loan balance drop at the moment so I’m going to take advantage of that building motivation. I know I’m constantly changing my mind on what I’m doing with my money next but hey, that’s why this is a journey! I’m also a person who can not do something unless their heart is in it 200% which is why I was having some difficulty getting real aggressive about that student loan debt, I just couldn`t get in to it ykwim?
I had been stuffing money in multiple savings account designated for a trip, an emergency fund and miscellaneous expenses. My emergency fund now sits at $1000 and I will continue contributing about $50 a month to it to reach my year-end goal of $1,500. I am however going to empty out all my other savings to dump them straight on the student loan.
Why am I doing all of this? After thinking about this whole issue a bit more I realized a few things; my student loan is actually a Student Line of Credit (SLOC) that is not due to be repaid until about a year after I finish my degree (whenever that will be) until them I am only responsible to pay the interest and I can pay it off and use it as much as I wish. The interest rate on the SLOC currently sits at 4% for withdrawals and purchases. Not such a bad deal compared to government student loans at 8%+ interest… and since my savings only make me 2% right now it’s costing me money NOT to put the money on my SLOC.
By funneling the majority of my potential future savings into the SLOC I should be able to pay off about $800 – $1000 per month. (Maybe more? I’ll try!) I had been planning on savings of about $500 and paying down the SLOC about $500. Combining them only makes sense. This should also save me a few bucks of interest over the course of this year. The best thing about this plan is that if I find I need the funds back, I always have my emergency fund and the SLOC is open, so I could just take the money back if I absolutely needed it.
Today after withdrawing a portion of my savings and dumping whatever I had left in my checking account on the SLOC I was able to decrease my Student Loan balance by almost $1,500. Woohoo! I’ll adjust my progress bars on the side in the next day or so, after all the transfers go through at the bank, and I’m excited to start making bigger payments.
Jeff commented on my last post that some people might think it’s a little silly that I spent $62 on theatre tickets last month while I’m still in this debt-battle. As I wrote today, I won’t do something unless my heart is 200% in it. If I were to take ALL the fun out of my life I’d probably a) become depressed – this is Canada, it’s winter and it’s dark all the time + I work late at night so I sleep until 11AM most days. I get little daylight and its hard to keep my spirits up because of that. I need my fun! and b) come on! Live a little! =) It’s totally fine by me to be done with my debt a few months later if it means I get to have some fun along the way.
What do you think? – Of course the key here is for me NOT to rack the balance on the SLOC up again while I’m paying it off. Then this would all be futile and I’d lose my savings. You guys can keep me on track though right?!
Ps: IMG source here.