I’m in another busy spell at work. In fact, I’m having to work over the weekend to meet two deadlines on two separate projects.
I made a random $307 extra payment to my student loan debt. Most of it was absorbed by accrued interest, thus the balance looks practically unchanged from my last post.
Housing Instability… Again!
My rent will be going up…way up. The house will be losing a roommate in the next couple of months and I don’t know if the departing person will be replaced given all the drama they’ve stirred up. So to cover the shortfall for the house, we’ll each have to pony up an extra $250 a month or so.
Even worse, Landlord has now indicated publicly an intent to not landlord for much longer. This means that chances are probably over 70% that I’ll have to move before the end of the year. And you know what that means. My rent will very likely go even higher.
Damn it! I had set up automatic withdrawal to start funding my Roth IRA, but I am now cancelling that as I will need the money for rent and increased cash savings to try to prepare for a move.
On the (small) bright side, I will be getting my bonus at work soon!
Ah, yes. Fleeting delusions of grandeur. I’ll get to feel like a fat cat for like, 5 seconds. Instead of a boat, (I wish!), I’d just want to throw my little windfall at my student loan debt or buy investments just to see some movement in my finances instead of small incremental changes. Yeah, I guess I’m finally a grown up now. This is what I daydream about these days.
Well, unfortunately my paycheck is already accounted for (student loan payment), and I don’t have any tax refund yet, so I can’t account for either of those. I will be getting the bonus soon, however. It will be pretty much the same as last year ~$4,900 or so. I’ve been going back and forth about what to do with it.
I realize that this is a good problem to have, but it is still stressful because of the opportunity costs of all the things I won’t be able to use it for.
So, let’s get ready to play Whack-a-Mole, shall we?!
OPTION ONE. Pay off credit card debt
I have over $2200 in credit card debt. I could take almost half of my bonus and pay this debt in one fell swoop.
OPTION TWO. Cash-flow vacation expenses
I have an international vacation coming up that I’m excited about, but not looking forward to the full cost. Only some expenses (flights) are already ‘paid’ for (credit card). Other expenses like hotel and food are paid for at the time of expense. I’d like to have some cash to pay for expenses during and after the trip, so I don’t add to my credit card debt.
OPTION THREE. Invest in Roth IRA
I want to max out my Roth, not only to take advantage of any current market dips, but also to increase my retirement savings/investments. I’ve neglected investing in this tax-advantaged vehicle for the past couple of years and as a result only have a small amount saved there, ~5k. These allotments are use-it-or-lose-it every year and I dislike the idea of closing the door on yet another year without saving any money here.
OPTION FOUR. Make extra student loan payments
With my rent going up in the near future and my housing situation on borrowed time, I want to take this chunk of cash and pay my debt down more before my monthly cash-flow becomes even more restricted. Once that happens, paying this loan will be slower which means more time living with roommates until I get this infernal thing paid off. Ugh.
OPTION FIVE. Increase cash on hand in Opportunity Fund
With the markets pulling back, another round of recession whispers, and housing instability, having cash on hand outside of my emergency fund would be wise. I don’t want to spend my emergency fund money unless it’s an actual emergency. I should be saving up for things that I know are coming down the line. This option may require continuing to pay down my credit card debt month by month in order to keep more cash around.
I’ve been going in circles about what to do. I can probably only do one or two of these. There’s never enough money to go around. Sigh. I know it’s important to kill any credit card debt, so I’m leaning towards options 1 and 2, with any money remaining (unlikely) going to option 5. I already know I need to rein in my spending. How to make that happen is another ball of wax…
“Debtor’s prison is real, and opportunity cost is a bitch.” (DDSW Archives)
I suggest you pay off the credit card debt first. The high interest rate on that debt could grow into something unmanageable if you don’t take care of it now.
As for the rest of your bonus, it depends on what direction you want to go. For example, if you think you will accrue more credit card debt because of the international vacation, I suggest you use the rest of your bonus to pay for the trip in cash. Credit card debt is difficult to get rid of once you have it. Paying cash to avoid it is a great idea.
Now, if you think your current funds can swing the cost for the vacation, I suggest you use the money to fund a tax advantaged retirement account. You are doing great paying off the student loans. However, using your bonus won’t make a significant dent in the loan. You have already made extra payments this year towards the loan, so use the extra cash to build up your savings and take advantage of compound interest.
As an aside, I also suggest you invest the Opportunity Fund in a low fee index fund. Timing the market is impossible. I personally think you would be better off investing it now and riding the stock market wave with the long term holding.
Your accomplishments are amazing! Good luck with everything!
Hi MissSaraBee! 🙂
Yeah, I’m leaning toward using the money to cover any credit card debt now and through my trip. My priority needs to be paying off and staying out of credit card debt. I think options 1 and 2 will take up the entire bonus, so no Roth investing 😦 but, there is always next year…
Oh and my investments are all long-term low-fee index funds (with two small exceptions). So yeah, I’m already on board the Index Funds train. 🙂
That is such a bummer about the rent increasing and the high likelihood of you having to move and pay even more in rent. Ugh. At least you’ve had a couple of years of cheap rent to really help you along.
For what it’s worth, I think I’d use the bonus for option 1 and 2, like you mentioned. It makes sense to pay down your credit card debt sooner rather than later, and you have to finance your vacation expenses one way or another. So I’d probably just do that and be done with it, eliminating some mental financial clutter at the same time, if that makes sense. But that’s me.
Yeah, I’m fortunate to have had 3 years of below market rent to help me get traction on paying down my debt. I always knew it would end at some point.
So for now, I’m just taking things month by month. I think killing this credit card debt is the best move. You’re right. It would remove some mental clutter to know that additional debt isn’t dragging me down.
Boo to the housing situation.
If it were me, I would use the bonus to pay off the credit card debt and then do whatever I could to not reaccumulate it. I’d put the rest of it into an IRA to take advantage of the tax savings (I love tax savings!), and then I’d set up some strategy like a monthly transfer to a savings account to save up for the trip. But this is purely the approach I would take; everyone behaves differently when it comes with finances. I’d suggest looking at your past financial habits and, based on the good and bad decisions you’ve made it the past, what approach is most likely to lead you to make the best long-term decisions.
Yep. Another vote for paying off the current credit card debt. Doing that first seems to be the consensus.
Because the trip is coming up soon, it may be better for me to keep the rest of the bonus to pay the card off again after the trip. Then I can use my monthly cash flow to start saving for moving expenses later in the year. That’s were I am now. I may feel differently tomorrow… heh
So sorry about the roommate diruation. Sounds like the $250 might be worth it for the stress she was causing. I would pay off the credit card debt, put some money aside for the vacation and then put a small amount toward potential moving costs. Maybe that would go in your emergency fund or a separate account. If moving truly looks like a possibility you may feel less pressure knowing you are prepared. Debt avoidance is always good. You’ve made such good ground. I want to see you continue to plow away.
That sounds like a plan.
I’m not looking forward to the rent jump though. Ugh!
Thank you, AW. 🙂
I agree with AW. Since the trip is a done deal, do not accumulate more credit card debt to finance it. I think you pretty much just have to kiss this bonus good bye because it is already spent, Enjoy the trip ;and come home and regroup.
Ugh, I feel you on housing woes. I hope that your landlord reconsiders. Having to move when you don’t want to is so financially rough.
Agreed! As much as my current housing situation may not be ideal, looking for new housing is 1000X worse.
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That’s a great bonus! I would definitely pay off the credit card and tuck some away for retirement. You can never have too much money for retirement.
Yes. I realize that I am fortunate to have it.
Call me crazy, but have you thought about living in a van for a while? It might not be your cup of tea but is an option to rapidly pay off debt – I’m looking into it myself but I have a toddler… so its a little more complicated!… I’d have to have one with a built in shower and toilet (which makes it more expensive, and I’m saving my butt off to get one that would suit)… but if it were just me I’d go for it with a cheaper, small van – would save me about $1800 a month in rent and apartment bills. Check out CheapRVliving on YouTube (Bob Wells channel) for lots of single women doing the van living thing. Great blog btw 🙂
I undersign the above as a prospect I also seriously considered it (before being struck by madness and locking myself down in Chicago-town by purchasing a tiny condo). I discussed the scenario with my daughter’s dad, offering to be an occasional crash-in/maid and daily tutor/school transporter/uh… mom to my kid whose permanent address would be his in exchange for absolving him of the monthly child support check (also an essential amount in my continuing the solvency of current lifestyle).
It’s complicated with kids in the picture. They should not have to bear the consequences of either the reduced pay due to funds being allocated towards debt, nor reduced time with a parent due to their working extra shifts to obtain said funds. That time waits for no one. But, for child-free people, it seems like a worthy prospect.
My rent deal is pretty sweet for the area. I only pay $500-something a month currently, but that will be going up in the next month or two. I don’t have a car and would not feel safe living in a vehicle where I live. I hear it works well some people though.
Another vote for the credit card pay-off, and what’s left for the trip expense. Yes, I should have those ‘problems’: how to spend $4900 of bonus money (albeit, no doubt, more than well deserved.) 😛
If it’s of any consolation, I have not once in my life experienced a bonus amount that’s a fraction of that. My ex-landlord will finally mail me a security deposit check of a gracious $1100, which of course will all go into my checking account buffer and savings account round-off. Here’s also praying for a positive tax return this year, even if it’s no more than a Starbucks grande latte’s worth. The suckery of multiple independent contracting jobs. My annual novelesque biographies (aka tax returns) are never not boring.
And 56 more student loan payments to go, health and sanity permitting.
See you in the mid-50s soon. 🙂
Uggh. Independent contracts and taxes. I had ONE of those jobs in the past and tax filing for that was enough of a pain. Definitely not fun. 😦
I’m going to take the contrarian position that you should put it all on the student loans. They’re the single biggest thing in your life, and it will feel best to make a big dent in them. That would be over 8% of the current total gone, just like that! You could knock months off the prison sentence!
I know you want to pay off the credit card and save for possibly moving and retirement, and any of those choices are fine, obviously. But I feel like with a big chunk of money like this it’s best to have it make a single impact rather than spread it out.
Yes, everything you said is true. So many goals, not enough dollars!!
I would cancel your international vacation if you can get most of your money back, and take a cheaper vacation instead, something that does not require airline tickets or a rental car.
If I were unable to make my loan payments and had no cash savings, I’d agree with you.
In this case, canceling the trip is not an option for many reasons…
I’ve only just found your blog and read a few posts, but I’m thinking 1 and 2 also. #1 because you don’t need or want that mess, and #2 because you’ve been busting your a$$ to get where you are today and it’s ok to spend on yourself once in a while.
Welcome to DDSW! Thanks for your comment, and I am inclined to agree. 🙂
Best of luck to you on your own financial journey to become FI (financially independent). Starting over financially as a forty-something, as I know from personal experience, is a challenge and a half.