using your savings to pay off debt

**ncarr** · 02-10-2010, 10:57 AM

Hi guys! I just finish reading Totally Money Makeover and am ready to begin. Baby step one is covered. The problem is I am having a serious emotional block with step 2. The only debt I have is a student loan with approx 10,000 (other than the mortgage). I have 4,500 in savings. I'm struggling to let go of 3,500 to put on the loan. Mentally I know it makes the most sense but emotionally it is my security blanket. Does anyone have some words of wisdom to help me make the leap? I just keep thinking "once it's gone, it's gone!" kwim?

**nodmicks** · 02-10-2010, 12:06 PM

I personally do not think in todays economy and with high prices that the $1000 EF is enough any more.

Could you compromise and keep 1/2 in the EF and pay half on debt ( assuming your job is very stable)???

**Greebo** · 02-10-2010, 12:12 PM

Is your household income reasonable stable? Any storm clouds on the horizon?

**Mom2-3** · 02-10-2010, 01:05 PM

What about keeping a $2500 BEF and put the rest towards your debt? What number will make you feel comfortable? I would at least throw $1000 towards the SL. It's hard to throw the first snowball, but it gets easier and more fun to throw money at the debt

**Denvergirlie** · 02-10-2010, 01:09 PM

I know it's not DR gosepel, but when I was in the BS2 step, my BEF was $3K, not the $1K DR recommends.

However, I was the primary breadwinner, with a somewhat shaky job, I needed a month's worth of expenses plus the $1K (I then rounded up to $3K) that DR recommended in order for me to sleep better at night.

Now, I did NOT lose my intensity in paying off my debt. Some people find that too much money in the bank gives them a sense of comfort and then they lose that burning, all encompassing desire to pay off the debt.

Best of luck with what you deceide.

**dcompton** · 02-10-2010, 03:16 PM

Maybe I'm just chicken, but in this economy, I would keep all or most of it in savings. If all you have is a student loan and mortage, you are not drowning, and life in uncertain. Even if your job is secure, the next idiot running a red light could "unemploy" you for a stretch of time. For myself, I would keep a substantial savings, and peck away at the debt as quickly as I could from my regular cash flow.

Yes, it will, cost you more interest, but security is not free. I would absolutely not pull it down to $1000 -- that doesn't go very far in a big emergency. Just my opinion and what I would do.

**kita** · 02-10-2010, 06:15 PM

Check out the interest rates on your student loans. When I get to the "snowball found its way to the student loan" budget, I want to pay off the higher interest loans first. You may be more comfortable paying off the higher rate loans and keeping some of your money in savings.
I will say that student loans at least can be deferred easily if you have financial problems so it may be wise to keep some of the savings at least.
Also, look at how long you can live on your savings. It isn't a perfect measure but it might make you feel better. As a teacher do you have a two month cushion for the summer? Could you work one summer so that you will have that still?

**ladykemma2** · 02-10-2010, 06:19 PM

keep it in the bank. begin where you are.

**krbshappy71** · 02-16-2010, 12:16 PM

Thank you for this thread. I have a similar situation but am still at the building EF stage, and the responses here have really helped me. I know DR has his method that works really well, I just appreciate that this site offers small tweaks to it as long as the goal and results are the same. My next smallest loan would also be student loan and I couldn't bear to see it go when they have been so flexible over all these years and kept such a low interest rate.

**Greebo** · 02-16-2010, 12:21 PM

Originally Posted by krbshappy71

My next smallest loan would also be student loan and I couldn't bear to see it go when they have been so flexible over all these years and kept such a low interest rate.

I'm sorry to say I completely fail to comprehend this concept.

Why would you be sorry to be released from any obligation held upon you, no matter how gilded the chains?

**krbshappy71** · 02-16-2010, 12:31 PM

Originally Posted by Greebo

I'm sorry to say I completely fail to comprehend this concept.

Why would you be sorry to be released from any obligation held upon you, no matter how gilded the chains?

Fear of losing the flexibility they have offered me all these years. I've had to do forbearance, deferments, smaller payments, they have always worked with me. Sentimentality? I don't know but I'm in no hurry to see it go compared to wanting this credit card off my back.

Credit card amount is so large with 10% interest, I want it gone. Student loan is like an old dog at my feet wanting fed. Lower amount, lower interest rate, and am not afraid of it. Hm. That probably makes no sense. hahahahaa!

**Greebo** · 02-16-2010, 12:36 PM

Yes but paying them OFF eliminates the payment *completely*. Surely you're not tempted to keep the debt around simply cause they've been easy to work with?

**krbshappy71** · 02-16-2010, 12:50 PM

Ya, That's where I was coming from. But your gilded chains comment hit home a bit. Hm. Thanks Greebo. I'll sit on these thoughts awhile.

**ncarr** · 02-22-2010, 11:40 AM

krbshappy71 I would pay off your student loan so that you can focus all your energy and resources on your larger credit debt.

Thanks everyone for the responses. I should have added that my husband and I have a joint savings that will cover us in the event of an emergency for probably 8 months that he brought into the marriage. It is important to me to pay off my student loan myself though, not with "our" money. My separate savings account is really just extra just in case. I'm going to bite the bullet and put $2000 on the loan tonight (leaving me with 2500). That will bring the student loan down to 8000 which is completely reasonable for me to pay off within the calender year. I cant WAIT to be debt free except for the mortgage!

**Preston** · 02-22-2010, 12:21 PM

Originally Posted by ncarr

krbshappy71 I would pay off your student loan so that you can focus all your energy and resources on your larger credit debt.

Thanks everyone for the responses. I should have added that my husband and I have a joint savings that will cover us in the event of an emergency for probably 8 months that he brought into the marriage. It is important to me to pay off my student loan myself though, not with "our" money. My separate savings account is really just extra just in case. I'm going to bite the bullet and put $2000 on the loan tonight (leaving me with 2500). That will bring the student loan down to 8000 which is completely reasonable for me to pay off within the calender year. I cant WAIT to be debt free except for the mortgage!

STOP!

I don't want to be the jerk here, but there is no longer 'his' and 'her' money but there is OUR money. I would knock the damn loan out -- even if you have to borrow it from HIM if you are insistent.

But, one thing I have learned, having your finances intertwined makes infidelity that much harder and the trust is a lot more -- since you are having to SHARE this money. KNOCK THE DAMN THING OUT NOW IF TOGETHER YOU HAVE THE MONEY! THEN rebuild your EF as fast as possible.

Also, he needs to be on the same page. Does he have any debt?

If you are insistent on doing it yourself, I would knock $2500 of the loan for the 'boost' and leave $2000 in EF.

Greebo -- The student loans are debt, yes, but in my case they don't bother me nearly on the level that the credit cards do. My loan is at 3%. My checking account pays 3.5%. So even with the small amount of taxes these offset one another.

SL is the last in my snowball for this reason, and the $85 a month really doesn't bother me as much as the $250 loan payment at 10%. Debt snowball is not the only way to do this. As long as things are headed in the right direction, there is no problem.