True ... but another aspect is to make sure any spending that can be reasonably cut out is. Paying debt off quickly just to replace it won't help either.
Originally Posted by Young&Ambitious
So the student LOC is no longer a line of credit, but now a personal loan? That does make a difference. Is it tax deductable? Was there an option to convert it to a standard unsecured LOC?
I also find it interesting that this is one of the few threads where personal net worth has come up. I find myself in agreement with a lot of what the last few posters, including TRM, have said.
Now I will put on my flame-retardant suit.
I generally advocate for the most rational or reasonable approach based on the math and total long term costs. You'll note I did not suggest earlier that clangsq dispense with an emergency fund and use the LOC as such indefinitely. Rather, what I suggested (based on the assumption that LOC was indeed still readvanceable when paid) was to pay out $15K (credit card debt and LOC) and "Start rebuilding your emergency fund once those debts are paid." That would have left clangsq with exactly the same net worth, $2K in the savings account and the TFSA untouched, the OSAP loan outstanding, the same access to cash (if needed) but less monthly interest costs.
This would put the OP in exactly the same position as having an extra $9400 in the savings account, $9400 outstanding on the LOC and have the benefit of paying less in interest every month for nothing, BUT, this makes many folks uncomfortable.
What I find most interesting is that if a poster were to come to CMF and say,
"Hi. My name is Pat and I have a good job, a positive monthly cash flow, $27 K in student debt which I want to make accelerated payments on, but no consumer debt, $10K in savings and access to a $10K LOC with no balance outstanding"
I would imagine that the general response would be positive, even congratulatory on taking control, and that this individual would be advised to find a balance between paying the student debt and savings.
I propose that no one would say,
"OMG you don't have $XX,XXX in your emergency fund! You should borrow that immediately from your LOC and then pay down the debt." It would seem ludicrous.
However, in essence this is what the (fairly common) advice to keep funds in a savings account at the expense of paying down a LOC (or other readvanceable debt) is saying.
Now this is where things get a bit toasty
To the original poster, clangsq, have you contacted your financial institution and sat down with and discussed your credit history and current creditworthiness? If it were me I would inquire as to the availability of an unsecured LOC if I paid off the current student LOC/personal loan based on my full-time job. I would compare the respective interest rates and see what it would net me each month in interest savings, while still having the same overall net worth, but having it increase at a faster rate. Clearly there is enough financial discipline to establish over $25,000 in savings. And if you are taking this step, are you able to evaluate the pros and cons of what they may have to offer (or elsewhere)?
Then I would ask myself the following questions before agreeing to anything. And the reason why I bolded "if it were me" is because of how I would answer them (in brackets).
Do I have the disicpline to leave the LOC alone? (yes)
Will I continue to save as much cash or emergency savings as I think I require? (yes)
Can I sleep at night without $X in my savings account? (yes)
Am I comfortable paying more in borrowing costs than I have to inorder to achieve the same ends? (no)
The reason I take the time to do this is severalfold. In part to stir debate, but also because I have been in a very similar position, finishing my post-secondary education later than many and have addressed similar questions myself and with my significant other. The steps I outline would also serve to hasten any increase the OP's long term creditworthiness as far as their credit score is concerned by reducing the total amount of outstanding debt and lowering the % of available credit used. Being able to access credit on the most favourable terms may be beneficial in the future.
I apologize to the OP if this is too tangential. Best wishes.
ASIDE: Yes, I am aware that a LOC can be cancelled or the terms changed. I would counter with the observation that a LOC can also be called while carrying a balance, putting the individual into the same position as if it were cancelled. I also note that the current loan is not a LOC as such, but I would personaly check the terms and conditions of the current student LOC/personal loan as they might impact my choice as to how to manage that debt.
No flame suit required. The concept of opportunity cost is often underplayed here IMO.
Originally Posted by Maybe Later
Originally Posted by MoneyGal
As per Maybe Laters opinions....I can't see a bank that wouldn't be interested in clangsq having to pay them interest, rather then the other creditors.
Use 100% of your savings to pay off highest interest debts first.
Once you get rid of that debt, you will feel so much more free!