Sunday, March 18, 2012

What do you do with a drunken sailor.. I mean, $1000

So I have quite a happy decision to make. The new business is doing quite well for itself, and at the end of March, if everything goes well, I'm going to be able to pull out $1,000 without any problems. That's JUST in profit and that's less than my 2/3 of the share. (Because I am a perpetual worrier on these fronts, I don't like to empty the bank account.) Now I have to decide what to do with it, which is a nice change of mental exercise from the usual gymnastics of "can I pay all these bills with my paycheck and still have a couple bucks left to, I dunno, buy lunch".

The two options I am considering are whether to put money into my IRA or to pay down my Discover. Dollars-wise, the IRA is the better choice, because I am in the 25% tax bracket and thus will get 25% back on whatever amount I put in the IRA. (To be precise, because I will have to pay several hundred dollars to the IRS currently, I will just pay less in taxes, but won't actually get money back.) If I put $1,000 in my IRA, I'll get a $250 reduction on my taxes.

I balance-transferred half of the Discover balance to a 0% card, so I only have about $1,900 left of it. Putting $1,000 towards that would mean I could pay off the Discover card a lot faster. But, its interest rate is a little under 15%, so I'd only save $150, and that calculation only holds true if I didn't pay it off within the year. On the other hand, if I paid off the Discover, that would eliminate a monthly payment from my budget, freeing up money for other things. Plus it would allow me to do a 0% balance transfer back onto the Discover when I pay for the car repairs and my federal taxes without worrying about how much of each month's payment is going to the 0% portion.

I don't want to be blase and say "oh, $125, who cares, I have thousands more in debt!" because that is precisely the attitude that got me INTO thousands in debt. But I'm kind of leaning towards using the money to pay down the Discover because I need some simplicity in my financial life. And I already have a lot in retirement savings. (Not that we couldn't all use more, but I'm not catastrophically underfunded with $37,843 at age 28, and I do contribute 5% to my 401k.) If I paid off the Discover, I would have no more debt at anything above 6%, and could then start knocking down the temporary-0% loans without also having to make payments on the Discover. Hmm.

Well, I had intended this to be a "help me decide!" post, but I think I just convinced myself. :) If I put everything I can towards the Discover and eliminate the payment, I might not save as much money as if I put it in my IRA, but I would definitely make my life easier. And I'll feel pretty happy about not having ANY debt at a variable rate anymore.

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