I recent had a conversation with a friend who had a nice problem. He had a big cheque coming to him for retro pay for a raise that he got. The amount was several thousand dollars and he had decided to pay off some debt (Great idea!). The question was which debt would he pay off first. He has a car loan for about $20K (5.9%), the mortgage for over $100K (6%) or a student loan at $5K (8.5%). He was concerned about paying off the student loan since he can use the interest as a tax deduction.
My personal thought was screw the tax write off and get rid of that student loan because the satisfaction of finally paying off your loan is a great emotional high which can be used to inspire you get rid of more debt. I think people tend to get so tied up in the numbers that they forget that money is a very emotional topic.
So next time you get a windfall, try to remember that some emotion in your money decisions can be a good thing.
I’m a chemical engineer in my late twenties working for a consulting firm in Regina, SK. I enjoy reading, writing and saving money. After being the unoffical ‘money guy’ in my family for years I decided it was time to share some of my thoughts with others as I try to save enough cash to retire when I turn 45.
The Federal government is hard at work avoid issues again around their review of the Bank Act . They have decided not to look at bank mergers or in bank sale of insurance, but they did address a few interesting points that could effect me.
1) Electronic cheque images to speed up the time it takes for a cheque to clear. I know I would love this one. I hate giving someone a cheque and then having it take a few weeks to clear out of my bank account.
2) Reducing the size of down payment required on a mortgage to avoid mortgage insurance. This one sounds good in principle, but I’m not too sure how much good it will do. I know that I put down 20% on my current house and is I could have saved the mortgage insurance it would have saved me $1500 overall. I suppose this becomes a more significant act as you get into higher priced homes