Skip to main content
No. of Recommendations: 1
First off, a big thanks to anyone willing to help! I am new here and already have learned so much.

Ok, my primary question is where to place an upcoming debt payoff, which at first glance will look obvious, but there are some unique factors. Hope it's not too long.

In November of this year (2007), I will get a lump sum of $35,000 for loan/debt repayment, tax free, in exchange for my service. It is meant for student loans, but it can go to other debt (I made sure this would be ok with the program). BUT I cannot get more repayment in the future if I don't put 100% towards student loans this year.
Credit card balances should be $18,000, down from the current $25,000. I am paying an extra $800-1000 a month, which should continue until November. Student loans: $43,000 at 1.875% fixed. No other unsecured debt.

Financial scenario #1 in November:
Pay off all but $8,000 of student loans with none going to credit card. Left with $8,000 at 1.875% and $18,000 at at least 16% (right now I'm maxed and can't transfer balances. May be able to transfer as I snowball card balances.) I can continue to put around $1000/month towards paying off for the next year (through November 2008).

Scenarion #2
Pay off all of credit cards, pay off $17,000 of student loans. Left with no credit card debt, and $26,000 at 1.875%. Still have an extra $1000 a month through the next year to put towards student loans or saving.

Either way, I'm stuck with $26,000 in debt to carry for at least 3-4 years, as I know I won't be eligible to reapply for any additional debt repayment for 3-4 years. I know I can pay off another $9-10,000 over the next year, but after that we won't be able to contribute as much, secondary to anticipated income/work changes of my husband's.

Is being able to get an additional $8,000 in free money in 3-4 years (which is not guaranteed, even if I reapply) worth the extra time and accumulating interest on the credit card balances? Am I throwing future free money away for the satisfaction of paying off the credit cards, or is student loan debt at 1.875% that much better of a kind of debt to carry? We hope to build a home in the next 1-2 years. Will lenders care which kind of debt, or is it all equal, since both will be around the same amount?
I know this was probably too long-winded, and thanks to anybody who got through it. Any advice is greatly appreciated.

Thanks,
RF
Print the post  

Announcements

UGC Disclosure Notice Regarding Credit Card Posts
Community board discussions about credit cards are not provided or commissioned by banks who may have advertising relationships with The Motley Fool. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.