Wednesday, August 26, 2009

What to do with my bonus…

I have committed to saving $300/month, paying $325/month towards my credit card debt and not incurring any more debt. My student loans enter repayment in September and I will begin paying the minimum on those which currently includes a mixture of interest only and principal and interest. My hope is to pay off the credit card debt and secure a salary increase in time to account for the increase in my student loan payments to principal and interest.

I am still trying to decide whether to take my annual bonus (if I get one) and put it into savings or whether I will try to tackle Student Loan #1 (see right column). Last year, my bonus (delivered at the end of January) after taxes was about $4k. I am thinking that it will be more like $5k this year since I got promoted to Vice President and my salary increased slightly by $5k. I am pretty certain (90%) that I will get a bump in my salary soon because my discussion with my boss have yielded an understanding and agreement that I am underpaid compared to my peers and for my level of experience and workload.

The problem that I have faced which has led to the increase in the credit card debt is not being prepared for unexpected expenses. When that happens, I am forced to use my credit card. If I have the reserves in saving, I won’t need to use my credit card and I can simply pay cash for those expenses. They have ranged from $1,000 for my car last month to the need for glasses which was $400 in June. All of which are now on my credit card.

I am leaning towards putting the bonus money in my HSBC savings account and leaving it there in case of an emergency and still committing to saving $300/month. If I pay interest only on my student loan debt and continue to save and reduce my credit card debt, I can see an improvement in my net worth next year.

4 comments:

Dedicated said...

I think I would pay off the Federal Perkins Loan which is about $2670 and then do a happy dance for once less payment to remember.

Then put the rest in savings. So, I would feel a little relief on the payment side and build a cushion too for safety. The best of both worlds.

Your smart though, I think whatever you choose it will work out!

Anonymous said...

You seem to have a lot of money problems. You need a lifestyle overhaul, there is a big picture here. You need professional counselling my dear. I dont say this to be mean. Have you considered selling your home to pay off the debt? Or what about approaching yoru employer to see if they will give you a low cost loan to get rid of some of the high cost debt.

Did you really need to spend nearly $500 on glasses with the debt that you are in???

Chitown said...

Dedicated...great idea. Thanks!

Chitown said...

@ Anonymous:

Yes, I really did need the glasses because my eyes were causing bad headaches. I probably could have shopped around but I got them in the same week when my Dad suffered a massive heart attack and he was in the ICU. I just did what I could do so I could also function at work. I think they were a good investment seeming as though I don't need to go back for at least 2 years.

Yes, you're also right that I have some spending issues and No, I have not considered counseling as of yet. Thank you for the suggestion and No, I also don't consider it rude.

Selling my home is not really an option right now especially in this market. I do however plan to do just that within the next 5 years. My goal is to save and pay down debt so that the equity in my home can go a long way towards paying off my private loan debt.

As for asking my employer for a loan, my interest rates right now on my student loans are lower than any loan I can get. If they go up too high, I will consider all options.

While I have a lot of debt, my credit is clean and everything is paid on time. My credit scores are in the mid 700's.

Thank you for your comment.