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Okay, I think I have figured out what to do with my tax refund, but I like to hear the opinions of others as well...since I know you guys all are so knowledgable on all things financial!
DH and I, thanks to a very low income and several credits that are new to us this year (EIC, education credits, etc.) will be getting nearly $4500 back. We have several options. Some background - we have an emergency fund that has enough money in it, so there is no need to save more. We have the following debts:
1. car loan, app. $6500, 3.75% interest
2. my student loan, $6700, about 4.4% interest
3. DH's student loans, $15k, in deferment (no interest accruing)
4. one cc, currently at 0% for a few more months, $1900
So, my original thought was to use $2k from the emergency fund (we can spare it, as long as we pay it back soon, which we would be able to do) and just pay off my student loans. I really, really want to be rid of that. However, then I realized that even though it has a higher interest rate than the car, I am able to take a tax deduction on the interest every year. This year we took a $750 deduction for the interest on both loans (before DH's was deferred) - I think about $400 of that was for my loan. At our current 10% tax rate, that would save us about $40 per year, or $60 at our usual 15% rate, which we may be back up to next year (am I doing this right?). There would only be about $20 difference in interest yearly between the car loans and student loans, so that means I would save more by paying the car loan off first and taking the student loan interest deduction longer...I think.
Or...I can pay off the cc and only pay a portion of the car loan (or student loan)...if I were not going to be able to pay off the cc before the rate goes up, I would definitely do this. However, I know we will be able to pay that off.
Advice? What would you do? Does it really make that much of a difference in the long run? Thanks!
DH and I, thanks to a very low income and several credits that are new to us this year (EIC, education credits, etc.) will be getting nearly $4500 back. We have several options. Some background - we have an emergency fund that has enough money in it, so there is no need to save more. We have the following debts:
1. car loan, app. $6500, 3.75% interest
2. my student loan, $6700, about 4.4% interest
3. DH's student loans, $15k, in deferment (no interest accruing)
4. one cc, currently at 0% for a few more months, $1900
So, my original thought was to use $2k from the emergency fund (we can spare it, as long as we pay it back soon, which we would be able to do) and just pay off my student loans. I really, really want to be rid of that. However, then I realized that even though it has a higher interest rate than the car, I am able to take a tax deduction on the interest every year. This year we took a $750 deduction for the interest on both loans (before DH's was deferred) - I think about $400 of that was for my loan. At our current 10% tax rate, that would save us about $40 per year, or $60 at our usual 15% rate, which we may be back up to next year (am I doing this right?). There would only be about $20 difference in interest yearly between the car loans and student loans, so that means I would save more by paying the car loan off first and taking the student loan interest deduction longer...I think.
Or...I can pay off the cc and only pay a portion of the car loan (or student loan)...if I were not going to be able to pay off the cc before the rate goes up, I would definitely do this. However, I know we will be able to pay that off.
Advice? What would you do? Does it really make that much of a difference in the long run? Thanks!
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