Friday, February 1, 2008

Bonus Time

On the 15th of this month my husband will receive his annual bonus. At this point, we have no idea of the amount, but it usually is no less than 10% of his annual income. We have been trying to figure out what to do with this "windfall" of money. Do we pay off the cars? Do we pay off the cc's? Right now our car payments total $950.00. Our credit card "payments" total $450.00. I'm sure we will not get enough to pay off both, although that would be incredible. OR do we stash an emergency fund away? We have about $1,000.00 in the account for emergencies. (Not much at all). If I followed Dave Ramsey's principals, then I would put all of the money toward debt. If I followed Mary Hunt of Debt Proof Living, she would have me beef up my emergency account first, then start paying off debt.

I'm leaning toward paying off as much debt as possible, preferably the high car payments. But is that the right thing to do?


Canadian Saver said...

This is quite a nice "problem" to have, isn't it?! I'd love to play with big numbers like that :-)

There are some that will say to tackle your highest interest debt first and others who will say to pay down what's going to free up the most cash in your budget.

If it's several thousand, could you stash 10-15% in your emergency fund? I'd probably be tempted to pay down the cars too, that is a big payment each month, and it would free up $950 to boost your CCs with.

Good luck!

Sharon said...

Yes, it is a nice problem to have. I just wish it were "free and clear" and I didn't have to pay debt with it. I think we will put a bit away for an emergency account, but I feel I would get a bigger bang for my buck if I got rid of the debt. I've put money in the savings before only to see it dwindle down to nothing. (And I don't know what I spent it on). This way, if I treat it like a windfall to pay off debt, I'll know exactly where it went.

RacerX said...

ACtually Ramsey says get your Emergency Fund together first. He just splits it into two. The first one (Step one) is for true emrgency issues.A good guideline is to look at two years expenses and see what the largest unexpected bill was. Then start there.

Then I would pay debt.

Sharon said...

I thought baby step one was get $1000.00 together (we did) and step two was pay off debt. Step is complete emergency fund. I just may split the two.

CT Mom said...

Hi - sounds familiar! You gave me some good advice when you commented on my post about the same dilemma. I say go after the cars and then stash the rest in savings. I hate debt too ... freeing up the monthly car payment money helps with cash flow, so that's what we're going to do. Bonuses come in March, along with (hopefully!) warmer weather - makes us feel better all around!