So i forsee in January running into a pretty tight budget for a while. I need to soften the blow and i foudn the easiest way to do that would be paying off the $6000 personal loan i have. Or is it?
Option 1: Use my $9000 CD which has a hold on it for the loan to pay it off.
Option 2: Use my entire savings and half of my checking to pay off the loan.
Option 3: Use my savings to make a 6 month advance payment on my new apartment.
I would like to keep my CD untouched, i planned on using that for a future business venture.
Paying out of pocket would be good, but it would create a smaller cushion for me going into the situation.
Paying in advance is good, but i might forget to pay myself the rent for those six months, then be shocked when i have to pay again.
What would you do?
I don’t understand how paying off a loan early is going to help with a tight budget. All you’re doing is sapping your cash faster that way. You might be avoiding the monthly payments by paying it off, but you could always tap checking/savings just enough to pay the monthly amounts, rather than totally depleting them by paying off the whole loan. In this economy, you want to have cash, and the best way to keep that around is to pay debts slowly.
Same goes for rent payments.
Just make the minimum payments on everything. Tap your CD or savings as necessary to get by.
Option 1 is obviously the best for reducing your total expenses because you won’t be accruing interest, but I don’t think any of the options are great for getting through a period where cash flow is tight.
Option 4: Ask someone with more financial savvy than a bunch of people who spend their time replying to an anonymous message board when there are productive, money-making things they could be doing.
I wouldn’t do #3, prepayments when money is tight is seldom a good idea.
What’s the penalty on the CD and when does it come due?
I’d be tempted to horde cash and keep making payments on the personal loan. Through tight times, cash is king. Through other times, cash FLOW is king. You are trying to change your cash flow, but that’s a step better taken when you have some room.