All right, people. You know what season it is. Not winter, though I’d much rather talk about all the wonderfulness winter has to offer.
No, it’s “busy season,” that time of year when all of my accounting friends go AWOL for 4 months. They’re all spanking-new accountants, too, which means they’re really, seriously, missing. Taxes. ::shudder:: I’m glad I have plenty of non-accounting friends who’ll still be around.
I’m going to have to figure out how to send something fun to my roommate from college sometime in mid-to-late February. That should cheer her up, no?
Anyway, I started my taxes (barely) yesterday, and I took a big chunk out of them today. I don’t quite have all the forms I need yet, since they don’t have to be sent out until January 31, but I did what I could with what I had. So far, my refund looks like it’ll be almost $2,500! Considering I got a $5 MA refund last year, that’s some serious dough.
The big question is, what do I do with it? Right now, I’m thinking I’m going to put it away to the wedding-that’s-not-officially-happening-yet/house fund. Though I must say, having a zero balance on one of my credit cards looks pretty tempting, and I might just do it. Or I could split it and cut my total credit card debt in half (I have 2 cards that need paying off).
Related to this decision is my latest idea in helping reduce my debt: the debt snowball/ladder. I’ve heard it referred to a few different ways on the personal finance blogs I read (I’ll include the links in a blogroll eventually), but I’m going to call it a snowball. There are a couple of ways to do this, though they all start with the first step of recording all of your loans/debts, the amounts owed, the interest rates, and the monthly payments:
- Option 1: Arrange the loans/debts by amount, starting with the smallest first.
- Option 2: Arrange the loans/debts by interest rate, starting with the highest first.
- Option 3: Arrange the loans/debts by amount first, then find the midway point, draw a line, and arrange the loans/debts under that line by highest interest rate first.
From there, you start paying. Once you’ve paid off the first balance, you add that monthly payment to the next loan. You keep the amounts you pay each month consistent, but this way, you’re putting more toward the next loan/debt.
The big benefit of option 1 is that it really helps in the psychological battle of debt reduction. You see the debt go away quickly, and you’re inspired to keep going. The drawback is that it’s generally more expensive. The inverse is true for option 2: it’s less expensive, but you don’t have that psychological boost you need to keep going. I’ll likely use option 3, since it’s a good combination of the two. Since I’m just starting out in debt reduction, I think I’ll need some motivation to keep going.
I make a pretty heavy emphasis on the loan/debt thing, since most of the personal finance bloggers I’ve read deal mainly with credit card debt. That’s not the root of my problem: I have student loans coming out my ears and need to improve my credit. Hence the emphasis on the “loan” part.
What do you think? Which option would you use? Will you spend or save your tax refund?