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If you have read my previous post, Life After an Auto Loan, you’ll notice that I was undecided on what I wanted to do after my auto loan was paid off.  Over the past month I made a decision to split it up.  I am allocating 75% of the $400 to my student loans and the remainder to my Roth IRA.

By making this move, my student loans repayment schedule fell to 4 years from their original 10 years!  This is a huge drop in time and interest.  Based on my calculations, I should be keeping about $3,000 in my pocket that would otherwise go to the loan company.  If I allocated 100% to the loan, that would cut the time down to about 3.5 years.

Depending on your income level, you may be able to claim student loan interest paid on your taxes.  Unfortunately for me, I am unable to claim this.  So, for me, it makes no financial sense to carry this “good” debt.  Depending on how you look at things, some say that no debt is “good” debt.

What exactly is “good” debt?  “Good” debt is any debt that’s taken out for the prospect of growth, such as a student or home loan; it may also be tax-deductible.  When you take out a student loan, you are investing in education that will, hopefully, increase the earning potential over your lifetime.

As much as I want to pay down my student loan quickly, I still need to save for retirement.  I currently match my employer’s 403b at 1% and contribute to my Roth IRA.  Before I bought the house, my Roth IRA was maxed out every year at $5,000.  This past year, I only contributed a $1,000 to it – after my tax return!  This year I am trying to set aside for my Roth IRA every month, while still saving a portion from my tax return.  If my calculations are correct, this will place me at roughly $2,000 saved for the 2010 year.

Once you finished with a debt, what did you do with the extra money?

Wow, it’s been one month since my last posting!  Things have been really busy at work.  I had two weeks of overnight work and had two decent snowstorms that made travel treacherous and time consuming.  This left me with minimal time for myself and blogging.  I’m going to realign my schedule to allow more time for writing quality blog content.

It’s been one year since I closed on my first home and I cannot believe how time flies!  I only have about 28 years left on the mortgage!  Paying down the principle helped.  The house has come a long way since we first moved in:

• Removed all the carpet upstairs and restored the hardwood floors
• Planted a plentiful vegetable garden
• Landscaped the front yard
• Removed carpet on the enclosed porch; cleaned and primed all the walls

These are only a few of the larger projects we have done around in the first year.  Not bad for working full-time on a rotating schedule!

Some of the projects lined up this year include:

• Install a new fence while expanding the flower and vegetable gardens
• Complete the porch by sealing up all leaks, installing electric radiant floor heating, tiling, and possibly a small wood/pellet stove
• Complete the office with furniture and other items.

On another note, I received a letter from my mortgage broker advising me that the escrow is underfunded.  To correct this, I can pay the $604 up front and keep a smaller, almost similar monthly payment.  The other option is to divide the $604 into 12 months to fund the escrow; essentially increasing my payment by roughly $50 per month.  Whether I pay in full or in increments, it all comes out to the same amount in the end.  There are no fees or additional charges if I choose one or the other.  So now the big question: Do I pay it all up front or keep my money and pay more per month?

After talking with a few people, they seem to go with the option of making the larger monthly payments as this gets reevaluated every year.  One person also had an experience where he paid it in full, to only have it all returned one year later.  This was because they over-projected the taxes and insurance.

Since I over allocate for my mortgage every month, this increase will not affect my current goals.  So I’ve decided I will be paying the increased mortgage payment, while continuing to pay down the principle.

I set aside biweekly for my mortgage so I can accumulate one additional  payment per year. Over the next year I want to try something new: Take the extra allocated money and make a monthly principal payment while still making one large principal payment every year.  This will allow me to cut my mortgage down even faster.  However, I am having remorse about paying the house down more when I have student loans that I want to pay down quickly.