Over the past three years, my spouse and I have been steadily whittling away at the $45,000 debt we had accumulated when we first married, comprised of car loan, credit cards, and student loans. After strenuous efforts, we’ve managed to reduce this initial debt to a meager $1000, with an additional $5,500 added from the past year due to my husband’s decision to further his education.
Presently, we’re facing $6500 in debt, all of which carries a 0% interest rate. The larger sum will remain interest-free if my husband maintains his full-time academic status, he’s also currently working full time. We are not required to start repayment until December 2014.
The second loan, also at a 0% interest, obliges us to a manageable $52 monthly payment. Despite our desire to clear all debt by the end of this year, we’re also juggling saving for our future home, a car, and possibly enlarging our family in the upcoming years.
Here are a few paths we’ve considered:
KEEP MONEY IN BANK
One choice is to prolong the minimum payment plan, conserving any potential debt repayment funds in the bank. This enables us to accrue 1% interest over time, while inflation likely decreases the actual value of the debt till December 2014.
The Upside: Interest yield, cash availability
The Downside: Persisting debt
SETTLE DEBT
We can also choose to clear all debt by year-end, thus relishing the title of ‘debt-free’, although this would lessen our funds allocated for home and car savings.
The Upside: Debt-free life
The Downside: Lost interest potential
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The dilemma of paying off 0% interest debt seems essentially fueled by emotional value. What importance do you attach to settling a 0% interest debt? I find myself torn. Part of me yearns for a clean slate, while the other part considers it logically unnecessary. The funds could serve more pressing needs in my current circumstances.
For now, I’m inclined towards maintaining the current repayment strategy. Maybe when the debt is narrowed down to a more controllable sum, we could consider settling for peace of mind. However, I believe our present priority is to save rather than appease the desire to be debt-free for its own sake.
What is your perspective on this? Is clearing a 0% interest debt worthwhile?
