I have $7k+ in US Savings Bonds that are still accruing interest, some are 4% and some are 6%. I also have about $7k in credit card debt that's about 15%. I *think* I already know the answer, but I'll ask the question here because you berkeleyers are wicked smart.
Do I cash the bonds to pay the CC bills?
I will have tax liability on the $4200 bond growth, so that $7k is only about $5500 spendable.
Well, you're not easily going to replace those 4 and 6% bonds, but yes, I would cash them to pay the CC if you can't otherwise pay the CC debt in a couple months.
How else can you pay off the debt? $7k isn't exactly large, but it certainly isn't small either.
I'm rather nervous about the markets right now with the possibility of a trade war; 4% and 6% at a fixed rate is pretty enticing. I'd be inclined to figure out another way to pay off the CC (off the top of my head, sell a car or else open a new credit card with 0% balance transfer and 0% APR for a spell).
Quick google search showed this one: https://www.discovercard.com/application/terms?srcCde=KXJY as a good option. 3% fee, but that sure as hell beats 15% interest. Then you have 18 months to pay it off. Assuming you can get enough credit limit.
https://www.nerdwallet.com/card-details/card-name/American-Express-Amex-EveryDay#cardholder-reviews This one looks better, except apparently they give ridiculously low limits.
Either one of these should be looked at as a short-term loan. Cut the card up as soon as you receive it, use it as a loan, then close it when you've paid it off.
How do you find "LOST" savings bonds ?
I got one at graduation from High School from the Knights of Colombus......
Not much maybe a $100 or so ,
Do they earn more interest after they mature if you do not redeem them ?
If at all possible hang on to the bonds until they stop accruing interest. You will have a hard time finding those rates anywhere today. My wife bought a $100 bond every pay day(twice a month) for the 36 years she worked, now at the end of the year we cash in the ones that stopped accruing interest that year. Make a nice Christmas Present.
californiamilleghia said:How do you find "LOST" savings bonds ?
Mrs. 914 started buying them right out of college via payroll deduction. They went to a steel box in a bank. Bank moved all the boxes to a different branch - twice. Someday we will "find" ~40 years of stashed Bonds.
I ran the numbers through the Treasury website. $6500 denomination, cost $3250, current value about $11k. All are 4%, all will pay interest for another 4 - 5 years (issue dates 1992 and 1993).
Currently paying down CC debt about $750/mo, will be able to put $2k/mo towards that starting 9/2018 (mama has summers off).
the rest of our financial house is in order. 7 years left on a 15-year mortgage, no car loans, small but growing emergency fund.
Can you guys not do basic math? By keeping the bonds at 6%and the credit card debt at 15%, he is losing 9% on his money. There are no other variables, barring his ability to make the credit card debt go away in another way.
Cash them in and burn the credit card. Today.
Streetwiseguy said:Can you guys not do basic math? By keeping the bonds at 6%and the credit card debt at 15%, he is losing 9% on his money. There are no other variables, barring his ability to make the credit card debt go away in another way.
Cash them in and burn the credit card. Today.
Did you do the math? The bonds will be around for 4-5 more years. The CC for only about 7 months.
He pays $500 in interest by the time the card is paid off when he pays $750 a month. The real figure will be less than that when he can go to the $2000 a month.
If he takes the $7k out of the bonds, he’s giving up over $1000 in interest. Obviously you can make the argument that he can do better in the market, but I’d sure as hell be keeping those bonds.
This isn’t a hair-on-fire debt situation. Not good, but pretty easy to get out of.
AngryCorvair said:
small but growing emergency fund.
Your emergency fund is $11K and growing at 4% a year if you keep the bonds.
Hal said:AngryCorvair said:small but growing emergency fund.Your emergency fund is $11K and growing at 4% a year if you keep the bonds.
Wisdom
mtn said:Did you do the math? The bonds will be around for 4-5 more years. The CC for only about 7 months.
He pays $500 in interest by the time the card is paid off when he pays $750 a month. The real figure will be less than that when he can go to the $2000 a month.
If he takes the $7k out of the bonds, he’s giving up over $1000 in interest. Obviously you can make the argument that he can do better in the market, but I’d sure as hell be keeping those bonds.
This isn’t a hair-on-fire debt situation. Not good, but pretty easy to get out of.
This is good thinking. For the same reason as I keep my mortgage while investing, paying off this debt from cashflow instead of the bonds sounds like it makes sense for you, Angry. Unless you're going to cash in the bonds and immediately put that money into an even higher yielding investment - whatever that might be for you - I'd say hang on to the bonds.
Also remember- Savings Bonds are only taxed federal tax- they're exempt from state taxes.
A strategy might be to cash them staggered over a few years. Or some on Dec 31 and others on Jan 2, to spread the tax burden over 2 years.
Also, if you have a particularly low tax year one year, consider cashing some bonds to take advantage of your low bracket. Conversely, watch that cashing the bonds doesn't put you into the next higher bracket, or you'll be essentially paying that higher bracket on your bond returns.
4 and 6 pct on SB's is dang good. I'd try to pay down that card any other way possible and hold onto those bonds.
mtn said:Streetwiseguy said:Can you guys not do basic math? By keeping the bonds at 6%and the credit card debt at 15%, he is losing 9% on his money. There are no other variables, barring his ability to make the credit card debt go away in another way.
Cash them in and burn the credit card. Today.
Did you do the math? The bonds will be around for 4-5 more years. The CC for only about 7 months.
He pays $500 in interest by the time the card is paid off when he pays $750 a month. The real figure will be less than that when he can go to the $2000 a month.
If he takes the $7k out of the bonds, he’s giving up over $1000 in interest. Obviously you can make the argument that he can do better in the market, but I’d sure as hell be keeping those bonds.
This isn’t a hair-on-fire debt situation. Not good, but pretty easy to get out of.
My response is based on a couple of things, so I should rewrite my first sentence. I also hope to not offend anyone with generalizations.
"Can you not do basic math, combined with my personal hatred of credit card debt and my severe lack of faith in peoples ability to just find another $750 or $2k a month when they are already deeper into their credit card than they should be?"
To expand, then- If, in fact, the credit card debt will be dispatched in seven months, then do that and keep the investment. If its more like seventeen months, or twenty seven months, the math changes dramatically. An alternative would be, since there is equity in the house, to negotiate a line of credit on that equity. Pay off the credit card, and (I don't know exactly what the interest rates are in the US) the interest rates would at worst be a wash with the current bonds.
Did I mention how much I hate credit card debt? Usury is the polite term...
In reply to Streetwiseguy :
Yes, cheaper forms of credit can often be found- as you correctly point out, the interest rates on credit cards often go well into the realm of "usurious".
Swapping the debt to another card with a promotional low rate can be a good idea, if the pay-off discipline is maintained and it's paid off before the promo period ends.
HELOC (Home Equity Line of Credit) in the U.S. typically runs around 4-5% right now, if your credit's good. I've seen a few for a bit less- like 3.5%- but they usually have minimum credit lines of like 100k- which means one needs more than 100k of equity in one's home. The downside is that with the latest tax reform HELOC interest is now only tax deductible if the money is used to "substantially improve or renovate" the home that is collateral for the HELOC. Paying down other debt is not tax deductible.
Also, generally HELOC interest rates are not fixed. So if the Fed decides inflation's heating up a bit too much and (as it has been for about the last year) starts jacking up rates, your HELOC rate is going to go up, too. Usually the rate's capped (though in my experience that cap can vary a lot- on one loan I had it was 9.9% and on another it was 19%), and there are limits as to how often it can change (every quarter, once a year, twice per year, etc.)
Still, a HELOC is in general a good thing to have. Usually, they cost nothing to open, as long as it's maintained for at least ~3 years, and if there's no balance, then no interest accrues. I've had one open since about 2005, and it's been great for dealing with things like a new roof, major renovations, etc. Current rate is around 4.5%
we are going to do a HELOC for a few things since we've got about $200k equity, but we agreed to wait until the CCs are paid off, which is why i thought of using the SBs to pay off the CCs. now, however, I think we will just pay the CCs with the HELOC and keep the SBs.
Always better to get rid of costly debt! Pay off the CC with the Bonds, and then continue to make the Credit Card payment to your savings account. You will be surprised at how much it was costing you and pleasantly surprised on how fast the savings grows.
You are on your first steps to being debt free!
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