Sounds like a bad idea? We are taught that financial decisions are made on numbers. Do the math, calculate the options then select the best one.
Well, I just did the opposite. I paid off my student loan even though it’s not the debt with the biggest interest (that’s my mortgage) and I could probably earn more in compounding interest if I put it into my ETFs.
For a long time, it’s been my plan to only pay the minimum on my student loan so I can put more into these other areas. Financially this makes sense. The risk is also minimal even if I were to loose my income as the payments would freeze. I did the math on the interest I would pay if I continued at minimum payments and it would only be about $1,000 total over the remaining three years (my loan is with the UK Gov). But despite the spreadsheets I decided this year to pay the whole thing off as soon as I could.
Why? Even though I make bulk transfers once every quarter, and I can allow for this in my annual zero dollar budget, the payment can’t be automated and still creates a task for me. The task itself is pretty minor and doesn’t take long, but it still creates noise. I’m overseas from where I originally studied, so any administration is twice as difficult. I have also needed to keep a UK bank account open solely to make payments. This brings its own admin, but I also worry about my details getting stolen. As it’s not an account I check as regularly there’s more risk than with my regular accounts.
All these emotional ‘hassle’ factors have finally become more than the potential benefit I might gain from putting my money elsewhere. So this week I made my final bulk payment and eliminated the debt. And it feels great!
Have you made a good financial decision based on emotion? Has anyone had success with the ‘snowball’ method of paying off debt?