What Would You Do?
UPDATE: Voting closed. In 12 hours, consensus seems to be option #3.
Alrighty, here’s the scenario. I owe my friend $500 for a nice used laptop. I have paid her a good chunk of the agreed price, but now that I have the computer in hand, I need to pay her the rest.
Now, when I agreed to do this, I didn’t have a $3000 dental bill. I had $500 in an account ready to give to her. But now, that $500 is long gone to my oral surgeon so I wouldn’t be tossed into collections. I would like to pay my friend before Thanksgiving, but the question now is how to do that. (I am buying the laptop for my blogging business as this is no longer considered a mere hobby with casual income after the advertising deal I signed earlier this year. So ultimately, a chunk of its cost is a write-off expense.)
I am in a short term cash crunch and I foresee myself doing 3 things.
1. Take a balance transfer/credit card check and write myself a check myself to cover both the dental surgery and the laptop. ($2066.50) There would be likely a 3% fee and 7.9% interest for doing this. I figure if I am going to bother doing an advance, it should be for a large amount, rather than a small one. (Or is my thinking wrong on that?) And that I am suffering this cash crunch because of the dental bill so I might as well pay that off now, and then use the extra cash flow for the rest of the year to pay off the debt faster.
2. I could write myself a check from my HELOC, again for the combined amount of two debts, but the interest would be 10.3% and I would be lowering my home equity to a point that makes me really uncomfortable. Ditto the reasoning above on why I am considering combining amounts again.
3. Break one of my emergency fund CD’s for $404.99, losing interest for 3 months at 5.2%, but at no other cost to me. The remaining $95.01 I can pay out of my short term savings and next paycheck. But I would still owe the doctor money rather than a bank. (Mind you, they don’t charge me any interest or late fees for the payment plan I am on.)
Sorry that I don’t have a voting widget set up. So leave your vote in the comments. You have until Monday 8pm EDT to vote because I need to resolve this quickly and let her know when to expect a check. (FWIW, like a mad negotiator, I told her that I think I can pay her in two installments but I needed to check Quicken first because I had just arrived at home. She was fine with that, she just needed to know amounts and dates. I told her I had no idea as I had lost my PC for a few days last week.)
Is this all robbing Peter to pay Paul? Meh. I feel like the first two options are mega suck and the last option is probably the best bet.
Brian A wrote:
I believe your instincts are correct. Considering that the first two options only put you more in debt (charging the additional interest rates), I think it is best to avoid them; especially if they make you uncomfortable in any way.
Perhaps in lieu of the $500 (or $95 if you go option #3), you could knit your friend something. Of course for that kind of money, that is one really loooooooooong scarf. The idea, however, is to see if you have something of value you can trade with your friend since they are more likely to accept such trades than a bank ever would.
If you do choose option #1 or #2, I would not borrow the additional money to pay off your dentist bill too. If I read you correctly, you are already on a payment plan with your dentist that charges no interest - why change that to a plan that does?
Good luck!
Posted on 21-Oct-07 at 7:07 pm | Permalink
Sense wrote:
I agree. I haven’t been keeping up lately, but the $3000 dentist bill sounds like something that could be considered as an ‘emergency.’ You obviously didn’t have time to prepare for an expense like that.
Why pay interest on your doc bill and money that you owe your friend when you don’t have to? This is exactly why you’ve been saving.
Posted on 21-Oct-07 at 7:30 pm | Permalink
Mrs. Micah wrote:
I’d go with option #3 as well. The interest it’s earning isn’t more than the interest you’d have to pay back!
Posted on 21-Oct-07 at 8:07 pm | Permalink
Single Ma wrote:
I’d choose option #3. If by chance there’s an option #4 (more flexible or extended payment terms with either party), I’d pay my friend first or give the laptop back until I could afford it.
Posted on 21-Oct-07 at 8:33 pm | Permalink
Sjean wrote:
I would also choose number 3. While the dentist bill I can understand, it is surprising to me that you can’t wiggle 500 out of your next paycheck. But I’m young and mortgage-lees, so perhaps I’m naive.
Posted on 21-Oct-07 at 9:32 pm | Permalink
Sean wrote:
I hope your teeth are doing well!
Also, I vote option 3 all the way. Mrs Micah hit the nail on the head: missing out on 5.2% is better than paying 8 or 10%.
I realize you need a quick turnaround, but you might want to see if you qualify for a 0%-balance-transfer-for-1-year credit card from citibank - they let you write a check to yourself as a “transfer” so you could just pay off your friend and have 0% interest for a year. Good luck!
Posted on 21-Oct-07 at 9:52 pm | Permalink
Chief Family Officer wrote:
I don’t like the idea of more debt, so I would bite the bullet on the penalty and redeem the CD. But I’m wondering - after you do this, how long is the cash crunch going to last? If it’s going to make things incredibly uncomfortable, but you could pay off the new debt by, say, February or March at the latest, I might think about it.
Posted on 21-Oct-07 at 10:33 pm | Permalink
Armchair Fiduciary wrote:
I’d go with option #3 as well. Better not to tax your friendship and heap up some additional debt. Just blow out the CD and pay your friend back. Once you get out of this bind be sure to save up a little larger buffer if you can.
Posted on 21-Oct-07 at 10:49 pm | Permalink
moom wrote:
As the doctor isn’t charging interest it doesn’t make sense to pay interest to pay the bill off. I’d break the CD and then withdraw the extra $100 or so from an ATM using the credit card so your friend has the money as soon as possible.
Posted on 22-Oct-07 at 12:21 am | Permalink
mapgirl wrote:
Thanks everyone for the input. Specific items:
1. Hand knitting is actually quite expensive. For $95, she’d get a fairly bland scarf. Going rate is to charge 50 cents a yard, therefore most scarves would actually cost about $200.00+.
2. No, I cannot squeeze out $500 out of the next paycheck, because that is the mortgage check.
3. The cash crunch is going to last till January. By that time, the dental bill will be done. But I will be putting money back into my 401k. Ironically, the CD expires in January. *sigh*
Posted on 22-Oct-07 at 6:53 am | Permalink
Andrew Stevens wrote:
I’m about six hours after your deadline, but option 3 is a no-brainer, really.
Posted on 23-Oct-07 at 12:42 am | Permalink