Better use for tax refund

[tellmesomethingood]

Spouse A wants to pay off our $10,000 car loan. It has a very high interest. Very high. Then Spouse A wants to take out a construction loan of $3,000 to build a deck via their credit union. Paying off the loan would free $500 a month car payment. 

Spouse B wants to use the tax refund for the deck, savings (which is very low), and other household things. Nothing major needs done, except for the deck. Spouse B wants to refinance through the credit union for the car, hoping to get a better interest rate and lower payment.

There's not any other major debt, except for the house mortgage. Savings need helped. We are expecting almost $12,000. WWYD?

[sunshineluv]

I would look into refinancing the loan. Also, I would change my withholdings, that's a grand a month you have paid in extra taxes.

I would set aside three months expenses as savings, then put the rest towards the truck to pay it down.

[dcn]

I would pay for the deck, put the rest aside for savings. Then adjust withholdings and use that to pay down the car faster, while also trying to refinance. Maybe split the withholdings savings between Car payment and savings.

[awkwardpenguin]

How high is "very high"? You definitely need to adjust your withholding. I am not sure you can get a construction loan for such a small amount.

I don't think it matters much, honestly. I'd probably pay off the car loan, adjust withholdings, and between the car payment and less withholding you can afford the deck two months from now.

[just]

Mar 21, 2017 21:37:00 GMT -5 sunshineluv said:

 Also, I would change my withholdings, that's a grand a month you have paid in extra taxes.

This is usually my advice too, but when it's a one-off credit or unemployment it can be hard to predict.
I just know that we ended up with $13k this year mostly because of solar panel installation but also because my dh quit in October and ended up being out of work unexpectedly for the rest of the year. I didn't change my withholdings to reflect a single earner.

We should have planned for it, but we didn't install solar until October and kept expecting him to get a job.


No actual advice for op - sorry.

I guess what I'm trying to say is that while 'fix your withholdings' is great advice, it can be really hard!!!

[Roc A Bee]

I need more numbers. What's the interest rate on the car loan? How much would the deck be? How many months worth of savings do you have?

I'd be tempted to save $1000, pay off the car, and put $1000 towards the deck. If the deck project would cost $5000 (I have no idea what's reasonable) you know have $500 a month to save for it.

[Deleted]

Without more details, I would use the refund first to get my savings up to the target we need.

If I had leftover money, I would:

Explore a refi, which may include paying off some of the car loan to shrink the loan amount on refi.

Start saving for the deck.

Then, if we pretty regularly got big refunds like this, I would adjust withholding and use the extra money for deck savings and then household / other priorities including building wealth.

I'm personally averse to loans unless mission critical. A deck is not mission critical and can be saved for.

Let us know what you end up doing! (I am curious as to who is A and who is B).

[kadams767]

It depends. How high is the car interest rate and why is it so high? How much is in savings and how much does the deck cost? It sounds like the deck is $5,000. If that is the case, and you wouldnt have the extra $3,000 in savings to pull from after you pay the car from the tax refund, then honestly, I think you need to worry about getting some savings put away and not touching that and then try and come up with a solution to split the remainder between deck and car.

[Deleted]

I agree with just on withholding, too. It can be really tricky to get "just right" especially if you don't have good tax advisors.

I have been doing my own taxes for a long time and this year is the first year my withholding has been "just right." (Net $500ish refund across fed and state.) Income changes and tax credits can be tricky for those of us that aren't gurus / have changing situations.

[ellipses84]

It shouldn't take long to see what rates you'd qualify for to re-finance the car or get a small home improvement loan. Let the numbers help inform your decisions. If the car refinance was between 0-3% I'd consider it. If higher, I'd probably pay off the car loan, put the $500/month in savings and build the deck after you meet your savings goal and pay cash.

[mcsangel2]

I'd pay off the car.

Did I misread, is the deck actually more than $3k? Doesn't change my answer either way. Use the cash the paid off car will free up to plump up your savings and save for the deck.

[Deleted]

I'd want to know how high the loan interest is and how low the savings is before making any real decisions.

My other thought is that maybe multiple things can be done. Put 5k into savings, build the deck, and then put the rest into the car loan to pay it down faster. If you can refinance for a reasonable rate I'd lean toward doing that. Actually, how critical is the deck? Is this a luxury purchase or is your current deck falling apart and you NEED to do something about it? If it's a luxury I'd wait on the deck and build up savings/pay off the car loan first. I'm not opposed to having some car loan, but if you're paying really high interest on it (I'm guessing 15-20% from your description?) I wouldn't want to keep throwing money away on that either.

[jinkies]

I would pay off the car, and put the rest into savings.

If the deck is $3000, you should be able to use the money freed up from car payments to save up the money to pay cash for the deck by September.

[mich1]

You really need the numbers to determine what makes financial sense. What is the interest rate on the car? The home loan for the deck? What is your savings like, do you have a decent EF?

Also, try to adjust your withholdings. Getting >$10K back gives you a LOT of room to manipulate things and put more money in your pocket during the year.

[UnderProtest]

Pay off the car loan and then wait to do the deck until you can pay cash. With the remainder of the tax refund and the cash freed up from the car payment, it shouldn't take long. Stop going into debt if you can.

[lys]

Mar 22, 2017 13:04:24 GMT -5 UnderProtest said:

Pay off the car loan and then wait to do the deck until you can pay cash. With the remainder of the tax refund and the cash freed up from the car payment, it shouldn't take long. Stop going into debt if you can.

This!  Pay off the car loan, add to your emergency fund and save for the deck!  Stop borrowing money to fund your lifestyle.
Why the high interest rate on the car?  Has the reason for that been resolved?

[teatimefor2]

Hmmm.....

I can understand wanting the deck for the summer.

Since you said very high interest rate, I would take $10,000 and pay off the car. Then with the remaining $2,000 start saving for the deck. Decks can be expensive, ours is $8,000. If you need to borrow the money, I would look into a home equity loan as opposed to a construction loan.

[brooke77]

Without concrete numbers, it's difficult to know what I'd do. Based on your info, I would:

-Add to savings
-Refi car
-If car can be refi'd, I would pay cash for deck
-If car cannot be ref'd, I would pay off car and hold off on deck

Adding to savings would be my priority.

[jewel]

- Pay off the car
- Put the rest into savings
- Change your withholdings so that you are getting your tax money throughout the year
- Use the $500 from the car payment and the increase in your paychecks to save for the deck (which should only take 2-3 months with the increase)