Should I cash in bonds to pay of debt?
Angela asked:
We have 4 1000 EE Bonds. I used the Savings Bonds Calculator and all 4 equals about 2,000. The bonds range in date from 2000-2003. Three of the bonds are only earning about 2% and one is earning 4% for now. I was wondering if I should cash in the bonds to pay off some of my debt?
I don’t care about paying the taxes. We always get money back at the end of the year so it’ll just come out of that.
We have 4 1000 EE Bonds. I used the Savings Bonds Calculator and all 4 equals about 2,000. The bonds range in date from 2000-2003. Three of the bonds are only earning about 2% and one is earning 4% for now. I was wondering if I should cash in the bonds to pay off some of my debt?
I don’t care about paying the taxes. We always get money back at the end of the year so it’ll just come out of that.
Yes, but it will be taxable income, so you’ll pay taxes on your 2008 1040.
Yes you definitely could. But of course you will have to pay taxes on it. Isn’t it sad to see that we are cashing in our hard earned stashed money to pay off debt due to this bad economy. It is ridiculous. I hate it. Good luck and I guess we have to do what we have to do.
Well, if you take into consideration that the cost of servicing the debt is higher, which usually is the case, you will be saving some money there. But if you have to sacrifice a part of the fresh capital to taxes, this amount has to be deduced from the gained savings.
If you also lose tax deduction of the interest paid, this has to be factored is as well.
It might well be that the end result becomes negative because of the accrued fiscal charge, in which case it will be better to hold on to the bond and continue to service the debt.
If your debt has an interest rate higher than 2 or 4%, it might be a good idea to cash them in to get the debt paid off. It would save you money. If your debt is no-interest and you plan to pay it off in full before interest starts, then keep the bonds.
Something to consider…
If you do use these bonds to pay off debt, will that allow you to save?
If you can pay off some smaller debts and that frees up cash flow for you which will both improve your lifestyle and allow you to save up some money again over time it might make sense. If, however, you use the bonds to pay down a large debt and you are still making the same payments as before; it will not have a large impact on your daily life and you will have less money available in case of an emergency.
The things everyone else said are all true, but usually when it comes to paying off debt, it makes the most sense to find ways to do it that will either improve your lifestyle, or your peace of mind.
Angela,
Cashing in the bonds is certainly a possibility, but there are other options as well.
There’s a good article at eHow on steps to take to begin tackling your debt. Take a look at it:
How to Stop Escalating Debt
You can also look here for tips on earning some extra cash online:
How to make money on the internet, scam-free
Lastly, here’s an interesting alternative to conventional lending…getting a “social networking” loan from Virgin Money (from the same folks who run Virgin Airlines):
Social Loans from Virgin Money
Hope these help.