Pay off ZERO interest debt? Or let it slide 'til the due date?

I'm sorry if this type of question has already been answered. I've used YNAB4 for many years, but just started New YNAB, and haven't really figured out how to best search the forum.

We bought 2 windows and used the zero interest for 18 months that the contractor offered. We have the money to pay it off, but I'm thinking it may be better to let it slide until the due date. 

We owe $1689 more, and it's due 1/2021. They'll charge interest all the way back to the beginning if we don't pay it off by Jan, 2021. We used YNAB goal feature and are paying it off at $178/month so it's paid before the due date.

We get 2.22% interest on our checking account.  Because of this, I'm leaning toward just paying monthly and getting the interest vs. having the $178/month more to budget.  Isn't that the most benefit financially?  We're not strapped for that extra $178/mo to budget.

Keep paying monthly, or just pay it off now?

The total debt we have is:

  • this Window 0% credit until 2021 - $1689 total left
  • a 401k loan (about $21k left) that can't be pre-paid incrementally. It can only be paid early off in total. I have $278 deducted each paycheck to pay this off. Scheduled payoff is 4/2023.
  • Home mortgage (about $159k), which we pay $825 every 2 weeks, when I get paid.

We could use 2 newer/used vehicles sometime soon, but have nothing saved for them.

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  • It's a personal choice. If you have the discipline, which it sounds like you do, just keep doing what you're doing. The math says that's the best choice.

    Like 1
  • Hi BMW Fan !

    I'm in a similar boat and I'm opting to wait. We had a new fence and deck added to our home and were approved for 0% and no payment financing for 12 months. We had originally planned to pay upfront but given the option we agreed to finance. The funds are sitting in our budget, so it will be paid off before the due date, but it's sitting in our account earning 4% interest until then. :)

    Like 1
      • Owlette
      • owlette
      • 6 mths ago
      • Reported - view

      Faness What account is earning 4% interest?! Currently getting 1.83% in a Betterment Cash Reserve account.

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    • Owlette The credit union we use has a tiered interest rate option. If you jump through certain hoops you get either 3%, 4% or 5% on the first $10k in the account (it used to be the first $20k 😥). We usually meet the requirements for 4% without too much effort and anything over the $10k limit we now keep in the savings account (2% interest).

      It's Consumers Credit Union, but quick caveat that YNAB doesn't endorse or partner with any particular financial institutions. :)

      Like
  • BMW Fan said:
    I'm leaning toward just paying monthly and getting the interest vs. having the $178/month more to budget

    I would suggest that you budget the $178/mo, assuming that accumulates enough to pay off the entire balance on or before the 0% promotion end date. However, whether you actually send them $178 per month is a different question. Since it's interest-free, I would only send them the minimum acceptable payment while you hold on to the rest until the final payment.

    Set a Spend By date of $1689 / Jan 2021 (assuming you will budget to the category in January before you pay, otherwise use Dec 2020).

    The quoted part I bolded doesn't make sense to me. You won't have $178/month more to budget, because that much has to go to the Window/Debt category.

    Like 2
      • BMW Fan
      • The world is a race track
      • Slate_Blue_Grizzly.6
      • 6 mths ago
      • Reported - view

      dakinemaui I see what you're saying.

      I guess I should have said - after paying off the $1689 (which I could simply take from my "Misc" budget category), I then won't need to set aside $178/mo out of my paycheck any longer for windows, but will be able to budget that $178 for something else.  Yes, in the end - all money spent comes out of the budget somehow.

      And I see your point about not even paying monthly if I want to maximize interest received. Just leave it sit there in the window category until the month before it's all due in 2021 and pay it then. This way I would collect even more interest until the bill comes due.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 6 mths ago
      • Reported - view

      BMW Fan 

      BMW Fan said:
      I guess I should have said - after paying off the $1689 (which I could simply take from my "Misc" budget category)

      Why do you have such a large "Misc" category in the first place?

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      • dakinemaui
      • dakinemaui
      • 6 mths ago
      • Reported - view
      BMW Fan said:
      I see your point about not even paying monthly if I want to maximize interest received

      Just wanted to emphasize that you do need to send them something every month. Check the statement for that minimum amount. Cheers!

      Like
  • Somewhat off-topic, but just be aware that if you leave your current job, the 401k loan becomes due in full on April 15 of the following year (Or October 15th if you file an extension for your taxes).

    Like 1
      • Herman
      • herman
      • 6 mths ago
      • Reported - view

      nolesrule That is not always the case and is subject to plan rules.  There are plans out there that allow terminated employees to continue paying on the loan.  It's really important to find out the terms of your specific plan. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 6 mths ago
      • Reported - view

      Herman Good point. However from what I've looked into, that appears to be the exception, so it's good to be aware of the possibilities. Anecdotally, every plan I've been involved in requires "immediate" repayment upon termination.... and that definition changed from a much shorter timeframe to the tax filing deadline (with extensions) under the TCJA.

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      • Herman
      • herman
      • 6 mths ago
      • 1
      • Reported - view

      nolesrule I've spent 30 years working in the 401k admin space and while you are correct that many, even most require payback at termination of employment, i can assure you that plenty do not.  My own employer for example does not.  I agree with pointing out the possibility I just wanted to clarify that everyone really has to look into the rules are their own employer.  The variations on rules within 401k plans are almost endless and the general reporting about how they work is pathetic at best. 

      Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 6 mths ago
      • 1
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  • I'm aware of the issues with 401k loans.  I've been with the company 21 years and this is the 3rd 401k loan I've had. I'm hoping it's the last -because I should be saving for purchases, not paying for them off after-the-fact.

    I'm only a 2-month user of the new YNAB. The MISC/Emergency category is a catch-all for getting ahead the goal of a 6-month buffer. With YNAB4, I was budgeting into the future. I'm not sure I'm able to use this version the same way. I can only go 1 month into the future to budget with the new YNAB. This seems wrong. So the only thing I though of to get around this and work towards a 6-month buffer, was to make this MISC/Emergency category to use for future budgeting. 

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      • Herman
      • herman
      • 6 mths ago
      • 2
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      BMW Fan With new ynab, you can budget as far into the future as you would like.  Once you have money budgeted in a particular month, the next month becomes available so you can't skip months.  There are definitely reasons you may not want to budget too far in the future but the system will allow it. 

      Like 2
      • dakinemaui
      • dakinemaui
      • 6 mths ago
      • Reported - view

      BMW Fan Some of your category names suggest that you are budgeting on a paycheck basis. I think it is very beneficial to arrange to budget on a monthly basis, queuing up paychecks during the month (in a temporary holding category) in order to budget the entirety of next month in one go.

      Realistically, you should be able to hit one button and fill in all your nominal budget entries for the month. (Maybe with a little left over from variable income sources like interest/purchase rewards/etc.)

      The only impediment to doing this is covering expenses in the current month occurring after your first paycheck. I'd suggest that you use some of those MISC funds to cover those budget entries (a one-time thing). They are always available to reallocate back if SHTF, but until such time, they are far more useful in simplifying the budgeting process.

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      • BMW Fan
      • The world is a race track
      • Slate_Blue_Grizzly.6
      • 6 mths ago
      • Reported - view

      Herman I didn't realize that. That's helpful. I'll definitely be doing that.

      dakinemaui  I'm not quite sure what you mean. 
      When were living more paycheck-to-paycheck, I funded budget categories when I got paid and based on when the bills were due....sufficient funds in each category until the next time I was paid. Since we have more of a cushion now, I probably don't have to do that, but it's become habit. We don't yet have a full month buffer in all categories. Some of the larger categories (groceries, house payment) are still funded on a 2-week cycle with a bit extra added. However, I will always fund some categories per paycheck ($25/paycheck for birthdays, $75/paycheck for Christmas, giving, etc).

      I think it's almost easier to budget when you live paycheck to paycheck. You don't have to look that far into the future. It's easier to keep track of in my head.
      What I don't want to happen is to be putting money in categories that may not be necessary, or to leave other necessary categories neglected. This is why I like budgeting in each category months ahead, knowing (seeing) that the money for each bill coming due is allocated for it. For me that's easier to track that, than hoping that one big lump-sum holding category will be enough for the month.

      Maybe I'm still not making the change from how I used YNAB4 into understanding how New YNAB works....
      The only reason we are using New YNAB is because my wife wanted to see the numbers on her phone. Otherwise I'd stick with YNAB4.

      The window financing deal I got has NO minimum monthly payment required. Just the full amount due by the end of the promotional period.  So, I'll stop paying monthly and collect the 2.22% interest on that until it's due.

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      • dakinemaui
      • dakinemaui
      • 6 mths ago
      • 1
      • Reported - view

      Having done it both ways (paycheck to paycheck and monthly), I vastly prefer monthly. However, it sounds like you have a system with which you're happy. That's all that matters. Cheers!

      Like 1
  • A very financially savvy friend once told me don't give anybody any more money than absolutely necessary if it's not costing you anything.

    It's not costing you anything on that borrowed money. It'll earn you a fraction of interest sitting in your account. Just keep paying monthly, and have a fund there in case there is an emergency, or you feel you need to pay it off for strategic credit reasons. Otherwise let it ride.

    Like 1
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