Everyday Cheapskate: Extra Money Dilemma; Should We Buy Cancer Insurance?
As you know, because I tell you all the time, I get a ton of mail! Today, I reached into my virtual mailbag and pulled out two reader questions, neither of them having easy answers. But hopefully this will make you think of your own situation in light of these questions and my responses.
Dear Mary: I borrowed more money on my student loan than I need to pay for school. Should I use this extra money to pay off an 11.49% interest credit card balance? I am currently in graduate school, so I don't have to start paying my student loan back until December. I believe the interest on it is around 3%.
Another option is to pay the extra money back to the lender. Any help is greatly appreciated. Thanks. -- Lisa
Dear Lisa: I am at a real disadvantage because I have so little information. But before I give you my general advice, let me give you a word of caution: You have no idea how difficult it is going to be to repay the student debt you have amassed, so get ready.
I hope this is the end of your borrowing and that you will soon find a well-paying job in your field of study. When you do, paying off that debt must be your top priority.
My advice is to repay the money to the lender at the earliest opportunity, making sure that it reduces your principal balance -- not applied to accruing interest.
As for your credit card debt, this is a problem, too. However, my advice is based on the severity of the consequences in the event something happens in the future and you are unable to repay your debts. Not paying credit card debt is less severe than not paying student debt.
That being said, let me assure you that if you are diligent to stop adding to your debts and willing to live very frugally once you begin earning an income, I am confident you'll be debt-free in record time. Good luck!
Dear Mary: My husband and I recently signed up for a cancer insurance policy and I'm wondering if we made the right decision. I'm 42 and he's 45. We can cancel at any time, but I would love to hear your thoughts. Can you please tell me the pros and cons of a cancer insurance policy? Thanks! --Susan
Cancer insurance is called "specified disease insurance." These kinds of policies vary widely, so you need to read yours carefully -- don't depend on a salesman's explanation -- and understand exactly what it covers.