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Paying now saves you 5%
Paying over time and holding that money in a HYSA yielding 5% results in an actual yield of 2.5% (due to average balance) and incurs taxes.
5% and no taxes is better than 2.5% and taxes
(Unless you have some immediate need for liquidty and would avoid incuring a higher interest debt i suppose)
I made a spreadsheet to answer a similar question the other day. I just updated it.
Assuming that all of the following is true: you have $4000 in cash today, it is sitting in an account earning 5% APY, it will stay at 5% APY, you will let the interest gained each month accumulate and compound less the approximately $333 per month you use to pay the debt.
Then, after 12 months you will have earned $112 in taxable interest income. Assuming you are in the 12% marginal tax bracket, you will net about $98 after federal income taxes. You will net less after accounting for state taxes, if applicable.
If you do not have $4000 in cash sitting in an account earning 5% APY, then you will earn much less in interest over 12 months.
For the record, a 5% discount on $4000 is $200. That's $200 saved immediately that isn't subject to tax.
The vendor's own offer is an offer to settle for 95% of the amount owed. But if you've consumer-driven as long and as far and as hard as you can in reverse gear, maybe just take the vendor's offer to settle for 95% and call it a day.
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Just pay it off and get it out of your hair.
Take the discount with a rewards credit card.
Ask them for a larger discount for paying up front.
I did several times. No luck. They said "we do not settle."
Paying now saves you 5% Paying over time and holding that money in a HYSA yielding 5% results in an actual yield of 2.5% (due to average balance) and incurs taxes. 5% and no taxes is better than 2.5% and taxes (Unless you have some immediate need for liquidty and would avoid incuring a higher interest debt i suppose)
Not to mention credit card rewards if you use a rewards card to pay the bill. Could be another 1% or more on top.
That’s a good point honestly.
Depends on your cash flow. 5% is only $200 less. That $200 savings amounts to under $17 a month if you were to pay over 12 months.
My general cash flow is alright. I house hack with basically no net housing expenses. Make about $3-4k a month in working income. No debt.
I’d pay it off then because I know that if I took the 12 month plan, I’d be done with it in 3 months anyway.
I made a spreadsheet to answer a similar question the other day. I just updated it. Assuming that all of the following is true: you have $4000 in cash today, it is sitting in an account earning 5% APY, it will stay at 5% APY, you will let the interest gained each month accumulate and compound less the approximately $333 per month you use to pay the debt. Then, after 12 months you will have earned $112 in taxable interest income. Assuming you are in the 12% marginal tax bracket, you will net about $98 after federal income taxes. You will net less after accounting for state taxes, if applicable. If you do not have $4000 in cash sitting in an account earning 5% APY, then you will earn much less in interest over 12 months. For the record, a 5% discount on $4000 is $200. That's $200 saved immediately that isn't subject to tax.
It's more advantageous to pay 90% rather than 95%. Make the vendor a 90% offer. A couple of times.
They just say "we do not settle" when I ask about that. Any tips?
The vendor's own offer is an offer to settle for 95% of the amount owed. But if you've consumer-driven as long and as far and as hard as you can in reverse gear, maybe just take the vendor's offer to settle for 95% and call it a day.