Our tax refunds have finally arrived. It took over a month but that’s to be expected since we filed in April and filed paper returns (printed out from software of course). Over $4700 for the two of us. I have transferred the entire amount against the principal of our student loan. That makes a small dint in the loan but it will reduce our interest payments by about $20 per month. That is not huge, but that is $20 per month for many years to come, not just this year. My wife will also be receiving a one-time retroactive hiring bonus of on the order of $4500 so that is another $20/month savings on interest and next year we can get another $20/month from another tax refund. It will feel good to lower those monthly payments, leaving more room in our monthly cash flow for something like a mortgage payment in the future.
Currently we are just paying interest on the student loan every month. The reason is that our monthly cash flow is pretty tight now. All our money is going somewhere, whether it be RRSP and savings and the amount of disposable cash we have available is very limited. Rather than using the one-time debt payments to lower our interest payments and thus increase the amount of principal paid down every month (ie. constant monthly payments) thus shortening the amortization period, we have decided to take the $20/month savings and we will allocate that to one of our ING savings accounts. Ideally, if we could afford it, I would love to be able to pay interest and principal on the loan every month but it just cannot be done right now. Maximizing our RRSPs is our #1 concern, and I think that is the right thing to do as I expect the return in my RRSP to exceed the interest rate on the loan and secondly, the tax refund every year can be applied towards the loan’s principal anyways.