Using a windfall to pay off debt

When I went to do my weekly banking this week, I got a great surprise – an extra $260 from my previous job had been deposited into my account unexpectedly.  I’m not entirely sure why I got paid, but I suspect it’s retroactive pay due to a salary increase that had been in negotiation while I was an employee at the university.  Woohoo!

Photo Credit: Images_of_money via Flickr

Photo Credit: Images_of_money via Flickr

Any time you get an unexpected windfall, whether it’s from a contest, an inheritance or a tax refund, it’s a great opportunity to knock off some debts!  For me, I am taking $180 to pay back my chequing buffer.  I had “lent” some family members $300 a while back and had been paying it back slowly.  With this extra money, I was able to completely knock that column out of my budget and not have to worry about it any more.

Of course, the most financially sound option would be to throw the money towards your highest interest debt.  For me, that would be my student loans, currently sitting at prime + 3% interest.  I get charged $4.01 in interest per day.  Ugh!  But I am a debt snowball kind of person.  I like the personal satisfaction and piece of mind that you get when you don’t have to think about a debt any more at all.  But don’t worry – all my extra income is getting shoved onto my student loans.

With the remaining $100 or so, I took out that money as pocket cash.  It’s a splurge to be sure.  With Lunar New Year and Valentine’s Day coming up, I figure I could use the extra cash.

Have you been on the receiving end of a financial windfall recently?  How did you allocate your money?

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  1. Money Beagle says:

    I haven’t had any windfalls in quite some time, but yes, when I have had them I have allocated some or all to paying down debt. Until our debt number is zero, this will always be a strategy!

    • CF says:

      I hope you get a windfall this year then! 🙂 My windfalls are usually things I completely forgot about, and so are outside of my budget, like this extra paycheque!

  2. Usually our windfalls are our bonuses. They go straight to the mortgage, so it’s rather uneventful. We’re getting mighty close to having all of our debts paid off, so I’m not sure what we’ll do then. Maybe when we’re in savings mode we’ll opt to spend our windfalls, but I suspect we’ll be too focused on filling up our TFSAs and RRSPs to their max contributions as our next goal.

    • CF says:

      Nice. My position, even though it is salaried, is eligible for OT, so I don’t get bonuses. 🙁 Brian does though, and we usually allocate that money towards the mortgage, like you guys.

  3. I wish mate but sadly, no I have had no windfalls in my life. If I did however I’d be using it to pay off debt for sure.

  4. I guess I will consider my tax refund a windfall this year and it is going towards our down payment fund.

    • CF says:

      Nice! That’ll be a nice big contribution!

      I think I am splitting my tax return between our vacation this year and my student loans.

  5. Pauline says:

    I received $60K from a property, put $10K towards debt, and the rest to buy a new property, it was weird to see so much cash come and go in a couple of days!

  6. I always throw my financial windfalls towards debt. My latest one was a little extra vacation pay that I had banked – I was able to toss a little extra cash towards my student loans, which are at prime + 2.5%. It’s always great to get a little extra ahead of the debt repayment schedule!

    • CF says:

      That’s what my loans are at too. I’ve been watching the daily interest rate go down from $4.25 to $4.01 to $3.75, last I looked. It’s a good feeling!

  7. We totally did that with our tax return last year. A few weeks later when our car broke down I wished I had put some of it into savings, as well, though. :p

  8. eemusings says:

    Wheee! Windfalls rock. Can’t say I’ve had any recently though :/

  9. No windfalls lately. Hoping I’ll get a little back from my taxes (or at least not owe anything). If I do get any money back it will go directly into my savings account.

    • CF says:

      Good idea! When I was first building my emergency fund, I used my taxes to fund it for $500. It’s a great way to jump start savings.

  10. Eddie says:

    Windfalls are a great surprise, but I haven’t had any in years. The last time I got some extra cash, was around Christmas four years ago – government sent me $700. I suppose they recalculated my taxes, and noticed they took more than they should have.

    • CF says:

      That’s actually happened to me too, which was a pleasant surprise. I had forgotten a deduction or I had not calculated the deduction correctly, I forget which. This was when I used to do my taxes by hand!

  11. Windfalls are awesome!!! Anytime we get extra cash, we usually throw it at the mortgage.

  12. I usually just throw the extra cash into my mutual funds, but debt payment is good too! Nothing wrong with taking a little extra out for pocket cash – we all need to have a little fun!

    • CF says:

      I think once I get my student loans knocked off, I will probably do the same. I just keep looking at that daily interest charge though, and thinking, “That’s a whole freaking LATTE!” Grr…

  13. Vicky says:

    No windfalls have came my way unfortunately, but maybe my luck would change with some contests! 😛

    I would probably put half towards outstanding debt, and have fun with the other half, especially if you have been good on your budget anyways.

    • CF says:

      Haha – yes, good luck with those contests!
      I agree, it’s nice to have a bit of a treat when it’s coming outside of your budget.

  14. I love surprise money. It’s just like when I returned home from Thailand and found a cheque from Christmas from my parents I hadn’t cashed yet. Woohoo!

  15. Unfortunately, no windfalls have come my way, although they’re always welcome. Since I don’t have any debts I’d take a portion and spend it because we all need to have some fun but most of it would go towards my FI portfolio.

  16. One thing to remember is that windfall money is money you were already living without, so paying off debts is a great option, because you should be budgeted to do all of your normal monthly activities already.

  17. I treat all money coming in as if it were freelancing money. Just another “job” if you will…especially until I reach my projected income for the month. If by chance I’ve gone WAY over, then I might splurge on a massage or something.

  18. Danielle says:

    I haven’t had a windfall in awhile but rarely do I receive money from gifts or government rebates that doesn’t go to debt repayment. It’s a good habit to get into.

    • CF says:

      For sure – it’s a bonus payment! I’m expecting some government rebates this year as well, thanks to tuition credits, and much of that will go into my pesky student loans.

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