Some background first: I work for a ministry and make about $15,000 a year. I'm able to pay all my bills and my roof doesn't leak, so I guess I live in relative poverty. I have avoided credit card debt. My only major debt is a student loan. My current balance is about $4500 (payoff amount would be higher, obviously). I have always been pretty good about saving money and I recently opened an ING savings account with over $5,000, my goals being to save (1) for a used car and (2) for an overseas ministry trip next summer.
I am getting a raise--about $75 a month. That is a relatively tiny amount but it feels significant to me. My question is, what should I do with this amount? I see a few options here. First, I could save it, possibly splitting the amount between my ING sub-accounts for the car or the trip. Second, I could apply it to the student loan. Throwing $75 more a month at my debt would be an enormous mental boost because I might be able to pay that loan off in 4 years instead of 8-10. There is actually a third option--I could pay off the loan right now with my savings--but that would leave me with almost no money for the car or trip.
My inclination is to save the money. I might get a "real" job in the next few years and be able to pay off the remaining loan quickly; better to use the money now. But I'd really like to hear what you guys think. Is it wise to stay in debt while saving for something else?
I would look into getting a second source of income. Working a second job part-time can net you another $5,000-10,000 per year.