What's your master's in? I'm hoping something different from the master's program you'd be entering into as recommended by your POI. I can't tell you what to do, but I can tell you what I personally would do in a similar situation.
I, too, went through 2 application cycles and had a master's degree by that second try. I received interviews but they weren't looking so hot. I was eventually accepted off of a waitlist, but I had basically assumed the worse by that point, so I had already started making plans for the next year. I refused to look at another master's program. It would not do me any good. In your case, however, you could potentially transfer those courses into the doctoral program IF they accepted you. For me, that would be a mighty big if. What if they don't? What if your POI disappears between now and then? One might assume otherwise, but I've known a handful of profs who up & disappeared to other locations at the last minute for various reasons. Then you're likely "stuck" with another master's degree (and out of more money even if it is partially funded), with even more courses that will probably not transfer to
other doctoral programs.
You indicated that you had research experience, which is great. But, how much research experience and is it relevant to the interests expressed in your personal statement? If not, then your limited and/or unrelated research experience may not mean squat to some professors. Perhaps you should focus on gaining additional research experience, especially related to that which you wish to pursue during your future doctoral program if at all possible.
What about the GRE? Did you do well on them or just sort of meh? Perhaps you need to work on improving that score in order to better your chances. Did you take the Psych GRE? If not, perhaps you should take it--not doing so limits programs you can apply to.
Or perhaps everything is just peachy and your personal statement wasn't quite impressive enough or didn't quite reflect your goodness of fit with the programs/profs you applied to. Did you ask for feedback from others before submitting it?
A master's degree isn't everything, and I found a number of schools that preferred not to look twice at me because of mine (and, yes, they did indeed advise me as such). Two master's degrees in the worst case scenario if you had to reapply to other programs for a 3rd cycle? Hrm... not sure I'd personally want to chance it.
So, what would
I do? I would contact the programs/profs you applied to and ask if they could advise you of any limitations with your app and/or any improvements that they might suggest for future application cycles. I would work on my GREs (if that's needed). I would take the Psych GRE (if that's needed). I would work on improving my personal statement (if that's needed). But, most of all, I would focus on searching for additional research opportunities in my area of interest. This is what I was doing (and I had actually been nominated for a research fellowship already) when I was finally sent my waitlist acceptance.
I know the process is extremely difficult and frustrating, particularly when contemplating a third cycle, but there would be too many "what if's" in my mind and not enough justification to pay for even part of an additional master's degree. However, if you feel comfortable going this route and think that it is the best option available to you at the moment, then do what you think is best for you.
G'luck!
