how should I pay off my study debt?

[sunflowergirl]

Hello,

I just finished my studyand hope people here can give me advice on how to pay off my study depth, which totals at about 13.000 Euro and has an interest rate of 4.3%
I'm about to accept a job offer which gives me a generous enough salary, and my partner earns about the same working only 20 hours per week. My salary will appearantly be increased by a per diem allowance for the first 8 months while we'll be away from home with hardly any personal belongings.

We have an imergency fund of 20.000 Euro and the same amount again in a 5.0% interest account (about the highest you can get here, 1.2% of interest goes to the state as tax ). We still have to pay tax and a few other high amounts from that. Furthermore, we'll move internationally a few times within the coming two years and need decent reserves for that even though my employer will pay most of it. Furthermore, we haven't build up any pensions yet even though we're in our 30s already.

- Paying off all at once doesn't seem to result in a reduction of the total but I'll pay less interest. On the other hand we lose a large chunk of our funds
- Start in two years and pay the minimum connected to my salary, as the lender, a state institution suggests
- pay off a large monthly amount once we know how much we need for a living. For the first 8 months we could pay off more money due to the per diem allowance.
- start now but with smaller amounts so we can save the spare money for our pension (if we finally understand how to invest decently)

What are your opinions on these different options?

[Sarah in SC]

Sunflower, I like the idea of paying it off quickly in larger amounts (but perhaps not the lump sum of all your reserves), because that gives you more momentum for saving later, and helps reinforce the live below your means lifestyle.

But, I think some of our European members should chime in on this, as I don't have a pension and don't know that much about how the system works in your country and how the pension savings and student loans affect your taxes.

[CitricAcid]

I feel you should start paying it down pretty soon, I like the idea of a LARGE monthly payment to bring the principal down, so the interest isn't as high a portion of your salary as would be if you waited a couple years to move and start paying it down.

You mentioned that you might have to move in three years or so. Plugging in 13,000 Euro at 4.3% over 3 years shows that if you have an extra 386 Euro a month, the debt would all be gone in three years.

[Abreutime]

As slowly as you want. 4.3% is the best debt you will ever have. If you ever plan on not paying cash for something (ie. ever plan on financing a purchase like a house), you'll wish you could get 4.3%.

I would pay the minimum until these 3 conditions are met:
1) My cash reserve is completely built up
2) My investments are fully funded
3) I realize I won't need to seek (more expensive) financing in the time it would normally be paid off

[clifp]

I agree with Abreutime, 4.3% debt is very cheap. I have no idea how interest on student loans is treated in Europe, but it shouldn't make much difference.

The only reason to pay it off is when you have excess money AND the interest rate on your savings drops to 2-3% (which is getting to be true in the US for bank CD rates.)