Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Pay off 6.375% student loan first?
Old 02-03-2007, 10:13 PM   #1
Recycles dryer sheets
 
Join Date: Jan 2007
Posts: 222
Pay off 6.375% student loan first?

Okay, so I've heard the arguments for paying off debt first if the interest rate is higher than what you can reasonably expect to make elsewhere. But, I gotta admit, it just doesn't feel right. The student loan is my wife's, and I believe we still have about 20 some years to pay on it if we make the minimum payments. Even if we pay extra on the loan, the earliest we'd be able to pay it off is 10 years. I can't justify waiting 10 years to start investing heavily in other areas while we're paying off the loan. We're not even at the point where we can max out our Roth or 401k (although I am getting the full employer match). Should I at least wait until I'm maxing those out before I start paying extra on the loan?
__________________

__________________
CompoundInterestFan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Pay off 6.375% student loan first?
Old 02-03-2007, 10:34 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,913
Re: Pay off 6.375% student loan first?

I would max out IRAs first before I would pay more than the minimum on the student loan. If it would make you feel better pay a small sum extra on the student loan, even $10/mo can make a difference.
__________________

__________________
Duck bjorn.
Brat is offline   Reply With Quote
Re: Pay off 6.375% student loan first?
Old 02-03-2007, 11:01 PM   #3
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
Re: Pay off 6.375% student loan first?

If you don't already have it, save 6 months of expenses in liquid assets as an emergency fund before prepaying any loans. I actually think a Roth IRA is a reasonable vehicle for doing this because you can withdraw the principal (not interest) at any time with no penalty if you get in a jam.

6.375 is a kind of middle rate... if it were higher or lower by a few percentage points it would be clear whether it made sense to pay it off. But because it's right around the amount you can get from other investments (adjusted for risk) I think you should do what makes sense for you.
__________________
free4now is offline   Reply With Quote
Re: Pay off 6.375% student loan first?
Old 02-03-2007, 11:15 PM   #4
Full time employment: Posting here.
 
Join Date: Dec 2004
Posts: 714
Re: Pay off 6.375% student loan first?

I agree with free4now ... a fixed rate, reasonable interest rate loan with terms like that has value.

You need liquidity, just in case ... 6 mos, at least, depending on your occupation ... some jobs take longer to replace.

How much is the principal (including any accumulated, unpaid interest)?
__________________
Craig is offline   Reply With Quote
Re: Pay off 6.375% student loan first?
Old 02-03-2007, 11:17 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,913
Re: Pay off 6.375% student loan first?

Concur with the Roth IRA vs regular IRA.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Re: Pay off 6.375% student loan first?
Old 02-03-2007, 11:24 PM   #6
Recycles dryer sheets
 
Join Date: Jan 2007
Posts: 222
Re: Pay off 6.375% student loan first?

Quote:
Originally Posted by Charles
How much is the principal (including any accumulated, unpaid interest)?
Principal is about $50k.

I currently have about 3 months emergency buffer, but I'm working on building that up as well. Although, as another poster suggested, if I factor my Roth into the emergency fund, then I'd probably have about 6 months.
__________________
CompoundInterestFan is offline   Reply With Quote
Re: Pay off 6.375% student loan first?
Old 02-04-2007, 09:01 AM   #7
Recycles dryer sheets
 
Join Date: Feb 2006
Location: Indianapolis
Posts: 417
Re: Pay off 6.375% student loan first?

Line 33 on this year's 1040 is the 'Student loan interest deduction'. On page 33 of the 1040 instructions, when you go to do the calculations, they say don't put down anything over $2500.00, so make sure not to pay off an amount that will contain more than $2500.00 in interest, or you're leaving money on the table. I also concur with maxing the I.R.A. stuff and doing an emergency fund.
__________________
Payin-the-Toll is offline   Reply With Quote
Re: Pay off 6.375% student loan first?
Old 02-04-2007, 09:03 AM   #8
Full time employment: Posting here.
 
Join Date: Sep 2006
Posts: 678
Re: Pay off 6.375% student loan first?

The interest on the student loans may be tax deductible, up to a limit, depending on your income. If the interest is tax deductible, it's one more reason why you should invest rather than pay it off early, at least to the extent that the interest is tax deductible. To the extent that you pay interest above the tax deductible limit, then you should pay down the balance until your interest is below the tax deductible limit.
__________________
JustCurious is offline   Reply With Quote
Re: Pay off 6.375% student loan first?
Old 02-04-2007, 10:18 AM   #9
Recycles dryer sheets
 
Join Date: Jan 2007
Posts: 222
Re: Pay off 6.375% student loan first?

Quote:
Originally Posted by JustCurious
The interest on the student loans may be tax deductible, up to a limit, depending on your income. If the interest is tax deductible, it's one more reason why you should invest rather than pay it off early, at least to the extent that the interest is tax deductible. To the extent that you pay interest above the tax deductible limit, then you should pay down the balance until your interest is below the tax deductible limit.
That's a good idea (thanks also to Payin-the-Toll for suggesting this). We have been taking the deduction, but we're currently paying more than $2500 in interest. So I'll work on paying it down until we get below this.
__________________

__________________
CompoundInterestFan is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Stinkin Student Loans Deetso Young Dreamers 15 01-04-2007 10:07 AM
Best Online Bill Pay? Mysto FIRE and Money 14 10-05-2006 09:32 AM
Student Loans maggieddd Young Dreamers 37 03-08-2006 01:53 PM
Pay off the House Sheryl FIRE and Money 45 05-07-2004 01:22 PM
Take Severance Pay and Run? BigMoneyJim Other topics 10 08-18-2003 08:31 PM

 

 
All times are GMT -6. The time now is 03:07 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.