Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Should I postpone investing to pay off student loans
Old 09-16-2013, 02:40 PM   #1
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Plano
Posts: 12
Should I postpone investing to pay off student loans

I've been running the numbers to see if it would make sense to temporarily (15 months max) divert my monthly investment dollars to paying off my pesky student loans. Here's the breakdown of what I owe:

9.25% - $3,184
8.25% - $6,436
6.8% - $25,144
5.25% - $5,216
2.39% - $7,403

Based on my calculations paying off the loans first and then adding my normal student loan payment to my monthly investing puts me ahead in the long term, even using a very conservative rate. However, I am currently making more in the market than I am paying in interest on these loans so I'm a little nervous about pulling the trigger on this plan.

Is is crazy to go all gung ho and knock these guys out or am I thinking too emotionally and it makes more sense to stick with the current plan (paid off in 5 years making double payments)?

As a note, with our income we're already phasing out of the tax deduction for the student loan interest so that's not really a factor.
__________________

__________________
amh031000 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!

Old 09-16-2013, 03:11 PM   #2
Full time employment: Posting here.
 
Join Date: Jul 2013
Posts: 568
Saving 9% is like making 9% and most likely your investment returns won't be 9% or even 6% so if it was me I would snowball the top four of those debts first.
__________________

__________________
dvalley is offline   Reply With Quote
Old 09-16-2013, 04:04 PM   #3
Recycles dryer sheets
Tractor guy's Avatar
 
Join Date: Sep 2010
Posts: 105
I'd pay off the four loans with interest rates that are higher than 5%. You may be making a higher return in the market today but that is NOT guaranteed. You're comparing apples and walnuts. The money you save (equivalent to make) by paying off a loan early is equivalent to an FDIC insured bank account. Money in the stock market is at higher risk. As we all learned in 2008, the stock market can go down just as fast as it goes up.
__________________
Tractor guy is offline   Reply With Quote
Old 09-16-2013, 04:07 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,439
While the market has been on a tear lately, I wouldn't look to recent returns as a barometer for future returns. I think I would first pay off the 9.25% and 8.25% loans and then split cash flow 50/50 to paying down the 6.8% and 5.25% loans and investing and pay the 2.39% loans on schedule.

To me, a risk free return of 5.25-9.25% would be attractive. Consider both risk and return.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 09-16-2013, 04:23 PM   #5
Full time employment: Posting here.
BTravlin's Avatar
 
Join Date: May 2010
Posts: 994
I have to agree with most posters above, a guaranteed return of 5% or more is superior to the possible return in the market. Pay off the debt first and then aggressively ramp up your savings. As the recent market meltdown taught or reminded many people, debt is a heavy anchor and no job is guaranteed. Pay down the debt while you have the means.
__________________
Wherever you go, there you are.
(In other words, no whining!)
BTravlin is offline   Reply With Quote
Old 09-16-2013, 04:51 PM   #6
Thinks s/he gets paid by the post
RockyMtn's Avatar
 
Join Date: Jul 2009
Location: North Scottsdale
Posts: 1,231
Quote:
Originally Posted by dvalley View Post
Saving 9% is like making 9% and most likely your investment returns won't be 9% or even 6% so if it was me I would snowball the top four of those debts first.
+1
__________________
FIRE'D in July 2009 at 51...Never look back!
RockyMtn is offline   Reply With Quote
Old 09-16-2013, 07:56 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
+1
Given the limited deductability of student loan interest I'd concentrated on paying off the 6.8% and above. The only exception is if you are getting some type of company match for a 401K savings.

For the 5% I start investing while paying it off and the 2.39% pay off on schedule.
__________________
clifp is offline   Reply With Quote
Old 09-16-2013, 08:14 PM   #8
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Plano
Posts: 12
Thanks for the support and advice. I don't have a 401k match unfortunately and I know we're not getting one in 2014 so I was feeling like this might be the right time.

I look forward to doing a loan payoff dance sooner rather than later.
__________________
amh031000 is offline   Reply With Quote
Old 09-16-2013, 09:29 PM   #9
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,708
It is better to apply 50% of your normal investment to your retirement fund and use the remainder to pay the loans. I just feel you need to be consistent in the way you save for retirement.

You mentioned a period of 15 months. Does this mean you will pay off all the student loans in that period?
__________________
target2019 is offline   Reply With Quote
Old 09-16-2013, 09:53 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Location: North Bay
Posts: 1,026
If I were you I would continue to save some toward retirement, but put 75-80% of available dollars toward retiring the >5% debt. Best of luck!
__________________
scrinch is offline   Reply With Quote
Old 09-17-2013, 07:01 AM   #11
Recycles dryer sheets
chasesfish's Avatar
 
Join Date: Feb 2013
Location: Marietta, GA
Posts: 124
Pay loans, it's not even close
__________________
chasesfish is offline   Reply With Quote
Old 09-17-2013, 01:21 PM   #12
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Plano
Posts: 12
Quote:
Originally Posted by target2019 View Post
It is better to apply 50% of your normal investment to your retirement fund and use the remainder to pay the loans. I just feel you need to be consistent in the way you save for retirement.

You mentioned a period of 15 months. Does this mean you will pay off all the student loans in that period?
Yes, the 15 month period would pay off all the loans. It would be shorter were I just to pay off the debts over a certain interest threshold.
__________________
amh031000 is offline   Reply With Quote
Old 09-17-2013, 01:46 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2006
Posts: 11,018
15 months is a very short time in your investing career. The last loan at 2.39% is a substantial amount of money at a low interest rate. My suggestion would be to pay off all the loans except this one ASAP (which may be sooner than 15 months). Then you can get your investment program started without much delay. I personally hate having non tax deductible debt and how I would proceed at that stage is to devote 80% of my savings to investment and 20% to put against the principal of the last loan. That should eliminate the last debt within months, after which you can bump up your investments to 100% of savings.
__________________
Meadbh is offline   Reply With Quote
Old 09-17-2013, 03:45 PM   #14
Recycles dryer sheets
 
Join Date: Sep 2012
Posts: 406
Yes..postpone. Payoff student loans and any other debts(credit cards/car payment etc..) before you start investing. I graduated in 1991 and paid off my student loan in 1994. Paid off my car loan in 1996 and started investing until I bought my house and had mortgage payments in 1998...suspended investing in 2000 and paid off my house in 2002. Resumed investing back and I'm doing fine. I hate debts. I then never borrowed...bought two new cars between 2001-2006 but saved money first and then paid cash - no car loans.
__________________
retire2020 is offline   Reply With Quote
Old 09-17-2013, 05:01 PM   #15
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,708
Quote:
Originally Posted by amh031000 View Post

Yes, the 15 month period would pay off all the loans. It would be shorter were I just to pay off the debts over a certain interest threshold.
I am not sure that it is possible to pick and choose which of the student loans to pay off first. Do you know for sure?

Seem to recall my son saying he could not pay one down before another. His payment was always split proportionally between the three loans.
__________________
target2019 is offline   Reply With Quote
Old 09-17-2013, 08:30 PM   #16
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Plano
Posts: 12
Target2019 - All my loans are through Sallie Mae and they allow me to choose which loan to apply any payment over the minimum payments. I've den doing double payments all year and applying the overage to my highest interest loan.
__________________

__________________
amh031000 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


 

 
All times are GMT -6. The time now is 02:22 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.