Advice on How to Spend Money

[lakeridge]

I've been reading info here for a while and finally wanted to jump in and get some advice on an upcoming situation. I am in the process of selling my house which should net approx 80-100k. My wife will be taking a job as a travel therapist, so we will be moving around a bit and therefore have no desire to put the money into a new home purchase right now. As to how to spend the money, I have several choices:

Pay off 45k in student loans that are fixed at 6.5% and on about a 20yr repayment schedule.

Pay off 35k on a home equity line of credit on one of the rental properties I own. I normally would leave this alone, but the rate is variable and now sits at 10%. Also, I'm probably planning on selling or exchanging this property in the next 1-2 years.

Other choices include either one or none of the above options combined with increasing investments and beefing up emergency funds.

I always seem to lean towards beecoming debt-free as soon as possible, but don't want to give up the opportunity to have the investment accounts grow for a longer period of time. Upon selling the house and moving our income will also be reduced, possibly significantly, because I may not work full time and it may not be in my current full-time profession(law). I've been doing a lot of thinking and analyzing of the various scenarios and think it would be good to get other perspectives on this stuff. Thanks.

 

[TromboneAl]

Welcome Lakeridge.

No brainer: pay off the 35K home equity first. I personally would then pay off the student loans.

Your statement about "don't want to give up the opportunity to have the investment accounts grow for a longer period of time" doesn't make sense. Not having a 6.5% loan for 20 years is roughly equivalent to having a guaranteed investment that returns 6.5% for 20 years.

 

[bongo2]

Ditto.

 

[cute fuzzy bunny]

Ding Ding Ding.

Kill your debt.

 

[SteveR]

Burn off the debt.

By the way.............what is a Travel Therapist anyway? Sounds like a shrink for those that get hooked on travel.

 

[lakeridge]

I wish that's what it was. Then I could get help for my problem. Actually, she is a speech therapist but she is going to work for a company that specializes in temporary/contract placements. Since my wife works in school systems, we will probably go someplace for 1 school year and then she would have the option to stay longer or go to a different place based on opportunities/availability. Just like travel nursing- probably more commonly known.

You guys are confirming what I have been thinking. Thanks.

 

[RETIRE_TINGLE!]

Redundancy is KING....

Get rid of the HELOC....I just paid off a second on one of my rentals (sank good chunks of my annual bonuses and it was gone in two years) and it feels GREAT!

I can't speak on the student loans (I was blessed to never have them), but I would say get rid of at least half. That will leave you with some money to invest.

my 2 cents

 

[SLC Tortfeasor]

Not having a 6.5% loan for 20 years is roughly equivalent to having a guaranteed investment that returns 6.5% for 20 years.     

True, unless the interest on the 6.5% loan is tax deductible, as it is on a home equity loan (up to a point).  In that case, the value of not having the loan is lower -- how much lower depends on your tax bracket.  In my case, for example, not having the 6.5% loan would be roughly equivalent to having a guaranteed investment that returns only about 4.4% a year.   

It probably still makes more sense to pay off the loan.  But if it were my money, and I felt pretty sure I could get a better return than 4.4%, I might invest the money instead. 

Another reason to consider holding onto the loan while investing the money:  I find that having some monthly payments makes me feel poorer, and there's nothing like feeling poor to keep my spending in check.  When I start feeling rich, that's when money burns a hole in my pocket.

 

[Nords]

Pay off 45k in student loans that are fixed at 6.5% and on about a 20yr repayment schedule.

Pay it all off. 6.5% is a big drag on a stock-market investment, even when the market was in the pits.

 

[NinjaPigeon]

It probably still makes more sense to pay off the loan. But if it were my money, and I felt pretty sure I could get a better return than 4.4%, I might invest the money instead.

That 4.4% doens't account for the tax you will pay on the interest you earned, nor does it account for inflation over the 20 years. Also, if your income gets high enough, you can't take the deductions for the student loan interest, IIRC.

So, just about any way you slice it, paying off the loan is probably the best idea.

 

[sgeeeee]

Paying off the 10% HELOC is a no brainer. Unless you are comfortable with a mountain of investment risk and time frame of 30+ years, this is not "good" debt. The 6.5% student loan is not as damaging to your long term financial health, and could even be profitable over a 20 year period. But the odds are against it -- especially in the current investment environment.

Pay off the debt.

 

[cute fuzzy bunny]

Shoot ... SG and I agreed. I have a lot of mortar checking before I can go to bed now...

 

[sgeeeee]

Shoot ... SG and I agreed.  I have a lot of mortar checking before I can go to bed now...

Like a broken clock, even you are right occasionally.

 

[cute fuzzy bunny]

Twice a day...like...umm...clockwork...

 

[thefed]

Pay off HELOC

Student loan interest is deductible...isn't it?

Keep in mind the inflation 'hedge' a 20 yr re-payment plan provides! I'd let the student loan ride, personally.