So sick of it! [Paying off student loans]

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Invest2016
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So sick of it! [Paying off student loans]

Post by Invest2016 » Sat Jun 17, 2017 9:43 pm

Gang,
Your input on finances since I discovered this website has helped a lot. I am blessed with a great income. Let me tell you what is going on and what I am sick of!

Let me give you some details first...

Yearly investing - I am basically happy with this for now at 34yo.
18.5 k 401k + 25% match
11k BDRIRA 5.5k + 5.5k
30k brokerage index fund.

I refinanced my student loans last year with sofi 5 years low 2% IR. Graeat rate but the payment is $2.1k a month!!! This is what I am a sick of paying!!!! It drives me nuts every time is see it going out of my account!!! More than my mortgage!

So why not just pay it off early?
I have 4 kids and we have one income so I am terrified to have less than 100k cash in the bank. I will probably have about 135k or so by October or November. I am thinking of just paying the 100k off and going down to 35k in cash. I could keep the same investments above no problem. Would this be nuts to go that low in savings? My job is very stable.

I bought a duplex last fall and it is going well so maybe the 100k would look good against 4plex but prices have never been higher in my area so I am not loving this idea.

The real question is what to do with the student loans???
Pay off later this year and go low on cash but free up 2k a month?
Keep paying monthly for another 4 years because the rate is low?
Put the money in the market?
Buy more real estate?

I am in great position for my age so I don't want to sound like a jerk with this post!

Thanks for your advice.

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David Jay
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Re: So sick of it!

Post by David Jay » Sat Jun 17, 2017 9:52 pm

There is a lot to be said for the "freedom" of paying off the loan. If you can restore your cash reserve fairly promptly, I think you could "get by" with a $35K cash reserve for the emotional relief of seeing the loans gone.

[edit] I am trying to get my mortgage paid off, so I understand the frustration. I estimate about 18-20 months.
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Big Dog
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Re: So sick of it!

Post by Big Dog » Sat Jun 17, 2017 10:11 pm

This is what I am a sick of paying!!!! It drives me nuts every time is see it going out of my account!!! More than my mortgage!
Shoulda thought about that before incurring those loans!

But to answer your question, I would keep paying them down. Perhaps add a thousand extra every so often, but I'd keep the cash reserve. With four kids and one income, stuff happens. Maybe the big storm comes and you find that the roof leaks. Or the ac compressor blows. If you were down to only $35k and you needed to spend $15k for HVAC or roof, you'd be perilously low. Your tenant moves out and leaves behind a mess that has to be repaired?

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BL
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Re: So sick of it!

Post by BL » Sat Jun 17, 2017 10:23 pm

Have you set them to pay automatically? Perhaps not physically paying them would be enough consolation.

Keep in mind that the taxable brokerage account would be available for emergencies, as would the Roths. Hopefully they would not be needed, especially the Roth IRAs, but it is good to know that contributions, not gains, can be withdrawn without penalty.

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celia
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Re: So sick of it!

Post by celia » Sun Jun 18, 2017 2:18 am

Since you have several financial goings on at the moment, I would take a break from thinking about all of this for 2 years or so and just keep paying things as you are now. Keep the emergency fund in the bank and automate any payments that aren't yet automatic.

Then go out and play with the kids.

Goal33
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Re: So sick of it!

Post by Goal33 » Sun Jun 18, 2017 2:44 am

I paid my student loan off because having the loan bugged me. Rate was low so it wasn't a mathematical decision but a personal preference. Sounds like you should just do the same.
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Vanguard Fan 1367
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Re: So sick of it!

Post by Vanguard Fan 1367 » Sun Jun 18, 2017 2:54 am

I know someone with student loans much higher than 2 percent.

You could today buy Vanguard's Long Term Corporate Bond ETF paying around 4 percent. Few on here like that investment because if the interest rates rise the fund loses value. But in theory you might have a 2 percent income on your money by doing that and if you didn't panic as the fund went up and down you might make a little money.

Personally I sleep better at night being debt free and would look towards doing that sensibly, keeping an emergency fund rather than paying it all off, but still making it a priority as I could.

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Re: So sick of it!

Post by Vanguard Fan 1367 » Sun Jun 18, 2017 2:56 am

I know someone with student loans much higher than 2 percent.

You could today buy Vanguard's Long Term Corporate Bond ETF paying around 4 percent. Few on here like that investment because if the interest rates rise the fund loses value. But in theory you might have a 2 percent income on your money by doing that and if you didn't panic as the fund went up and down you might make a little money.

Personally I sleep better at night being debt free and would look towards doing that sensibly, keeping an emergency fund rather than paying it all off, but still making it a priority as I could.

mortfree
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Re: So sick of it!

Post by mortfree » Sun Jun 18, 2017 3:40 am

Chip away at the debt.

Make the regular payments but then...

Something like 25k every quarter or every 6 months. Then you can adjust along the way if life happens.

Just be sure the student loan place applies the extra payment(s) correctly.

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Re: So sick of it!

Post by peterinjapan » Sun Jun 18, 2017 3:55 am

I'm currently paying off my three mortgages at a fast-ish pace, despite the 3.0 and 3.25% interest rates. I have $1.3 mil in stocks but $1 mil in debts (the mortgages, plus some very low interest loans I have to my company) that I dislike having. I can see the end...taste it. 4 years, I pay off one house (my mother's), five years, one of our investment condos...six years, the big debt I have to my company. Though I should put it all into "the market" instead, this suits me.

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Re: So sick of it!

Post by spitty » Sun Jun 18, 2017 6:07 am

I'd pay it off especially because interest isn't deductible. That leaves you an extra $2k/mo for the emergency fund which can be upper 5 figures in about 12 months. Do you have enough home equity to take a HEL in case of a big expense? I suppose you could suspend 401k contributions temporarily if needed too. With stable work income it should be low stress and you'll be happy you did in a year.

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Re: So sick of it!

Post by bloom2708 » Sun Jun 18, 2017 6:16 am

Pay them off. $35k is a good cash cushion.

After paying, build cash back up. $100k plus is probably excessive.

Set a reasonable asset allocation and get fully invested.
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mouses
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Re: So sick of it!

Post by mouses » Sun Jun 18, 2017 6:21 am

Do the loans total $100k? I am not sure from your post. If so, with your responsibilities, I would pay the extra $35k towards them when you have it in October, or just pay more each month as your savings increase above $100k. That would let you pay them off sooner. You can keep doing whichever of those you choose and still have the $100k for emergencies.

I think the student loan situation stinks, but you're a grown up and incurred debt. I would not endanger your family's financial security because you don't like paying it off.

What are your annual expenses? With that many children and one income, I would want two years living expenses available.

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sunny_socal
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Re: So sick of it!

Post by sunny_socal » Sun Jun 18, 2017 6:57 am

bloom2708 wrote:Pay them off. $35k is a good cash cushion.

After paying, build cash back up. $100k plus is probably excessive.

Set a reasonable asset allocation and get fully invested.
This

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JPH
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Re: So sick of it!

Post by JPH » Sun Jun 18, 2017 7:01 am

Try to relax a bit. Keep chipping away at the debt. I think about debt this way. It's not really my money; it's someone else's money that I have enjoyed the benefits of. Be grateful that someone was willing to let you use their money to improve your life long-term.
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goingup
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Re: So sick of it!

Post by goingup » Sun Jun 18, 2017 9:00 am

I'm with the posters who say chip away over time. The best approach is to be focused and methodical. It's tempting to rip off the yoke of debt but it's not the best solution if you drain needed liquidity.

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Re: So sick of it! [Paying off student loans]

Post by LadyGeek » Sun Jun 18, 2017 9:03 am

I removed an off-topic post and several replies. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters. Attacks on individuals, insults, name calling, trolling, baiting or other attempts to sow dissension are not acceptable.
I also retitled the thread.
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montanagirl
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Re: So sick of it!

Post by montanagirl » Sun Jun 18, 2017 9:16 am

spitty wrote:I'd pay it off especially because interest isn't deductible. .
Why isn't it deductible? Is that something to do with sofi?

core4portfolio
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Re: So sick of it! [Paying off student loans]

Post by core4portfolio » Sun Jun 18, 2017 9:27 am

Invest2016 wrote:Gang,
Your input on finances since I discovered this website has helped a lot. I am blessed with a great income. Let me tell you what is going on and what I am sick of!

Let me give you some details first...

Yearly investing - I am basically happy with this for now at 34yo.
18.5 k 401k + 25% match
11k BDRIRA 5.5k + 5.5k
30k brokerage index fund.

I refinanced my student loans last year with sofi 5 years low 2% IR. Graeat rate but the payment is $2.1k a month!!! This is what I am a sick of paying!!!! It drives me nuts every time is see it going out of my account!!! More than my mortgage!

So why not just pay it off early?
I have 4 kids and we have one income so I am terrified to have less than 100k cash in the bank. I will probably have about 135k or so by October or November. I am thinking of just paying the 100k off and going down to 35k in cash. I could keep the same investments above no problem. Would this be nuts to go that low in savings? My job is very stable.

I bought a duplex last fall and it is going well so maybe the 100k would look good against 4plex but prices have never been higher in my area so I am not loving this idea.

The real question is what to do with the student loans???
Pay off later this year and go low on cash but free up 2k a month?
Keep paying monthly for another 4 years because the rate is low?
Put the money in the market?
Buy more real estate?

I am in great position for my age so I don't want to sound like a jerk with this post!

Thanks for your advice.
If Iam in this position I will do 50% of amount at one shot and pay rest of them like 2k per month to close faster
Another option pay 5k per month and see how it ends after a year
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Traveler
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Re: So sick of it! [Paying off student loans]

Post by Traveler » Sun Jun 18, 2017 9:37 am

It wasn't clear if you live in one side of the duplex and rent out the other or if you rent out both and live in another mortgaged home. If it is the latter, then you have more risk and having a large cash cushion is better. The student loans probably provided you with the education to have a much higher than normal income so it's hard to complain about having them. Depending on the answer to my housing question, I would probably just keep paying them as scheduled and any additional income such as a bonus, pay increase, etc I would put towards them.

Minot
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Re: So sick of it! [Paying off student loans]

Post by Minot » Sun Jun 18, 2017 10:09 am

Invest2016 wrote:Gang,
Your input on finances since I discovered this website has helped a lot. I am blessed with a great income. Let me tell you what is going on and what I am sick of!

Let me give you some details first...

Yearly investing - I am basically happy with this for now at 34yo.
18.5 k 401k + 25% match
11k BDRIRA 5.5k + 5.5k
30k brokerage index fund.

<snip>
If I am understanding your message correctly, you are putting 30K into taxable yearly. If you used the 35k that you expect to add to your safe 100k emergency fund, plus this year's and next year's 30k that you had planned to add to taxable, your loans would essentially [all but $800] be paid off without risk; you'd still be filling your tax advantaged space, and once the loans are gone you'd have an additional $25,200 to add to your savings.

blueman457
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Re: So sick of it! [Paying off student loans]

Post by blueman457 » Sun Jun 18, 2017 10:25 am

I am in a similar situation (student loans $60k+, at 2.75% variable) with the same frustrations. After getting some advice on this forum, I've decided to wait 6 months until figuring out what I want to do (I'm trying to build up a down payment as well).

Good luck,

Blue Man

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Re: So sick of it! [Paying off student loans]

Post by KlangFool » Sun Jun 18, 2017 10:32 am

https://www.irs.gov/retirement-plans/pl ... ion-limits

OP,

401K limit for 2017 is 18K. It is not 18.5K.

KlangFool

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Re: So sick of it! [Paying off student loans]

Post by Clever_Username » Sun Jun 18, 2017 10:39 am

I am going to miss my student loans when they're gone, which I think will be in about 4.5 years. I pay $100/month, of which about $10 goes to interest. I think it's $100 because I can't do auto-debit (which gives me a further break on interest) on less. I might be wrong on that. I mostly don't think about it until the debit shows up each month, and then I say "oh right, I pay that." Or when someone brings it up to me.

I could write a check and pay it off, but at such a low interest rate, why bother? That money can be more productive working for me elsewhere.

I don't get the debt allergy some people have for non-toxic debt. I'm in no hurry to pay off my mortgage at 4.25% either.
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TIAX
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Re: So sick of it! [Paying off student loans]

Post by TIAX » Sun Jun 18, 2017 10:51 am

There's only one question you need to ask yourself when deciding where to allocate your resources - which investment has a higher (risk-adjusted) return. Paying off a 2% student loan early is a terrible idea. You can, for example, buy an FDIC insured 5 year CD with a higher return. Contribute toward your retirement in a taxable account and don't worry about the temporary student loan payment.

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Re: So sick of it! [Paying off student loans]

Post by ruralavalon » Sun Jun 18, 2017 12:13 pm

Pay off the debt and be done with it, since it bothers you.

This is not just an arithmetic problem of rates and returns.
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Saving$
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Re: So sick of it! [Paying off student loans]

Post by Saving$ » Sun Jun 18, 2017 1:32 pm

Mathematically, paying off does not make sense.

However, if it bothers you:
1. Beef up emergency fund to 2 years living expenses.
2. Use balance of extra cash to pay student loans off early, including temporarily suspending $30k /year towards investment in taxable account
3. Go outside and play with the kids.

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Re: So sick of it! [Paying off student loans]

Post by Goal33 » Sun Jun 18, 2017 1:39 pm

Clever_Username wrote:I'm in no hurry to pay off my mortgage at 4.25% either.
You should be in a hurry to refinance it at a lower rate while you still can, though.
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Re: So sick of it! [Paying off student loans]

Post by itstoomuch » Sun Jun 18, 2017 1:59 pm

We have son's PLUS, consolidated @3%, non deductible, now <50k. Another 10 years to go. Age 67/70 :( .
I kinda look at this as a fixed bond, which it is.
As much as I hate this loan, the option to use the cash for other investments is still very attractive :dollar .
I had thought that inflation would have paid off the loan but the FedRsvBk and US Economy has been good :mrgreen: .

We may be in the market for another rental too and the cash from not killing the PLUS will be beneficial. We are assuming that the deal to sell our small acreage will move forward.
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Re: So sick of it! [Paying off student loans]

Post by Hug401k » Sun Jun 18, 2017 2:36 pm

Personally- I completely understand wanting money in the bank with 4 kids. I would pay off 25K lump each year to the loan and have it done in 4 years versus not having that cash around. Work on refunding the extra 25k during the year.

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Re: So sick of it! [Paying off student loans]

Post by Clever_Username » Sun Jun 18, 2017 4:22 pm

Goal33 wrote:
Clever_Username wrote:I'm in no hurry to pay off my mortgage at 4.25% either.
You should be in a hurry to refinance it at a lower rate while you still can, though.
It's a new mortgage, so I don't think a lower rate was out there. It's also a 30-year, not a 15-year.
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retire57
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Re: So sick of it! [Paying off student loans]

Post by retire57 » Sun Jun 18, 2017 6:30 pm

1. Pay it off tomorrow.
2. Have a big celebration with your family.
3. Enjoy your new and improved cash flow

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Re: So sick of it! [Paying off student loans]

Post by JonnyDVM » Sun Jun 18, 2017 7:30 pm

If you got a 2% rate that means you have a very large income. Where is that income all going ? I suspect you're a doctor. If your family is already living the stereotypical "rich doctor" lifestyle then you need to back off a bit. Focus on putting all your extra income towards your loans you'll pay them off in no time.

To a previous post. Pretty much everyone that posts here cannot deduct student loan interest.

Also you do not need two years of emergency funds in the bank. Medicine is a very stable job market. You need 6 months and disability insurance. Anything beyond that is getting too conservative IMO.

We repaid our student debt very aggressively. My last chunk was 60k at 3.5% interest and I paid it off a year and a half ago with a big lump sum and I have no regrets whatsoever. So nice to have that albatross off my ledger.
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Re: So sick of it! [Paying off student loans]

Post by rkhusky » Sun Jun 18, 2017 7:39 pm

We have a mortgage, HEL, and car loan that we could pay off from our taxable account, but continue to pay the monthly amount because every time I think about just paying them all off, I remember the low rates we have and the fact that we have done well with the taxable investments that would go away if we paid them off. Head overrules heart.

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Re: So sick of it! [Paying off student loans]

Post by Clever_Username » Mon Jun 19, 2017 9:49 am

JonnyDVM wrote:To a previous post. Pretty much everyone that posts here cannot deduct student loan interest.
I'm not sure that's true. I think the limit (someone correct me if I'm wrong) is $75,000, and it's a deduction regardless of itemization. I think there are plenty of people on this board who fit into that, although I'm sure the original poster for this thread isn't one of them.
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MDfive21
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Re: So sick of it! [Paying off student loans]

Post by MDfive21 » Mon Jun 19, 2017 1:29 pm

pay half of it off and refi the remaining $50k to a $1k/month payment?

this leaves you with $85k liquid, and further option to accelerate payment.

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Re: So sick of it! [Paying off student loans]

Post by Chadnudj » Mon Jun 19, 2017 1:40 pm

Invest2016 wrote:Gang,
I have 4 kids and we have one income so I am terrified to have less than 100k cash in the bank. I will probably have about 135k or so by October or November.
This seems to be the answer to your question.

Keep $100k in cash in the bank. Divert the $35k plus whatever extra you have every month going forward (or whatever you don't want to invest) to paying off the student loans.

You set $100k as a floor for your family emergency fund presumably for some reason (presumably because this equals 6-12 months expenses). Might as well stick with that, and put all excess towards the student loans to get them knocked out quickly. (Alternatively: figure out what 6 or 12 months expenses are for your family, and put the rest of the $135k towards the loans).

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Re: So sick of it! [Paying off student loans]

Post by Meg77 » Mon Jun 19, 2017 3:32 pm

Stop adding to taxable brokerage and to cash and direct all that cash flow toward the loan instead. And wipe it out once you the balance is low enough to do so with $50K left in a cash cushion.

You do NOT need the risk of another leveraged rental in your situation, nor does it make sense to invest it in stocks at all time highs (P/E valuations as well as actual prices) when this bull market has already set longevity records. The $2000 payment is driving you nuts, so get rid of it.

PS your student loan interest probably isn't tax deductible because you make too much. If a married couple has an AGI over $160k, none of it is deductible. Not sure what you make, but with that savings rate and family size you might well make more than $160K.
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Re: So sick of it! [Paying off student loans]

Post by DomDangelina » Mon Jun 19, 2017 8:59 pm

Meg77 wrote:nor does it make sense to invest it in stocks at all time highs (P/E valuations as well as actual prices) when this bull market has already set longevity records.
You're suggesting he time the market. Interesting.
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Re: So sick of it! [Paying off student loans]

Post by JonnyDVM » Mon Jun 19, 2017 9:05 pm

Clever_Username wrote:
JonnyDVM wrote:To a previous post. Pretty much everyone that posts here cannot deduct student loan interest.
I'm not sure that's true. I think the limit (someone correct me if I'm wrong) is $75,000, and it's a deduction regardless of itemization. I think there are plenty of people on this board who fit into that, although I'm sure the original poster for this thread isn't one of them.
I think it's 80k. But yes, I'll concede its true there are probably many posters who can still use the deduction. Defintely not OP though. Regardless, the student loan interest deduction is phased out at way too low an income that's for sure. I remember how annoyed I felt when I was fresh out of school and I couldn't deduct my interest paid.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

rashad3000
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Re: So sick of it! [Paying off student loans]

Post by rashad3000 » Mon Jun 19, 2017 10:09 pm

I'm a Dave Ramsey fan. I won't say to pay everything towards the student loan, except for $1000. But I personally would keep $5000 and put everything else on the students loan. It's only because I LOATHE debt.

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Re: So sick of it! [Paying off student loans]

Post by Meg77 » Tue Jun 20, 2017 9:37 am

DomDangelina wrote:
Meg77 wrote:nor does it make sense to invest it in stocks at all time highs (P/E valuations as well as actual prices) when this bull market has already set longevity records.
You're suggesting he time the market. Interesting.
Not really. I'm just suggesting that he prioritize paying down higher rate debt rather than using leverage to invest in the stock market. I'd advise that in most any market cycle, but it's particularly risky now given how relatively expensive stocks are. I would not advise him to hold cash and wait for a dip to invest if his primary goal was to invest for the long term.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Hawaiishrimp
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Re: So sick of it! [Paying off student loans]

Post by Hawaiishrimp » Wed Jun 21, 2017 8:29 pm

A logical thing to do is to pay monthly since the rate is so low.

But, if you are feeling sick of this debt, and prefer to get rid of it, just pay if off. You should be fine.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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