Pay down loans or invest

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memphisand53rd
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Pay down loans or invest

Post by memphisand53rd » Fri Dec 08, 2017 11:45 pm

I've got about 100k of student loans left at 3.77%; trying to decide on paying this beast down asap versus maxing out my 401k (unfortunately the most affordable option is an s&p 500 fund with ER 0.54) and my Roth IRA (invested in VTI at TDA but may make the switch to SPTM with TDA's ETF switch ups- any opinions on that?!). I'm 30yo with an income of around 125k. Got an emergency fund, stable job I enjoy, and am learning a lot from these forums. I'd love to park my money in my investment accounts but I've realized I'm pretty debt averse and hate these loans! What would you experts do?!

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FiveK
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Re: Pay down loans or invest

Post by FiveK » Sat Dec 09, 2017 9:04 am

Welcome to the forum.

See Investment Order and Paying down loans versus investing for some thoughts on this topic.

Dottie57
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Re: Pay down loans or invest

Post by Dottie57 » Sat Dec 09, 2017 9:35 am

I personally would pay down loans. But this is not an either/or decisions. You can do both . You can decide to live a less expensive life and apply the difference to both or just one. Your decision as to where your money goes.

Good luck.

Dandy
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Re: Pay down loans or invest

Post by Dandy » Sat Dec 09, 2017 12:11 pm

In general I like paying down/off loans. With a 3.77% interest on the loans and equity markets at a high and surging I would still pay off the loan. 3.77% is pretty high and is guaranteed return on your money. It will free up income down the road to invest -- perhaps even when the market is lower. If the market corrects I might invest at least some $ at that time.

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grabiner
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Re: Pay down loans or invest

Post by grabiner » Sat Dec 09, 2017 7:38 pm

Are you single or married? If you are single, you can't deduct your loan interest, so you get a risk-free 3.77% return on any loan prepayment, and that is a very good deal at current rates. I would probably recommend putting enough into the 401(k) to get the employer match; investing in your Roth IRA because it is low-cost, gives you permanent tax deferral, and can be accessed penalty-free in an emergency; and throwing everything else at the student loans.

If you are married, you get the same benefit by paying the loans down to $66K, because you are paying more than the maximum deductible interest; at $66K, 3.77% interest would be the $2500 maximum. Once you get them to $66K, it's probably better to contribute to your 401(k).
Wiki David Grabiner

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Toons
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Re: Pay down loans or invest

Post by Toons » Sat Dec 09, 2017 7:54 pm

"I've got about 100k of student loans left at 3.77%"

Eliminate :mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

stan1
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Re: Pay down loans or invest

Post by stan1 » Sat Dec 09, 2017 7:57 pm

Extreme loan pay down. Knock it out in 2-3 years. Live in a barn if you must.

Thesaints
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Re: Pay down loans or invest

Post by Thesaints » Sat Dec 09, 2017 8:03 pm

3.77% is a good low risk return these days...

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FiveK
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Re: Pay down loans or invest

Post by FiveK » Sat Dec 09, 2017 9:16 pm

memphisand53rd wrote:
Fri Dec 08, 2017 11:45 pm
I'd love to park my money in my investment accounts...
I...hate these loans
Ah, the eternal question, "which is stronger, love or hate?"

There is no "law of nature" to guide whether you should take a sure low return or aim for a riskier but still plausible higher return. Given the numbers (e.g., your age and loan interest), either answer to the thread title question is defensible.

Topic Author
memphisand53rd
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Re: Pay down loans or invest

Post by memphisand53rd » Sun Dec 10, 2017 12:50 pm

Yeah I'm leaning towards destroying the loan. My employer contributes to my 401k regardless if I do or not so I'll probably fill up my Roth IRA in January then go into full loan elimination mode. Thanks for the input dudes!

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eye.surgeon
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Re: Pay down loans or invest

Post by eye.surgeon » Sun Dec 10, 2017 12:51 pm

I vote pay off those loans.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

TravelforFun
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Re: Pay down loans or invest

Post by TravelforFun » Sun Dec 10, 2017 1:09 pm

memphisand53rd wrote:
Sun Dec 10, 2017 12:50 pm
Yeah I'm leaning towards destroying the loan. My employer contributes to my 401k regardless if I do or not so I'll probably fill up my Roth IRA in January then go into full loan elimination mode. Thanks for the input dudes!
I agree with this strategy.

TravelforFun

blastoff
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Re: Pay down loans or invest

Post by blastoff » Sun Dec 10, 2017 2:42 pm

How much do you save per year?

If it's something like 40-50k (possible with your income) and in future years 401k limits will be in your way, i say you do both. You could do both and knock out the loans in 3-4 years.

If you have problems saving, then fix that.

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Veiled
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Re: Pay down loans or invest

Post by Veiled » Sun Dec 10, 2017 3:14 pm

eye.surgeon wrote:
Sun Dec 10, 2017 12:51 pm
I vote pay off those loans.
+1. Another option is to calculate a desired rate of return for your whole portfolio (e.g. 8%) and pay of your loan and invest in your target AA in a proportion that creates an acceptable rate of return during an acceptable length of repayment.
Pardon me as I read these one hundred and fifty-seven SP vs LLC vs Scorp threads...

hightower
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Re: Pay down loans or invest

Post by hightower » Sun Dec 10, 2017 5:57 pm

Yeah that interest rate is a bit too high for my liking. I have 100k of student loan debt at 2.6% and I am kind of torn about paying it off over the next 6 months or investing. I'm still leaning towards paying it off even at the lower interest rate. It will just be great to say I'm debt free except a mortgage.

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