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401k vs.Student Loan question
Posted on 3/30/15 at 12:54 pm
Posted on 3/30/15 at 12:54 pm
Thank you in advance for your help with my first post.
I have a 401k rolling over for about 10K from my previous job. I'm debating whether I should roll it over into my new job's 401k or take the money at 7K after taxes and penalty and pay off my current high interest student loan at 6.5%.
I'm currently paying $250/month and would pay off that loan in 2 years with roughly $500 in additional interest.
On top of that loan, I have another student loan for roughly 30K at 3% which I'm currently paying $260 a month. I don't have the extra cast currently to put anymore towards the higher interest loan and at my current pace it would take 12 years to pay off this loan with about $6,000 in interest.
If I took the money from my 401k and paid off the higher interest student loan, I would apply the money I was paying to the second loan and at even just $400 a month, I would have it paid off in 6 years and save $3,000 in interest.
What should I do?
Also, I'm 28 years old, single and currently putting 6% towards retirement. I would like to be debt free as quickly as possible, but I don't want to be any further behind in my retirement than I already am.
I have a 401k rolling over for about 10K from my previous job. I'm debating whether I should roll it over into my new job's 401k or take the money at 7K after taxes and penalty and pay off my current high interest student loan at 6.5%.
I'm currently paying $250/month and would pay off that loan in 2 years with roughly $500 in additional interest.
On top of that loan, I have another student loan for roughly 30K at 3% which I'm currently paying $260 a month. I don't have the extra cast currently to put anymore towards the higher interest loan and at my current pace it would take 12 years to pay off this loan with about $6,000 in interest.
If I took the money from my 401k and paid off the higher interest student loan, I would apply the money I was paying to the second loan and at even just $400 a month, I would have it paid off in 6 years and save $3,000 in interest.
What should I do?
Also, I'm 28 years old, single and currently putting 6% towards retirement. I would like to be debt free as quickly as possible, but I don't want to be any further behind in my retirement than I already am.
6
Posted on 3/30/15 at 1:03 pm to fatbs
I'd cut out the 6% you are currently saving before I decided to cash out the 401k
If you're getting any kind of match though, I'd try to at least keep that going and hammer the student loans as you are currently doing
At least the interest you're paying is tax deductible, so that helps
If you're getting any kind of match though, I'd try to at least keep that going and hammer the student loans as you are currently doing
At least the interest you're paying is tax deductible, so that helps
Posted on 3/30/15 at 1:03 pm to fatbs
quote:
I don't want to be any further behind in my retirement than I already am
I think you answered your own question.
Posted on 3/30/15 at 1:17 pm to fatbs
There are almost no scenarios where it is a good idea to cash out your 401k. You're going to lose about half of it to taxes and penalties.
Posted on 3/30/15 at 1:25 pm to TheHiddenFlask
I'd keep paying on the loans.
You have to assume you'll be making more money in the 12 years time during that payoff and should be able to cut that in half.
The tax deductible part on the interest is pretty huge as well.
You have to assume you'll be making more money in the 12 years time during that payoff and should be able to cut that in half.
The tax deductible part on the interest is pretty huge as well.
Posted on 3/30/15 at 2:47 pm to fatbs
DO NOT CASH OUT THE 401K
Posted on 3/30/15 at 7:15 pm to fatbs
1. Never cash out 401k early.
2. While you still have a high interest loan out, only contribute the least amount into the 401k that gets you the full company match.
3. After that pay off the high interest loan as fast as possible.
4. After that re eval what portions should go to 401k and to low interest loan, as economic conditions might be different then.
2. While you still have a high interest loan out, only contribute the least amount into the 401k that gets you the full company match.
3. After that pay off the high interest loan as fast as possible.
4. After that re eval what portions should go to 401k and to low interest loan, as economic conditions might be different then.
Posted on 3/30/15 at 7:46 pm to Stingray
Thanks for the input everyone.
Would it be smart to put my smaller interest loan into deferment for a bit and applying that money to the larger interest loan?
Would it be smart to put my smaller interest loan into deferment for a bit and applying that money to the larger interest loan?
Posted on 3/30/15 at 7:53 pm to fatbs
As others have said, and I'll repeat - do not cash out the 401.
If you can get a deferment on the 3% loan, hell, that's a low enough rate where you might consider doing that even if you could pay it off today. If the rate is low enough, debt is a *good* thing, so get used to having some and handling it well.
If you can get a deferment on the 3% loan, hell, that's a low enough rate where you might consider doing that even if you could pay it off today. If the rate is low enough, debt is a *good* thing, so get used to having some and handling it well.
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