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Debating a student loan debt payoff/emergency fund accumulation
Posted on 5/23/17 at 5:08 pm
Posted on 5/23/17 at 5:08 pm
I've been working my arse off doing two jobs for 6 years.....I've actively paid down my student loans at a +2.5 ratio to monthly payment. Initially, I was able to consolidate it at variable rate of 2.8%. I chose this route because At time loan was 110k and I planned on being hyper focused on payments to the loan so any big jumps wouldn't hurt me with the 1% rule per year.
Over the course of the last year and a half following libar it's gone up to 3.4%.
Following the money boards advice, I established the often talked about "emergency fund" with the 2nd job revenue.
I've accumulated a healthy stack of cash and by July it will meet the active balance of the student loan debt(roughly 65k).
Since reading the recent emergency fund thread, I've come to a cross roads. I have the money in a weak interest bearing account and it really isn't making me a great turn around but the security blank has been comforting.
My question to my friends on money talk is: should I just clear my liquid cash and eliminate the student loan debt or keep the free cash when they meet(the loan amount to free cash amount) and just start actively contributing all free cash from July on to the student debt?
If this is confusing should I wipe slate clean and start saving from an almost 0 balance Or keep free cash and devote all resources from July on to student loans?
Is free cash more important that being debt free? The emergency fund thread has really questioning my original plan.
Over the course of the last year and a half following libar it's gone up to 3.4%.
Following the money boards advice, I established the often talked about "emergency fund" with the 2nd job revenue.
I've accumulated a healthy stack of cash and by July it will meet the active balance of the student loan debt(roughly 65k).
Since reading the recent emergency fund thread, I've come to a cross roads. I have the money in a weak interest bearing account and it really isn't making me a great turn around but the security blank has been comforting.
My question to my friends on money talk is: should I just clear my liquid cash and eliminate the student loan debt or keep the free cash when they meet(the loan amount to free cash amount) and just start actively contributing all free cash from July on to the student debt?
If this is confusing should I wipe slate clean and start saving from an almost 0 balance Or keep free cash and devote all resources from July on to student loans?
Is free cash more important that being debt free? The emergency fund thread has really questioning my original plan.
This post was edited on 5/23/17 at 5:18 pm
6
Posted on 5/23/17 at 5:22 pm to L S Usetheforce
65k is a lot in cash. I'd take half of it and either pay off the student loan (or other higher non-mortgage higher interest loan if you have it) or invest it in something else. I wouldn't leave 65k in a savings account right now.
Posted on 5/23/17 at 5:24 pm to elposter
I've been actively seeking a real estate venture but the stress of the student loan payments was too risky for me to press forward.
I have no other other major debt besides mortgage(15 year at 2.8%)...own my truck and my wife has a van that is 0.9% over 4 years.
The reason for so much free cash(emergency fund was suppose to be at least 3 but preferably 6 months of income generated per money talk).
I have no other other major debt besides mortgage(15 year at 2.8%)...own my truck and my wife has a van that is 0.9% over 4 years.
The reason for so much free cash(emergency fund was suppose to be at least 3 but preferably 6 months of income generated per money talk).
This post was edited on 5/23/17 at 5:28 pm
Posted on 5/23/17 at 8:03 pm to L S Usetheforce
3 to 6 months of expenses... Is the usual rule of thumb, not income
Posted on 5/23/17 at 10:29 pm to L S Usetheforce
What do you do for a living? Sounds like you make a decent amount every month? Are you doc or a CPA or something that's really stable? 65k is a lot to sit a savings account doing nothing. I personally would probably take about 30k and put it towards the student loans and and keep the rest in my emergency fund. If you are in a stable industry surely you could get by on 35k for a couple of months if something were to happen.
Posted on 5/24/17 at 7:52 am to Mingo Was His NameO
I am a CRNA. What is my advantage to keeping the 35k vs having no loan payment? The emergency fund thread really kind of shot down the notion.
This post was edited on 5/24/17 at 7:53 am
Posted on 5/24/17 at 8:23 am to L S Usetheforce
quote:
I am a CRNA. What is my advantage to keeping the 35k vs having no loan payment?
isn't the difference the difference in interest rate on the loan v. return rate on investing?
also, i am in a similar position but i have $30k in savings as my emergency fund (that should cover me for about 9 months if i literally have 0 income for business/life, or a year for just life. i have operations reserves for business expenses. with both i can probably go 2 years without income)
i like having the safety and security of that blanket but i've thought about rolling the dice on just paying off the rest of my loans and then rebuilding the emergency fund.
Posted on 5/24/17 at 9:26 am to SlowFlowPro
Yeah slow....I can say without reservation the savings money isn't making much money(it's like 25 bucks a month)...and not 3.4%
That emergency fund thread really twisted my thinking.....seems like the only reason to have free cash is for piece of mind....it's functionality is lost because it is "savings"
That emergency fund thread really twisted my thinking.....seems like the only reason to have free cash is for piece of mind....it's functionality is lost because it is "savings"
This post was edited on 5/24/17 at 9:27 am
Posted on 5/24/17 at 9:49 am to L S Usetheforce
i will forego some interest for the peace of mind, though
although, i suppose if you can take most of that and put it in a really safe index fund that won't penalize you for withdrawal, if you run into a bad spot you'll see it coming so you may just need 1-2 months of legit "emergency' funds and can safely invest the rest and if shite hits the fan, just sell off the index fun and move it into savings as needed
it's not like you'll have to actually pay 6 months of living in a week, because, you know, you'll have the 6 months to spread it out
although, i suppose if you can take most of that and put it in a really safe index fund that won't penalize you for withdrawal, if you run into a bad spot you'll see it coming so you may just need 1-2 months of legit "emergency' funds and can safely invest the rest and if shite hits the fan, just sell off the index fun and move it into savings as needed
it's not like you'll have to actually pay 6 months of living in a week, because, you know, you'll have the 6 months to spread it out
Posted on 5/24/17 at 9:55 am to L S Usetheforce
quote:
seems like the only reason to have free cash is for piece of mind....it's functionality is lost because it is "savings"
Think of it as an insurance policy against going into more debt at higher interest rates if some crisis ever happens.
Posted on 5/24/17 at 10:15 am to L S Usetheforce
What are you paying monthly on your loan?
It sounds like you are putting about $1,000-1,100 a month into the savings account.
As a CRNA, you probably make +/- $165,000. I don't know what other major debts you have, but I would guess that you could build your emergency fund back up pretty quickly with the current contribution of +/-$1,000 + your student loan payment.
This is all assuming your job is secure; which I can't imagine it is not. I guess other contingencies are wife, kids, etc...
It sounds like you are putting about $1,000-1,100 a month into the savings account.
As a CRNA, you probably make +/- $165,000. I don't know what other major debts you have, but I would guess that you could build your emergency fund back up pretty quickly with the current contribution of +/-$1,000 + your student loan payment.
This is all assuming your job is secure; which I can't imagine it is not. I guess other contingencies are wife, kids, etc...
Posted on 5/24/17 at 10:56 am to L S Usetheforce
For us, we paid off school loans for children to the tune of about 50k, after paying monthly for a number of years, in one lump sum. We had banked enough to feel comfortable in doing so in the event things went south for us, which they didn't....feeling safe was a big deal for us. Further, the rate of interest paid on the loans was higher than what we were earning.
Posted on 5/24/17 at 11:31 am to OysterPoBoy
quote:
Think of it as an insurance policy against going into more debt at higher interest rates if some crisis ever happens.
but what's the downside to taking say, 50-65% of that and putting it in a very conservative/safe and accessible index fund?
you'd have 2-3 months of pure liquid "insurance" but essentially 3-4 months of "backup insurance" that may make some returns over time
Posted on 5/24/17 at 12:04 pm to SlowFlowPro
No downside. I think 65k is too much to have in savings. I was just saying don't think of it as a wasted opportunity for earning but as insurance.
Posted on 5/24/17 at 12:04 pm to L S Usetheforce
quote:
If this is confusing should I wipe slate clean and start saving from an almost 0 balance Or keep free cash and devote all resources from July on to student loans?
Is free cash more important that being debt free? The emergency fund thread has really questioning my original plan.
I would say it depends on what your next step would be... I was in a similar situation a few years ago and decided to get out of debt completely. I then dropped my second job which was a huge mistake. It took me years to get my savings back up to a comfortable point because I was no longer worried about it. The debt tends to create a sense of urgency and a need to save. Being debt free has been a mental roadblock for me in saying "no" to those extraneous expenses I was avoiding while in debt.
So, if you think you can hang on to the second source of income and continue to save as you are today, I'd say pay it off. Otherwise, hang in there a bit longer, until you have enough to pay them off and have an emergency fund set in place.
My 2 cents at least.
Posted on 5/24/17 at 12:10 pm to L S Usetheforce
quote:
The emergency fund thread really kind of shot down the notion.
I read the thread and if you want to put the remaining in a highly liquid trading account, go for it. I really can't fault the logic that much. Like others have said, it's nice to have the actual cash.
I guess I should ammend my statement. I would probably keep 10k in cash in the savings account just for piece of mind and 20k in an index fund that can be accessed penanlty free within a few days.
Posted on 5/24/17 at 12:19 pm to L S Usetheforce
Depends on your risk tolerance. I have a HELOC on my home and don't use it. But I wiped out all other debt and was willing to use that credit if need be. Never had to use it but had he contingency
Posted on 5/24/17 at 3:21 pm to BeerMoney
Thanks for input guys....I'm going to put 50k into the loan and keep the rest free....that will just move the loan date payoff too about November instead of July......appreciate all the feedback.
Posted on 5/24/17 at 3:46 pm to L S Usetheforce
quote:
Thanks for input guys....I'm going to put 50k into the loan and keep the rest free....that will just move the loan date payoff too about November instead of July......appreciate all the feedback.
Bravo and congratulations! That's what I would have done. If it makes you feel any better, I still owe $226,000 on my MBA & wife's MD.
Posted on 5/24/17 at 3:59 pm to TheWiz
quote:
I still owe $226,000 on my MBA & wife's MD.
Buy a house less than 300k......drive your old cars and you and her will be fine in 5 years.
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