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re: Help - Student loans and 401K
Posted on 6/23/17 at 9:05 am to chicano12
Posted on 6/23/17 at 9:05 am to chicano12
What are the rates on your $26k in student loans? You may be able to refinance into a lower rate.
Regardless the 401k you are contributing is getting a 100% return because of the match. Way over the rate you are paying on your student loans. (no matter what your rate is) Lengthening the time you pay your student loans to get the 100% match is totally worth it.
The only reason it would not be is depending on your vesting schedule and how long you plan to be at such company.
Regardless the 401k you are contributing is getting a 100% return because of the match. Way over the rate you are paying on your student loans. (no matter what your rate is) Lengthening the time you pay your student loans to get the 100% match is totally worth it.
The only reason it would not be is depending on your vesting schedule and how long you plan to be at such company.
1
Posted on 6/23/17 at 9:40 am to chicano12
Sorry to digress but what OTHER debt do you have besides student loans?
What is causing you to live paycheck to paycheck?
I think you need to address your budget/lifestyle before you can start appropriately addressing your 401k and student loan debt.
What is causing you to live paycheck to paycheck?
I think you need to address your budget/lifestyle before you can start appropriately addressing your 401k and student loan debt.
Posted on 6/23/17 at 9:40 am to chicano12
Financially, this is pretty cut and dry calculation that you can do.
100% match on 6% is terrific and is a guaranteed 100% return on those dollars contributed along with some marginal tax benefit today. There is no beating those financial returns on a RISK FREE basis.
Therefore, you should max your 401k up he 6% match and pay down as much of your student loans as possible with each paycheck thereafter. With that said, out should still build an emergency fund of ~6 months expenses so dont pay down so much debt that you have no liquidity in case of emergency.
The answers of "pay down the debt as fast as possible; debt is evil" is more of a passion play or psychological avoidance of risk than a purely financial decision.
Again, there financial numbers are a simple calculation but the emotions make some people scared about debt.
You are young and 26K on students loans isn't that much in the big picture.
One question, what's the rate on the student loans? Do you have credit card debt?
100% match on 6% is terrific and is a guaranteed 100% return on those dollars contributed along with some marginal tax benefit today. There is no beating those financial returns on a RISK FREE basis.
Therefore, you should max your 401k up he 6% match and pay down as much of your student loans as possible with each paycheck thereafter. With that said, out should still build an emergency fund of ~6 months expenses so dont pay down so much debt that you have no liquidity in case of emergency.
The answers of "pay down the debt as fast as possible; debt is evil" is more of a passion play or psychological avoidance of risk than a purely financial decision.
Again, there financial numbers are a simple calculation but the emotions make some people scared about debt.
You are young and 26K on students loans isn't that much in the big picture.
One question, what's the rate on the student loans? Do you have credit card debt?
Posted on 6/23/17 at 9:41 am to HYDRebs
quote:
HYDRebs
What he said. Ditto.
Posted on 6/23/17 at 11:12 am to chicano12
What's your vesting schedule? How long do you plan on staying with current employer?
Posted on 6/23/17 at 2:33 pm to Tres7139
quote:
but, why? makes no sense
What you're telling him is what makes no sense
quote:
he can pay $500 a month for 4 years and 3 months and be done with loans. student loan debt free at age 30. 4 years of retirement money is not a considerable amount to worry over considering you're getting yourself out of debt.
buys a house, new car, etc on top of loans he will never be able to come out on top. he'll keep living paycheck to paycheck or default on the loans like so many people do these days.
That $500 you want him to dump into that loan every month with a low interest rate could be put into his 401k or some other investment account. The returns he would get out of that, even with just average returns, would far exceed the benefit of him paying off that loan
Posted on 6/23/17 at 3:10 pm to Tres7139
quote:
he can pay $500 a month for 4 years and 3 months and be done with loans.
Why do you keep throwing this out there? If it was a zero interest loan, then your numbers are correct.
If he is paying 7% blended between all loans, $500 would take 63 months instead of the 51 you are quoting.
Posted on 6/23/17 at 5:42 pm to chicano12
You have no other debt?
There has to be more to this story that is stretching you so thin.
With more info you can get better advice.
There has to be more to this story that is stretching you so thin.
With more info you can get better advice.
Posted on 6/23/17 at 7:58 pm to chicano12
As others have said, money is a game. Do not neglect the 401k benefits, as those outweigh the student loan burden. See if you can pay less on the student loan in the meantime if it's too much. You need to save enough money to live and have an emergency fund. Yes, interest sucks, but in the grand scheme of things, you're young and can pay off the student loans in the future. It's the people with $100+ in student loans that are in trouble unless they are balling doctors. You will be okay.
Posted on 6/23/17 at 8:30 pm to chicano12
26k in student loans is chump change.
$25 a day will have it paid off in 3 years.
Can't swing $25 a day?
$15 a day for 6 years.
Can't swing that?
$8 a day for 10 years.
At the age of 36, all of your loans will be paid off.
Word of advice.... the way amortization of loans works... make yourself miserable now, pay extra and often, early in the loan life. I have neither the time nor the inclination to explain the ins and outs, but the upvotes on this reply will validate what I'm telling you. It's trick math... make extra payments now.
$26k in student loans. Sheesh.
My wife just finished med school with $220k in student loans.
And millenials are complaining about the equivalent of a 5 year car payment for a Ford Fiesta.
$25 a day will have it paid off in 3 years.
Can't swing $25 a day?
$15 a day for 6 years.
Can't swing that?
$8 a day for 10 years.
At the age of 36, all of your loans will be paid off.
Word of advice.... the way amortization of loans works... make yourself miserable now, pay extra and often, early in the loan life. I have neither the time nor the inclination to explain the ins and outs, but the upvotes on this reply will validate what I'm telling you. It's trick math... make extra payments now.
$26k in student loans. Sheesh.
My wife just finished med school with $220k in student loans.
And millenials are complaining about the equivalent of a 5 year car payment for a Ford Fiesta.
Posted on 6/23/17 at 8:41 pm to chicano12
You need to build up equity in some type of savings fund not your 401(k). If you're living paycheck to paycheck and build up your savings versus AN investment plan with a 401(k). Then, use a hybrid method to use your savings and a debt snowball about to pay off your student loan's.
Posted on 6/23/17 at 9:17 pm to chicano12
Remember, your income will go up significantly in the next 5 years (typically). Not sure why it would take you that long to pay 26k. Set the 401k to 6%.
Posted on 6/25/17 at 11:51 am to chicano12
Consider contributing 6% to 401k and getting another job to pay down debt. Also, eliminate all but necessary expenses. You'll be happier 5 years down the road having sacrificed without losing out on the free match money. compounding returns on that money will be what makes you the most money in your retirement.
Posted on 6/25/17 at 12:17 pm to chicano12
I would say keep doing the 401k as much as you can do within your means.
Hopefully you will be getting some raises in the next few years and you can start putting that extra to the loans.
And think long and hard about your expenses as to what you really need and where you can cut back
Hopefully you will be getting some raises in the next few years and you can start putting that extra to the loans.
And think long and hard about your expenses as to what you really need and where you can cut back
Posted on 6/26/17 at 10:34 am to chicano12
If you're currently with Navient, you could try to convert to income based repayment to lower your note. Do this for a couple years until you can afford to pay more.
Definitely do not stop paying into your 401k. Put in just enough to get the 100% match because it's free money.
Definitely do not stop paying into your 401k. Put in just enough to get the 100% match because it's free money.
Posted on 6/26/17 at 11:03 am to chicano12
Always pay yourself first.
The end.
The end.
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