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Started By
Message
Paying Down Debt Vs Saving
Posted on 2/6/16 at 8:53 am
Posted on 2/6/16 at 8:53 am
The amount of interest I'd save versus make seems to far outweigh it, if I can pay off quickly (IE next 3 years)
Am I being short sided with this idea?
This post was edited on 12/4/16 at 1:32 am
8
Posted on 2/6/16 at 8:56 am to gobuxgo5
How much is the student loan debt? Personally, I would take the guaranteed 5.6% return.
I'm actually in a similar situation with one of my rental properties and have decided just to pay it off this week.
I'm actually in a similar situation with one of my rental properties and have decided just to pay it off this week.
Posted on 2/6/16 at 8:58 am to I Love Bama
I think you read my post wrong. I pay 5.6% interest in the student loans. I owe 61k between both student loans.
My 401k is currently pulling in a negative interest rate.
My 401k is currently pulling in a negative interest rate.
Posted on 2/6/16 at 9:02 am to gobuxgo5
No I'm pretty sure he gets it. You're losing 5.6% interest so that's basically "making it" if you don't have to pay it.
That sounds confusing
listen to ILB
That sounds confusing
listen to ILBPosted on 2/6/16 at 9:16 am to jimbeam
Also checked a few articles on Google. It doesn't seem to recommend paying student off loans quickly at that interest rate.
It's just stressful seeing those balances.
It's just stressful seeing those balances.
This post was edited on 2/6/16 at 9:17 am
Posted on 2/6/16 at 9:33 am to gobuxgo5
My paying your debt, you are effectively getting that rate of return on your cash.
I completely know where you're coming from. Debt bothers me.
You're in the grey area as far as paying it off. I know I would make it a priority. Any rate under 5% I don't worry about but my rental is at 7% so it bugs the heck out of me.
I completely know where you're coming from. Debt bothers me.
You're in the grey area as far as paying it off. I know I would make it a priority. Any rate under 5% I don't worry about but my rental is at 7% so it bugs the heck out of me.
Posted on 2/6/16 at 9:51 am to gobuxgo5
1. Can you refinance your student loan to a lower rate? Shop online for this. If your rate drops significantly, maybe you choose to stay on the same path as before.
2. If not, IMO, i would not pull any money out of the 401k, but I would decrease the amount I put in the 401k, while still putting in enough to get the company match. The extra money I would aggressively put towards paying down that 5.6% interest loan.
2. If not, IMO, i would not pull any money out of the 401k, but I would decrease the amount I put in the 401k, while still putting in enough to get the company match. The extra money I would aggressively put towards paying down that 5.6% interest loan.
Posted on 2/6/16 at 11:16 am to Stingray
quote:
2. If not, IMO, i would not pull any money out of the 401k, but I would decrease the amount I put in the 401k, while still putting in enough to get the company match. The extra money I would aggressively put towards paying down that 5.6% interest loan.
This would be my suggestion as well.
Absolutely do not pull money out of the 401k, but cut back your contribution if you're making extra. Anything over 4% is my threshold for paying loans back at an accelerated rate.
Posted on 2/6/16 at 2:08 pm to gobuxgo5
Selling your 401k now would be a terrible idea. You haven't lost any real money; it's paper loss. The number of shares you have are still the same. Unless u sold your funds to cash, which is just as bad.
Buy low, sell high. Not sell low, buy high.... If you have 10+ years to retirement you should really welcome these downturns. This lets you buy more shares per dollar. As long as you're up at the end the short term means nothing.
If you really must, either reduce or stop your 401k contributions for now, but leave the funds in place to give them a chance to recover and grow. Though you need do at least the minimum for the company match as that is free money.
Buy low, sell high. Not sell low, buy high.... If you have 10+ years to retirement you should really welcome these downturns. This lets you buy more shares per dollar. As long as you're up at the end the short term means nothing.
If you really must, either reduce or stop your 401k contributions for now, but leave the funds in place to give them a chance to recover and grow. Though you need do at least the minimum for the company match as that is free money.
This post was edited on 2/6/16 at 2:13 pm
Posted on 2/6/16 at 6:22 pm to gobuxgo5
Definitely do not pull anything out of the 401, doing that before retirement involves paying steep penalties. Besides, next year it may gain everything back and then some, you never know. That's the thing about investing, sometimes you lose and sometimes you win, you simply have to take a long-term view.
5.6% interest is kind of a breakeven point IMHO. I suspect you could go either way, meaning either stop further 401 contributions and focus on the loan, or continue min payments on the loan while you keep investing in the 401. I lean toward the former since reducing your loan payments will help if you want to buy a house.
But definitely do not pull money out of your 401 due to the penalties. If you're going to focus on cutting debt then cut your current 401 contributions and use the extra cash. If you are getting a company match, that comes first since it is free money, don't cut below that amount.
Example: If you are getting a company match on your first 3%, then contribute 3% before knocking out student loans. If you aren't getting a match at all, consider finding a new employer but until then feel free to go ahead and knock out the loans. But do not withdraw what you've already put in.
5.6% interest is kind of a breakeven point IMHO. I suspect you could go either way, meaning either stop further 401 contributions and focus on the loan, or continue min payments on the loan while you keep investing in the 401. I lean toward the former since reducing your loan payments will help if you want to buy a house.
But definitely do not pull money out of your 401 due to the penalties. If you're going to focus on cutting debt then cut your current 401 contributions and use the extra cash. If you are getting a company match, that comes first since it is free money, don't cut below that amount.
Example: If you are getting a company match on your first 3%, then contribute 3% before knocking out student loans. If you aren't getting a match at all, consider finding a new employer but until then feel free to go ahead and knock out the loans. But do not withdraw what you've already put in.
Posted on 2/6/16 at 6:35 pm to foshizzle
I didn't mean take early withdrawal from the 401k. I just meant to stop contributing until I knocked out the Student Loans.
Also, on the student loans I'm on one of their repayment plans that states after 2033 I may be able to have them forgive the remaining balance.
This makes me on the fence if I want to let it ride out to 2033 on minimum levels or just save the interest and go at it hard.
Also, on the student loans I'm on one of their repayment plans that states after 2033 I may be able to have them forgive the remaining balance.
This makes me on the fence if I want to let it ride out to 2033 on minimum levels or just save the interest and go at it hard.
Posted on 2/6/16 at 7:47 pm to gobuxgo5
At your age stop funding the stocks, and 401 k and knock your student loan debt out
61K is alot of student loan debt
61K is alot of student loan debt
Posted on 2/6/16 at 8:12 pm to gobuxgo5
quote:
I'm currently losing money monthly in 401k & Stocks.
I wouldn't think about it like that. I would consider this the magic of dollar cost averaging.
quote:
I almost feel like I should pull out and focus on cleaning out debt and then re-focusing on saving?
I would definitely balance out saving versus debt reduction. You can't replace time in the market, but you also cannot lose money on interest you don't pay on money you don't owe.
quote:
The amount of interest I'd save versus make seems to far outweigh it, if I can pay off quickly (IE next 3 years)
FWIW, financial guru Dave Ramsey pushes this exact philosophy - paying off the debt on everything (except the mortgage on the primary residence) to the exclusion of all savings beyond a $1000 emergency fund.
Posted on 2/6/16 at 8:26 pm to gobuxgo5
If you get a company match on your 401k; you'd be crazy not to invest at least that much.
Posted on 2/6/16 at 8:47 pm to gpburdell
fund to the company match and throw everything else at the debt
Posted on 2/6/16 at 9:44 pm to Ace Midnight
quote:
$1000 emergency fund.
Sounds low to me. I like to keep at least 4 months worth of bills in reserve.
Posted on 2/7/16 at 12:57 am to Bestbank Tiger
quote:
Sounds low to me. I like to keep at least 4 months worth of bills in reserve.
That's Ramsey's "Baby Step 3"
Step 1 is $1000 emergency fund
Step 2 is pay off all debt, except your mortgage
Step 3 is 3 to 6 months of expenses
Step 4 is 15% of gross pay for retirement
Step 5 is save for children's education
Step 6 is pay off the mortgage early
Step 7 is invest and give
Posted on 2/7/16 at 9:18 am to Ace Midnight
Sounds like having the debt is causing you some financial stress, so I would definitely 401k to match then dump everything else on the debt until it's gone. Mainly because it sounds like you'll feel alot better when it's gone.
Posted on 2/7/16 at 12:24 pm to gobuxgo5
There is a tax advantage to contributing to a 401K
You can also get a deduction on student loan interest
I'd take that into consideration before you start throwing everything you have at the student loans and neglecting your 401K contributions.
You can also get a deduction on student loan interest
I'd take that into consideration before you start throwing everything you have at the student loans and neglecting your 401K contributions.
Posted on 2/7/16 at 12:27 pm to gobuxgo5
There is a tax advantage to contributing to a 401K
You can also get a deduction on student loan interest
I'd take that into consideration before you start throwing everything you have at the student loans and neglecting your 401K contributions.
You can also get a deduction on student loan interest
I'd take that into consideration before you start throwing everything you have at the student loans and neglecting your 401K contributions.
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