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Message
Longterm outlook post grad school
Posted on 12/17/13 at 1:39 pm
Posted on 12/17/13 at 1:39 pm
is it better to payoff student loans or accumalate wealth In my 401k over next 5 years?
31 CRNA, devoting full 17500 a year in 401k with 4% company match....
Should I be using that 800 a paycheck to paydown loans or just be paying off what I can afford monthly?
31 CRNA, devoting full 17500 a year in 401k with 4% company match....
Should I be using that 800 a paycheck to paydown loans or just be paying off what I can afford monthly?
This post was edited on 12/17/13 at 1:40 pm
2
Posted on 12/17/13 at 1:43 pm to L S Usetheforce
Half of me wants to scream at you and ridicule you for not putting that 17,500 a year to your debt first, THEN devote that amount to your 401k.
The other half of me (the smarter half, if you will) says you'll earn much more in your 401k in the next year by contributing $17,500 than the amount of interest you're going to pay on your student loans during the same timeframe. Therefore, I think it's probably smarter to contribute to your 401k right now then after the first year, double down and pay off your debt. The compound effect on that $17,500 while you're this young will pay off tremendously later. You can always take 1-2 years "off" of contributing to your 401k after the first year to pay off debt.
Does that make sense?
The other half of me (the smarter half, if you will) says you'll earn much more in your 401k in the next year by contributing $17,500 than the amount of interest you're going to pay on your student loans during the same timeframe. Therefore, I think it's probably smarter to contribute to your 401k right now then after the first year, double down and pay off your debt. The compound effect on that $17,500 while you're this young will pay off tremendously later. You can always take 1-2 years "off" of contributing to your 401k after the first year to pay off debt.
Does that make sense?
Posted on 12/17/13 at 1:47 pm to TDsngumbo
Depends on the interest rate right?
For example, he should at least do the company match because that is a 100% return off the bat that beats any student loan rate.
However, if he has high interest rates near 8% like many grad school folks, he may want to put the extra money after the match on the loan instead of contributing, since at that rate they are pretty "even" for the average investor.
Or is there some other gain in return I'm missing on the investing side that outweighs that high an interest rate?
For example, he should at least do the company match because that is a 100% return off the bat that beats any student loan rate.
However, if he has high interest rates near 8% like many grad school folks, he may want to put the extra money after the match on the loan instead of contributing, since at that rate they are pretty "even" for the average investor.
Or is there some other gain in return I'm missing on the investing side that outweighs that high an interest rate?
This post was edited on 12/17/13 at 1:48 pm
Posted on 12/17/13 at 1:49 pm to Teddy Ruxpin
I've always been coached that every dollar before 38 is worth 7 @ 55?
Posted on 12/17/13 at 1:54 pm to L S Usetheforce
quote:
I've always been coached that every dollar before 38 is worth 7 @ 55?
This is really simplifying the issue; not to mention the same saying applies to your debt as well if it matches the rate your money is growing. I'm not saying my answer is correct at all, but the question is, what rate is your money going to grow versus the rate your debt will grow (at least that's the question I'd be asking).
You haven't provided any interest rates on your loans that would help the analysis at all.
This post was edited on 12/17/13 at 2:00 pm
Posted on 12/17/13 at 2:06 pm to Teddy Ruxpin
50k @ 6.9
55k @ 7.9
55k @ 7.9
Posted on 12/17/13 at 2:14 pm to L S Usetheforce
quote:
55k @ 7.9
I'd definitely pay that down before additional 401k
quote:
50k @ 6.9
I'd probably pay that down as well
This would be my preference:
1 - Get full match on 401k
2 - pay off the 7.9
3 - pay off the 6.9
4- max out 401k
If your rates were lower, I would say stick with the 401k, but I personally would take the guaranteed 7.9% and 6.9%. I think my internal threshold is somewhere around 5-6% for debt because I think I could make more, but that still a nice guarantee.
Posted on 12/17/13 at 2:21 pm to kennypowers816
100k for crna school? That's med school sized debt. Personally, I'd still max out my retirement first, all the while, keep paying down on the debt. Then I'd write a check once I had enough saved up. I finished school with $90k in student loans and just last yr, I wrote a check to finish them off. Took me 12 yrs. Looking back, I'm glad I maxed out my retirement for those 12 years, but at the time, I really hated having that debt sitting over my head.
This post was edited on 12/17/13 at 2:32 pm
Posted on 12/17/13 at 3:00 pm to guttata
quote:
100k for crna school? That's med school sized debt.
Not any Med school I've heard of..
Posted on 12/17/13 at 3:02 pm to lilsnappa
I think I did alright 100k debt for a 200k job.....
Posted on 12/17/13 at 3:18 pm to L S Usetheforce
Yes, you did ok.
Posted on 12/17/13 at 3:20 pm to L S Usetheforce
quote:
I think I did alright 100k debt for a 200k job.....
Well shite, why are you even asking this question when you could easily do both?
Posted on 12/17/13 at 3:29 pm to Teddy Ruxpin
But I can't I have 2 kids, a mortgage car payments, I can put some over but life cost money....
Posted on 12/17/13 at 5:46 pm to L S Usetheforce
You can easily do it. I had 2 kids, wife in grad school, paying a car note, mortgage, as well as paying off my school loan debt. Was still able to max out retirement and knock down loans each yr. you may have to change your lifestyle a little bit, but it can easily be done on a $200k salary. You simply have to knock out some unnecessary spending and make the loan payoff a priority.
This post was edited on 12/17/13 at 5:50 pm
Posted on 12/17/13 at 6:25 pm to L S Usetheforce
Definitely get the 401(k) match first. That is by definition a 100% return on investment. Not even Western Sky charges that much.
After that it's more of a judgement call at that point IMHO. Paying off a nearly 8% loan is a very sweet guaranteed rate of return but if you think inflation is coming back you may want to hold off and invest the 401 (with the tax break you get) in assets that are less rate-sensitive.
Personally I'm not in that camp but some are and I do think it's a judgement call.
After that it's more of a judgement call at that point IMHO. Paying off a nearly 8% loan is a very sweet guaranteed rate of return but if you think inflation is coming back you may want to hold off and invest the 401 (with the tax break you get) in assets that are less rate-sensitive.
Personally I'm not in that camp but some are and I do think it's a judgement call.
Posted on 12/17/13 at 6:35 pm to foshizzle
The tax break alone has to be worth it. ...I also max out an hsa........which helps with taxes as well.
Posted on 12/17/13 at 7:29 pm to guttata
quote:
You simply have to knock out some unnecessary spending and make the loan payoff a priority.
NB4DaveRamsey
I think with $200K/yr salary, you can knock down that debt in a couple of years maybe sooner.
I don't know all what the OP has but cut out all the stuff not really needed, perhaps sell off stuff,(if you have it), like boats, ATVs, extra vehicles, cut out dining out, no vacations...
Get very aggressive with it.
There's nothing like being debt-free, its a very nice feeling.
Good luck.
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