Author Topic: Someone please tell me why on earth I should pay off my student loan  (Read 4225 times)

Offline WISurvivor

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Here's my deal:
-My wife and I have $24K in student loans.
-One balance is $10.5K at 2 7/8%, $124.35/monthly payment
-One balance is $13.6K at 1 5/8%, $129.18/monthly payment
-Both loans' interest accruals are tax-adjustable

Inflation is ramping worse than rates as low as this debt costs me.  I'm having trouble getting motivated to pre-pay this when I know I can do so with tomorrow's more worthless dollars.

If I could write a check today, I'd be out $24k.  Not having the payment would pay for itself in 8 years.

If I made the minimum payment each month, I'd be done in 9 years and 9 months.

I get it, debt is cancer.  I hate writing those checks each month.  I just can't see pre-paying this being worthwhile.

Help?!?  ???

Offline rotrhed

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #1 on: August 07, 2013, 03:25:19 PM »
My $.02, for whatever it's worth, would be..  "hell no."

I've been careful, so that my only debt now is my house.. otherwise, I owe nothing at all.

I've started the transition to intrinsic-value tangibles already, and when things collapse, I'm anticipating laughing hysterically, at the ridiculous wealth I'll have in my hands, literally.

I'd continue to make your minimum payments, since you're obligated to.. but don't make any extra payments until things crash and burn and you can pay off your debt with inflated dollars.

Mercenary? Maybe..

Offline Rottenclam

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #2 on: August 07, 2013, 04:58:11 PM »
I always liked what Jack had to say when people talked about running up a line of credit and then not paying because the economy will collapse soon enough:

"Because then you're just betting on failure"

Actually, I dont think you're talking about not paying the debt off.  I think you're just talking about not paying it off in a lump sum (and instead, just making the small monthly payments).

If I were you, the only reason that I'd pay it off in a lump sum is for your own peace-of-mind.  If that is not a big issue, then just let it trickle back to the fedgov in the small payments.

Offline Pathfinder

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #3 on: August 07, 2013, 06:10:03 PM »
Why pay it? Uh, cuz you said you would?

Offline Rottenclam

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #4 on: August 07, 2013, 06:57:41 PM »
Why pay it? Uh, cuz you said you would?

Yeah.  That too.

(sometimes it is the points which are most obvious that we fail to express - thanks for the sanity check on that one, Pathfinder)

When I was swimming in credit card debt, I had a bunch of friends tell me to just declare bankruptcy or to go to one of those credit consolidation companies that negotiate a lower rate and all that.  I considered for all of one second and then told myself, there is no way that I was going back on something that I agreed to...but in that same breath, I also told myself that once the smoke cleared, I was never going to agree to be a slave to credit cards again.

It has been two years this month, and it feels friggin' good.

***DISCLAIMER***

I know the original poster is talking about student loan debt and not credit card debt.  I just felt like relaying my own personal story / perspective.

Offline Ken325

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #5 on: August 07, 2013, 07:25:14 PM »
I came out of college with $14,000 in student debt and $20,000 in credit card debt.  On the positive side I put myself through college by working and using GI bill benefits.  On the negative side it took me 10 years to get out of debt and for 3 years I worked two jobs.  For most of the 10 years I made minimum payments and made no progress on the debt.  The credit card companies knew I was screwed so they jacked up my rates to 20%.  I was just paying interest.

To get out of this I basically used the snowball method.  I got a $2000 loan from my retirement account and paid off one credit card.  That company offered me low interest rates to transfer the balance so I moved the money from another card and used this method to lower my rates. The trick is you have to have some extra in your budget that you can use on the debt.  Pay off one card to get more in the extra category and be disciplined about paying it off.  It only took two years to get out of debt when I made this a priority.  After you get out of debt it is surprising how fast you start to get ahead.

The rules on bankruptcy are different on student loans.  I don't know the specifics but I have been told it is difficult.  I also remember that failure to pay can block you from some government jobs and benefits.

Offline FreeLancer

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #6 on: August 07, 2013, 09:39:22 PM »
At those rates, I wouldn't recommend that you pre-pay the loans.  I think it's extremely important to have a cushion, and $24k at hand can easily solve a lot of problems that could arise in the next decade.  If something changes in the next few years, and you can't figure out anything better to do with the money, you can always pay it off then.

This is essentially the same argument I have with myself about paying off the second mortgage.  I could do it, but I'd rather have that extra cushion available, at least at this point in my life.

Offline WISurvivor

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #7 on: August 08, 2013, 10:36:28 AM »
Thanks for the help everyone.

If it weren't clear, I FULLY intend to pay these loans back.  I didn't word my post correctly.  My question is about PRE-paying.

Offline kid_couteau

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #8 on: August 08, 2013, 11:17:59 AM »
Hi All

This is just my way and i am not telling you what to do it is simply what I would do.

My wife and I own both vehicles and I only have 500 dollars in CC debt [was bad at the gun shop the other day.  8)

Only other debt is the mortgage down to about 37,000.  Making double payments on that.

If someone dropped 37,000 in my lap tomorrow, my mortgage would be paid for.

I feel that as time goes on and things get harder the person with no debt will be better off.

Just my thoughts
Kid

Offline Lifeon2whls

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #9 on: August 08, 2013, 11:49:22 AM »
I think a lot of it depends on what your financial situation is. In my opinion, at those rates, you would be much better off making the minimum payments and using the money in a different way. I can make more than 3% with my money in investments than I would save by paying those loans off early...of course there is risk there. That said, credit card debt is a serious hazard to your financial well being given how high the interest rates are...given how low your student loan rates are and that your interest is tax deductible, you'd also be better served making sure you save enough money to be secure for 6mo to a year in case you lose you job, have an emergency, etc. Once you have this done and you're secure otherwise, I would suggest adding extra payments or paying more per month on your student loans, but focus more on saving and spending your money on things that will provide a more solid return.

Offline rexbo

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #10 on: August 08, 2013, 01:10:00 PM »
One thing to note.

If it's a federal student loan, then it can be discharged at the time of death or when Obama discharges them, which ever comes first.  ;)

Keep it and give that pet a name.

Offline inconel710

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #11 on: August 08, 2013, 01:38:53 PM »
I'm in a similar situation with about $32K in student loans (we consolidated a long time ago).  The biggest reason I have for throwing extra money at it is because of the way student loans are treated under the law.  They're not bankruptable, they can garnish your income without getting a judgement against you, and they'll even garnish SocSec payments.  I'm not going crazy paying them off, but if I have a good month and the emergency fund is full, I'll throw some their way.  I should have paid them off three years ago when I had the chance, but the wife wanted a down payment on the house we're in.  We've built up a lot of equity in the house and I'm hoping to sell it for more than we paid for it.  If that works out, we'll probably pay them off and be done.  If anything, I'll sleep a little better for not having that particular sword over my head anymore.

Rottenclam - I'm right there with you on the credit cards.  We're so happy to not have those anymore.  Student loan and mortgage are all we have left.

Offline CKMe

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #12 on: August 08, 2013, 05:26:16 PM »
I am a mortgage underwriter - I look at credit reports all day long (and you thought your job was boring)

The only .02 I can add to this that hasn't been listed already is that one thing people don't realize about their student loans is that a lot of times they report separately. If you have consolidated them then you only have one student loan and if you miss a payment it reflects like a credit card - not the end of the world, still mortgage worthy. If you have unconsolidated student loans and you miss a payment you could be hit 7 different times, even if you only write one check per month to one financial institution.

Personally I no longer care about my credit report, I'm not buying any more houses, and I'm sure not signing up for any credit cards but I find that in so many ways what we don't know can hurt us and there is nothing worse than declining a file because someone missed one student loan payment 2 years ago, it reflected 7 times as if it were 7 different tradelines and now the borrowers fico score is too low to justify lending to them.

Just a thought...

Offline RogueLibertarian

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Re: Someone please tell me why on earth I should pay off my student loan
« Reply #13 on: September 23, 2013, 11:04:58 AM »
Withour knowing more about your current financial background and goals here is my stab at answering your question.

1:  Do you have a minimum 3 month of expenses in an emergency fund??  If not there is your first priority.

2:  Once you have an emergency fund I would suggest saving up the funds to buy a really nice fireproof gunsafe.  This safe will be invaluable moving forward for storing other prepping needs.

3:  Once you have the safe begin to save cash at home for the purpose of retiring your student loans early.  It doesn't pay to keep that money in a bank as interest rates are essentially zero.  In time your situation will change (I am assuming you are in your 20's) and that money may become useful for other purposes like buying a homestead.  Point is that prepaying the debt yields little return (other than the peace if mind of being debt free) and saving in a bank is actually a negative yield (inflation is greater than the interest rate).  Buying a safe which has numerous uses in prepping is a great investment/prep and allows you to open a savings account at The First State Bank of (enter your name here).  :))

BTW...I too live in WI.  Would you be interested in getting to know each other better?  I have found WI tough to connect with other preppers and the ones I've found I have gotten a funky vibe from.  I am in NE WI around the Fox Cities area but I spend a lot of time in northern WI (my bugout location) and in SW WI west of Madison with friends.