Author Topic: Start Retirement or Kill all Debt?  (Read 1000 times)

Trafton11

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Start Retirement or Kill all Debt?
« on: July 18, 2018, 02:42:29 PM »
Hello Mr. Money and Good People!

I would be very grateful if you guys could recommend which blog post / pod cast, I would refer to learn about prioritizing where one puts their money first. I owe about 30K in student loans which I am making significant gains on.. But everyone says it is best to start retirement ‘yesterday’. So I think the first step for me is understanding where and what order I should be dropping my money for the best outcome.

(More detailed information)
-Student loans= $31,000 with 6.8% interest
-income around $2,000 weekly with no other real bills
Question-> Do I drop a few thousand into some kind of retirement index fund to get things started.
Or just put my head down and kill these loans first?


Thank you! and everyone that might have some input, I really appreciate it. I am already addicted to the concept of this blog!

sokoloff

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Suit

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Re: Start Retirement or Kill all Debt?
« Reply #2 on: July 18, 2018, 04:47:39 PM »
Also, consider re-finacing your student loans to get a lower interest rate. Check out SoFi, Earnest and other companies. I re-fi'd with Earnest and liked them (but my loans are paid off now so if you choose to go with them or SoFi try to get a referral code from someone).

kpd905

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Re: Start Retirement or Kill all Debt?
« Reply #3 on: July 18, 2018, 05:22:59 PM »
Are you offered a 401k match at work?  If so, contribute enough to get the match.  If you can't refinance the loans, I'd pay them off before investing past the match, that is a high rate.

Trafton11

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Re: Start Retirement or Kill all Debt?
« Reply #4 on: July 18, 2018, 06:04:08 PM »
No match on a 401K .. But I do get a tax credit on my student loans here in the state I live in for interest paid. So a little worried if I refinanced I would lose that credit, and in reality with that credit, the interest pretty much gets covered after taxes
 
    thanks guys!

MrUpwardlyMobile

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Re: Start Retirement or Kill all Debt?
« Reply #5 on: July 18, 2018, 06:09:33 PM »
Refinance your rate down with Earnest or SoFi,  I’ve got an earnest link in my signature.  My rate is 3.10% and it will probably save you about $100 month in interest.

My recommendation is that you contribute 5% to the 401k and use the rest to kill debt. Sounds like you could kill your debt in a year if you’re making $2k weekly.

Bracken_Joy

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kpd905

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Re: Start Retirement or Kill all Debt?
« Reply #7 on: July 18, 2018, 07:35:29 PM »
So a little worried if I refinanced I would lose that credit, and in reality with that credit, the interest pretty much gets covered after taxes
 
    thanks guys!

You get a 100% tax credit on student loan interest? What state is this?

You are currently paying about $2100 per year in interest.

MDM

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Re: Start Retirement or Kill all Debt?
« Reply #8 on: July 18, 2018, 07:52:09 PM »
You get a 100% tax credit on student loan interest? What state is this?
Perhaps Opportunity Maine – Tax Credit for Student Loans.

Trafton11

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Re: Start Retirement or Kill all Debt?
« Reply #9 on: July 19, 2018, 06:54:51 AM »
 Yeah that is it, ....Opportunity Maine – Tax Credit for Student Loans

   

frugaliknowit

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Re: Start Retirement or Kill all Debt?
« Reply #10 on: July 19, 2018, 08:59:12 AM »
Before doing anything:

1.  See if you can refinance, and if so at what rate.

2.  Calculate how much you save from the state credit and the net effect on the interest rate.

Personally, if my net is anything north of ~4%, I would just pay off the debt before doing retirement. 

robartsd

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Re: Start Retirement or Kill all Debt?
« Reply #11 on: July 19, 2018, 10:47:50 AM »
Yeah that is it, ....Opportunity Maine – Tax Credit for Student Loans
So you get a full (non-refundable?) state tax credit for your required (minimum) student loan payments (principle and interest)? Does this credit cancel out all of your state tax liability? If your state tax liability is lower than your payments, can you modify your loan payment plan to more closely match your state tax liability?

I don't see a reason why you wouldn't still be able to claim the credit if you refinanced your student loans (so long as the refinanced loans are still considered student loans). If you're getting 100% of your payments back as a tax credit, lowering the interest rate will not benefit you and I see no reason to pay more than the minimum payment.

patchyfacialhair

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Re: Start Retirement or Kill all Debt?
« Reply #12 on: July 19, 2018, 11:39:46 AM »
So is your income before tax or after? Because if it's after tax, I would honestly just do this:

1) Contribute up to the max 18500 in your 401k by end of the year, and continue doing that forever.
2) Max out a Roth IRA if you can: 5500 by end of year
3) Max out an HSA if you're on an HSA eligible health plan: $3450
4) Then shovel every dollar into paying those loans. It would take you just a few months to be completely done. It's not financially optimal, but if you're in a living situation where you have hardly any bills, using your huge shovel of cash to pay off your debt will be awesome.
5) Save just enough to move out of the family home (I assume this is your scenario). You'll be better off for it living on your own, in most cases.