Author Topic: Advice requested  (Read 2678 times)

LeCrowe

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Advice requested
« on: October 24, 2013, 07:36:08 PM »
Hello!

I am a sophomore at a university in NW Ohio. Today I was talking with my cousin about my college debt. So far I have taken out $3500 in loans, however I am not going to take out anymore the next two years and I currently have enough money to pay them off, which is what I was planning to do, but she suggested something else. She said that I should put $3500 into a CD until after I graduate. My loans are subsidized, so I don't gain any interest until 6 months after I graduate. Is the CD idea a good one, or what other suggestions do you guys have?

Thanks!

randymarsh

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Re: Advice requested
« Reply #1 on: October 24, 2013, 10:24:44 PM »
I wouldn't do the CD because rates are so low. I would do a Roth IRA, assuming you have earned income during the year.

imustachemystash

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Re: Advice requested
« Reply #2 on: October 24, 2013, 10:46:26 PM »
If you need the money in 2.5 years to pay off your loan, I would do a CD because it is less volatile than the index funds in a Roth IRA.  Those are for longer term investing. 

Stache In Training

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Re: Advice requested
« Reply #3 on: October 24, 2013, 10:54:20 PM »
I agree with investing that money somehow until the 6 months after graduation, when your first bill comes and then pay it off.  It's the only loans ever with a delayed interest gain, so you might as well take advantage of it.

I also agree that CD rates are really low right now.  In fact, I know my just regular savings account for my capital one 360 account gets better rates than any CD rates I've seen offered through mint.com, capital one 360, or my local credit union.  So I'd say to just hang on to that money in the highest savings rate you can find.  It won't be much more, but it will be more than if you paid it off right now, and it'll be guaranteed. (Here's my refer a friend link to capital one 360: https://r.capitalone360.com/fvMaBF6sbX  The savings rate is .75% on the savings account.  One of the best rates around right now.  Also, you should get $20, and I should get $20 if you sign up with like $250.  Also, please don't feel like I am in any way pushing you to use my link.  In fact, if you look on the MMM blog, you'll probably find an even better sign up deal.  Either way, use a sign up deal, because 'hey, free money!')

Or you could invest it, but it'll be nice to pay them off right away, which might not happen, if the market tanks right at that 6 month mark.  It'd be no problem if you were investing for retirement, but more of a problem since you have a very short time-frame.

Good luck, and congrats on being able to pay off your loans right away!

RobertBirnie

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Re: Advice requested
« Reply #4 on: October 24, 2013, 11:35:45 PM »
The problem with high interest savings/checking accounts is that most require a monthly direct deposit. So if you are a student and not working this will be hard to swing.

If you can do the direct deposit shop around. I just opened an account with my local credit union (First Tech Federal) that gives 1.57% https://www.firsttechfed.com/static/website/pdf/Rates_Savings.pdf


chasesfish

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Re: Advice requested
« Reply #5 on: October 25, 2013, 05:00:05 AM »
It depends on your risk tolerance.   I took some subsidized loans while at the same time funding a Roth IRA from my job 12 years ago. 

The results were probably slightly positive, but I don't know if I'd do it again.  I'd probably cut out some other expenses and do the same without borrowing the money.

seattlecyclone

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Re: Advice requested
« Reply #6 on: October 25, 2013, 12:16:59 PM »
First off, good job getting to a point where you expect to graduate with a positive net worth! That's something of an accomplishment these days.

Putting that money in a savings account or CD will be better financially than paying off the loan right away. That said, $3,500 saved for two years at 0.75% interest will make you approximately $50 richer than if you just paid the loan off right now, so it's not a huge difference either way. If you would sleep better at night being debt free, that may well be worth more than $50 to you.

But in your shoes as a student, I might prefer to have the money available as cash to make sure I could get through college without needing to take out any more loans, especially if the new ones might be of the unsubsidized variety. Getting a head start on retirement savings with a Roth IRA isn't a bad idea either. The bottom line is that I simply wouldn't worry too much about $3,500 of debt. Even if you have no cash on hand six months after graduation when the interest starts accruing, you should be able to earn enough to pay it all off within a few months. The amount of interest that you'll pay in that worst-case scenario will be negligible, and the long-term benefit of saving in a Roth IRA during your college years could well outweigh that interest payment.