Author Topic: anyone regret paying down their low interest loans?  (Read 10046 times)

FuckRx

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anyone regret paying down their low interest loans?
« on: May 01, 2014, 11:18:53 AM »

I'm curious, is there anyone here who paid down their low interest student loan or mortgage and now looking back it regrets it for whatever reason?
I ask this in regards to my 107k of student loans (27 year fixed) at 2.75%. I want to pay it off aggressively because I feel so good/relieved not having debt. But I know by doing so I'm potentially missing out on future passive earnings.

ZiziPB

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Re: anyone regret paying down their low interest loans?
« Reply #1 on: May 01, 2014, 11:29:59 AM »
Being debt free would be much more important to me than potentially missing a savings/investment opportunity.  The peace of mind of having no debt is priceless in my opinion.   The only exception is my mortgage (but I decided to go with a 15 year mortgage so that it gets paid down sooner).

matchewed

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Re: anyone regret paying down their low interest loans?
« Reply #2 on: May 01, 2014, 11:35:49 AM »
It's all a matter of perspective. If you view debt solely as some sort of evil yolk and choose to let that emotion dictate your decision then yes you'll want to get rid of the loan. If you run the numbers you'll know it is usually just a math problem. In the world of finance emotional based decisions can influence how much money you will pass by or lose.

If you've run the numbers and are comfortable with them then whatever decision you make is fine. But at least make it a knowledgeable decision and not one based solely on the emotional component. Run some realistic scenarios and ask yourself whether you're willing to forgo the dollar value.

It's up to you and your take on it. Whatever lets you sleep at night.

nereo

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Re: anyone regret paying down their low interest loans?
« Reply #3 on: May 01, 2014, 11:43:04 AM »

I'm curious, is there anyone here who paid down their low interest student loan or mortgage and now looking back it regrets it for whatever reason?
I ask this in regards to my 107k of student loans (27 year fixed) at 2.75%. I want to pay it off aggressively because I feel so good/relieved not having debt. But I know by doing so I'm potentially missing out on future passive earnings.

Yeah - we paid down over $10k of my SO's SL's at a family member's strong urging (then at 2.25%, now it would be in deferment at 0%).  I shake my head every time thinking of how many VFINX shares we could have bought at the time (about 70).  The dividends alone now would be worth more than the interest accrued. 
Oh well, not a *bad* move, just not an optimal one.  Water under the bridge.

HairyUpperLip

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Re: anyone regret paying down their low interest loans?
« Reply #4 on: May 01, 2014, 11:55:12 AM »
I think the agreement made over and over is whatever brings you the most happiness...

If you are happier paying it off and not stressing over it, then pay it off.

If you are happier paying low interest and investing the money instead, then don't rush it.


Me, personally, I prefer not being a slave to other people. It's already bad I'm a slave sitting in a cube that can't even select my own vacation days..... So yeah, I would rather pay things off and not feel as obligated to work.


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Re: anyone regret paying down their low interest loans?
« Reply #5 on: May 01, 2014, 11:59:05 AM »
I had posed a similar question in another thread. I went with the route of paying it off. It feels like a boulder has been lifted, and my fixed interest rates were ~2% average across two loans.

-Brian

matchewed

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Re: anyone regret paying down their low interest loans?
« Reply #6 on: May 01, 2014, 12:01:22 PM »
I think the agreement made over and over is whatever brings you the most happiness...

If you are happier paying it off and not stressing over it, then pay it off.

If you are happier paying low interest and investing the money instead, then don't rush it.


Me, personally, I prefer not being a slave to other people. It's already bad I'm a slave sitting in a cube that can't even select my own vacation days..... So yeah, I would rather pay things off and not feel as obligated to work.

And this is where I think that the emotional decision can lead you wrong. You're stating you'd rather pay off the loan so you don't feel obligated to work when investing the money will probably lead you to not have to work earlier. So in light of that why do you want to pay it off? You won't be obligated to work, in fact you'll be FIRE sooner.

Cassie

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Re: anyone regret paying down their low interest loans?
« Reply #7 on: May 01, 2014, 12:02:05 PM »
We are not sorry that we paid off our mortgage.

homeymomma

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Re: anyone regret paying down their low interest loans?
« Reply #8 on: May 01, 2014, 12:05:10 PM »
We paid off all our student loans and a car loan even though they were all well below 5%. It feels good to be done and I don't regret it. However, i also slowed our debt repayment slightly so we could also max out two Roth IRAs at the same time, so we didn't miss out altogether. It felt like a happy medium but I can attest to the feeling of satisfaction once the debt is just gone. Agree that if you have the money to do either, just do whatever makes you feel best.

FuckRx

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Re: anyone regret paying down their low interest loans?
« Reply #9 on: May 01, 2014, 12:07:33 PM »

i think this feedback is really helpful.
i wouldn't take money from tax deferred accounts to put into loan repayment, it would only apply to after tax money

homeymomma

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Re: anyone regret paying down their low interest loans?
« Reply #10 on: May 01, 2014, 12:13:38 PM »
Also for a beginner saver like me, it helps to have a very tangible "smaller" goal (in your case 10K) to motivate saving.

HairyUpperLip

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Re: anyone regret paying down their low interest loans?
« Reply #11 on: May 01, 2014, 12:13:47 PM »
I think the agreement made over and over is whatever brings you the most happiness...

If you are happier paying it off and not stressing over it, then pay it off.

If you are happier paying low interest and investing the money instead, then don't rush it.


Me, personally, I prefer not being a slave to other people. It's already bad I'm a slave sitting in a cube that can't even select my own vacation days..... So yeah, I would rather pay things off and not feel as obligated to work.

And this is where I think that the emotional decision can lead you wrong. You're stating you'd rather pay off the loan so you don't feel obligated to work when investing the money will probably lead you to not have to work earlier. So in light of that why do you want to pay it off? You won't be obligated to work, in fact you'll be FIRE sooner.

Well obviously a lot of what I just posted carries weight with the fact that I can't even really select my own vacation days so there is a bit of bitterness in what I posted. :)

matchewed

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Re: anyone regret paying down their low interest loans?
« Reply #12 on: May 01, 2014, 12:18:39 PM »
I think the agreement made over and over is whatever brings you the most happiness...

If you are happier paying it off and not stressing over it, then pay it off.

If you are happier paying low interest and investing the money instead, then don't rush it.


Me, personally, I prefer not being a slave to other people. It's already bad I'm a slave sitting in a cube that can't even select my own vacation days..... So yeah, I would rather pay things off and not feel as obligated to work.

And this is where I think that the emotional decision can lead you wrong. You're stating you'd rather pay off the loan so you don't feel obligated to work when investing the money will probably lead you to not have to work earlier. So in light of that why do you want to pay it off? You won't be obligated to work, in fact you'll be FIRE sooner.

Well obviously a lot of what I just posted carries weight with the fact that I can't even really select my own vacation days so there is a bit of bitterness in what I posted. :)

Even more the case to choose the option which allows you to FIRE quicker. :)

simonsez

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Re: anyone regret paying down their low interest loans?
« Reply #13 on: May 01, 2014, 12:40:55 PM »
We are not sorry that we paid off our mortgage.
That's not really the question.  It is discussing two strategies that likely will cause someone to not be sorry about that choice no matter what, i.e. trying to pick the better out of two already robust strategies.

You paid off your mortgage but what did you forgo?  You very well might've made the decision that worked best for you but that doesn't mean if you had gone the alternate route you would be saying "We are sorry we invested".

nereo

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Re: anyone regret paying down their low interest loans?
« Reply #14 on: May 01, 2014, 01:18:46 PM »
You paid off your mortgage but what did you forgo?  You very well might've made the decision that worked best for you but that doesn't mean if you had gone the alternate route you would be saying "We are sorry we invested".
That's basically what I was saying.  Money is fungible.  I don't regret paying off the loan, but I wish we had invested the money instead.  Or even used it to pay down some of our mortgage (which is still at a really low rate).  It pains me to think that over 5+ years that note would have only garnered about $300 in interest.  We just succumbed to family-pressure.  That's why I try not to think about it.

bikebum

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Re: anyone regret paying down their low interest loans?
« Reply #15 on: May 01, 2014, 01:43:00 PM »
I don't care about the feeling of having no monetary debt. I see having to feed and house my future self as a debt too, and if some low interest debt can help me more effectively stash to care for my future self, I'll take it. At 2.75% I'd pay it back as slow as possible. My mortgage rate is 3.375% for 30 years and I just do the minimum payments.

If you decide to pay it off though, I have nothing negative to say about that.

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Re: anyone regret paying down their low interest loans?
« Reply #16 on: May 01, 2014, 01:46:47 PM »
I've always been focused on growing assets.  Now, I'm continuing retirement plan contributions, but I'm switching the after tax focus to debt repayment by aggressively going after our mortgage.  I don't regret doing things in this order.

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Re: anyone regret paying down their low interest loans?
« Reply #17 on: May 01, 2014, 02:04:28 PM »
I started off paying down my student loans aggressively because the interest rate was variable (4%), and I was very debt averse. Eventually, I decided to go with math and not my emotions, so I cut back on my SL payments and increased my investments. I'm really glad I did. I'll be done with my loans this month, which feels great, but I wish I had invested more over the past few years. As my investments grew, I was less troubled by my debt, which seems obvious but hadn't occurred to me when I was so focused on debt as an anchor of doom. Hope that helps. Good luck!

tooqk4u22

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Re: anyone regret paying down their low interest loans?
« Reply #18 on: May 01, 2014, 02:11:35 PM »
Even more the case to choose the option which allows you to FIRE quicker. :)

The math wins argument is too simplistic in nature and ignores certain aspects:

1.  It ignores relative risk in the equation - Paying off a mortgage is a guaranteed risk free return.  Not paying it off and investing will likely yield a higher return over time but it is not guaranteed. 

2.  Its based on historical averages - you don't know if a you are investng right before a high returning market or an imploding market.  Sort of a market timing element to this. But the your view in hindsight will be completely different depending on the outcome.

3.  Different people also have diferent risk tolerances - someone inclined to pay off the mortage would also be likely to have a more conservative asset allocation and therefore the return differences would be less.

4.  It ignores duration - average time in a home is 5-7 years, due to different stages of life, job changes, simple desire to change, etc.  So more likely than not your 30 year mortgage at 3% will not see it through to the end.
 
5. It ignores taxes - there are still taxes on capital gains, dividends and interest and mortgage deductibility isn't as much of a benefit as most people think given the standard deduction levels.

When the 30 year was at 3% - it made more sense to invest especially with dividend yields of 2%.  But now as the the 30 year rate is approaching 4.5% I don't think it is so clear given that a balanced portfolio would return 6-7% then that may not warrant the increased volatility and risk but it still is a better return. 

You do give up liquidity and have concentration in a single asset - these are the big risk items that people don't consider who are on the pay off the mortgage side - I wouldn't advise anyone to pay off the mortgage if that is all you have (i.e. if you have a $200k house and no other assets then taking on too much risk but if you have a $200k house paid off with $1mil in investments you still have a concentration but ample liquidity to offset it.   

Also the return differential is really only made apparent if you have the choice today to pay OFF the mortgage or invest the whole amount, it is not as great if the choice is between making extra payments to the mortgage or invest it.

Cassie

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Re: anyone regret paying down their low interest loans?
« Reply #19 on: May 01, 2014, 02:11:52 PM »
The poster asked if someone regretted their decision & that is the question I answered.  Obviously it is a personal choice on which route to choose.

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Re: anyone regret paying down their low interest loans?
« Reply #20 on: May 01, 2014, 03:18:26 PM »
I don't "regret" anything. I've learned from a few financial mistakes but I don't look back, I look forward. Always. I work with someone who is constantly second guessing himself, and others. He lives his entire life in regret, and he's a very successful man. It makes me sad and I refuse to live my life that way.

I have paid off a couple small debts, but they were car and 401K loans, or 0% interest CC debt on consumer crap. I carry about $20K SL debt at 4%, and about $200K in mortgage debt at < 3%. I have no intention of paying any more debts off early.

I've always considered more than $30-40K in SL debt as too much of a psychological burden to carry for most people, but based on your posts you are not most people. Since you are a high earner, I would at least double that number. My advice would be to get the debt to a comfortable level for you (maybe $80-100K) and then invest as much as possible as it will statistically provide a quicker path to FI.

Based on your other posts, taxes really shouldn't affect your decision in any way. AGI is too high to claim SL interest, and investment gains will be taxed at much lower rates than your earned income.

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Re: anyone regret paying down their low interest loans?
« Reply #21 on: May 01, 2014, 03:41:48 PM »
I agree with tooqk4u22 that there are MANY more things which influence my decision. My wife and I have a lot of 3% variable student loan debt, a 3.75% mortgage and about 75k/year of cash to do something with.

The choice for us looks like:
1) Maximize Tax Advantaged savings (401k for me, IRA for wife, HSA for me. Income limits prevent more.)
2) Maximize other work benefits that I have to buy (ESPP). Works out that I put in ~$18k I get out ~$25k (with the only risk if I lose my job I only get the original 18k) every year. This money then can be used for step 3.
3) Variable loans are scary and my cashflow is large relative to my assets so I can re-balance my asset allocation every paycheck. So while the market is up (like now) all of the money is going towards loans. When there is a market correction which drops my allocation of stocks relative to my home equity, I'll put in more (possibly all that's leftover) towards stocks. Almost like Dollar Value Averaging where my expected return is the rate of increase in my home equity (about 3% right now).

I recognize 3 is kinda arbitrary but it makes me feel good about paying off loans that have high risk due to variable interest rate.

matchewed

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Re: anyone regret paying down their low interest loans?
« Reply #22 on: May 02, 2014, 07:07:11 AM »
Even more the case to choose the option which allows you to FIRE quicker. :)

The math wins argument is too simplistic in nature and ignores certain aspects:

1.  It ignores relative risk in the equation - Paying off a mortgage is a guaranteed risk free return.  Not paying it off and investing will likely yield a higher return over time but it is not guaranteed.

True we are making some assumptions here but aren't we all making that same assumption? We're looking to FIRE here and investing to the long haul. That risk of not returning a higher yield gets lower and lower as time goes on. 
2.  Its based on historical averages - you don't know if a you are investng right before a high returning market or an imploding market.  Sort of a market timing element to this. But the your view in hindsight will be completely different depending on the outcome.
27 year loan repayment. I'll take the odds that I'm not investing right before a high or imploding market. Odds are I'm investing during both of these a couple of times or more.
3.  Different people also have diferent risk tolerances - someone inclined to pay off the mortage would also be likely to have a more conservative asset allocation and therefore the return differences would be less.
Without a doubt. Taking my question out of context to the rest of what I've said you are 100% correct :) -
It's all a matter of perspective. If you view debt solely as some sort of evil yolk and choose to let that emotion dictate your decision then yes you'll want to get rid of the loan. If you run the numbers you'll know it is usually just a math problem. In the world of finance emotional based decisions can influence how much money you will pass by or lose.

If you've run the numbers and are comfortable with them then whatever decision you make is fine. But at least make it a knowledgeable decision and not one based solely on the emotional component. Run some realistic scenarios and ask yourself whether you're willing to forgo the dollar value.

It's up to you and your take on it. Whatever lets you sleep at night.
4.  It ignores duration - average time in a home is 5-7 years, due to different stages of life, job changes, simple desire to change, etc.  So more likely than not your 30 year mortgage at 3% will not see it through to the end.

We were talking about a 27 year student loan. This point isn't applicable.
 
5. It ignores taxes - there are still taxes on capital gains, dividends and interest and mortgage deductibility isn't as much of a benefit as most people think given the standard deduction levels.
This ignores tax deferment  or other tax advantaged accounts. :)

When the 30 year was at 3% - it made more sense to invest especially with dividend yields of 2%.  But now as the the 30 year rate is approaching 4.5% I don't think it is so clear given that a balanced portfolio would return 6-7% then that may not warrant the increased volatility and risk but it still is a better return. 

You do give up liquidity and have concentration in a single asset - these are the big risk items that people don't consider who are on the pay off the mortgage side - I wouldn't advise anyone to pay off the mortgage if that is all you have (i.e. if you have a $200k house and no other assets then taking on too much risk but if you have a $200k house paid off with $1mil in investments you still have a concentration but ample liquidity to offset it.   

Also the return differential is really only made apparent if you have the choice today to pay OFF the mortgage or invest the whole amount, it is not as great if the choice is between making extra payments to the mortgage or invest it.

Again we're talking about someone who is willingly saying their loan is at 2.7% are you still going to make the same claim? It's still not a mortgage. But whatever.

That aside I agree as the interest rates rise the clear cut answer disappears. I'm still willing to take any sub 4% loan and invest instead. But that's just me personally. Others are obviously much more conservative with their financial strategies. The eternal YMMV

skunkfunk

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Re: anyone regret paying down their low interest loans?
« Reply #23 on: May 02, 2014, 08:04:49 AM »
It was a lot easier to sell paying off all of our debt to my wife than to say "Lets max out our investments." Once we don't have any debt it will be easier to get that by her.

Hence I am paying off everything, even though my highest interest rate is 3.75%. 3.75% mortgage, 3% loan from parents, 2.2% car loan, 0.8% student loans, and a 0% loan on a lawn mower. Starting with the parents and ending with the mortgage. Definitely sub-optimal but at least it is a start. We put 65% of our income into paying down debt in April.

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Re: anyone regret paying down their low interest loans?
« Reply #24 on: May 02, 2014, 10:19:41 AM »
It was a lot easier to sell paying off all of our debt to my wife than to say "Lets max out our investments."

I've never heard this argument before, but it rings true with me right now as well. I plan to open a Vanguard account this month and I had to plant the seed a few days ago with my wife. Committing $3K is a big deal in her mind right now. She will see the light soon, but I can see why it's a harder sell. Good luck.

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Re: anyone regret paying down their low interest loans?
« Reply #25 on: May 02, 2014, 10:28:32 AM »
I've been paying down a low interest student loan for the past 8 years, and have only been paying the monthly minimum. 

Now, I've got about $1600 bucks left and lately i've been really tempted to just pay the thing off and declare myself 100% debt free.  I know that its not the most rational decision, but thinking about the balance being $0 seems really satisfying to me.  So, I can definitely see how emotions come into play when making these decisions. 

ohyonghao

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Re: anyone regret paying down their low interest loans?
« Reply #26 on: May 02, 2014, 06:12:14 PM »
It was a lot easier to sell paying off all of our debt to my wife than to say "Lets max out our investments."

I've never heard this argument before, but it rings true with me right now as well. I plan to open a Vanguard account this month and I had to plant the seed a few days ago with my wife. Committing $3K is a big deal in her mind right now. She will see the light soon, but I can see why it's a harder sell. Good luck.
My wife is in the same stage, we just got an FHA mortgage in December (I know, should have saved up 20% but it's more than made up by saving $300 on commute and mortgage interest is about $130 less than our previous rent).  She wants to pump all the money into the mortgage so we can refinance to a 15 year mortgage instead of pumping everything into investing.  I'm okay with either, but would like to get more into investing, almost hitting our first $10k mark after throwing $20k towards the house and another $3k into improvements/moving.  My hope is to have the mortgage paid off about the time that we retire in 10-12 years, and with minimum investment savings of at least $11k into traditional IRA's we should have enough to sell the house, buy a duplex, move back to Taiwan and live off the proceeds and begin moving the IRA's over to Roth IRA's.

If it wasn't for the MIP shit taking our 3.875% rate and jacking it up by 1.30% I'd be content with throwing everything into investing and then paying off the mortgage when we retire in one fell swoop.  We did calculate that adding just $250 a month towards principle cuts off 10 years from the mortgage, after that it takes more and more to eat up any good size chunks (another $250 would only remove 5 more years).

The other hard part is getting my wife to stop worrying so much and wanting to buy more and more insurance.  She'd like me to have life insurance on top of everything, but I'd rather put the premiums towards investments which she can't get screwed out of.  I figure in a couple years it is all a moot point when we have enough invested that she could sell the house, liquidate the investments and move back home in Taiwan and live comfortably.  A lot of it is just fear of the unknown, perhaps I get hit by a bus tomorrow, but if that happened I think we would (she I suppose since I'd be dead) sue for a good chunk of cash to add to our other investments if it is a wrongful death.  I just don't worry about all of those things too much.  Our house values are set to skyrocket soon once the construction is done with a lawsuit with the builders who built our HOA and if they do then we are more than set.

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Re: anyone regret paying down their low interest loans?
« Reply #27 on: May 03, 2014, 12:10:30 PM »
I max out tax advantaged savings each year first. I have carried student loan balances (at 0% to 2.1%) for the past 13 years while maxing out my IRA, etc. We paid off my wife's loans quickly because they were 6.5%-8.5%. This year is the first time I've ever made an early payment on any of my own loans, and I only did it because my balances on those loans started getting pretty low or the monthly payments were so high relative to the balances that it was more psychologically burdensome to have the loans than I felt it was worth to invest the money. One loan I paid off was 2% but had a $400 monthly payment. I paid it off only a year early, but it feels good to watch my required cashflow drop so much. I decided the equation balanced in favor of paying it off when it got close to the finish line. Last week I made the first extra payment on a student loan (2.1%) I've had 13 years. I'm going to pay it off ($3k) for fun. Lowering my monthly loan payments by $1100 has felt good. But it wouldn't have felt good to have paid them off 10 years ago.

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Re: anyone regret paying down their low interest loans?
« Reply #28 on: May 03, 2014, 02:31:06 PM »
I'm sure there's someone out there who paid down their mortgage then lost their job or something and regretted tying up money that could have been used to, say, eat.  If you already have many years of expenses saved, this probably wouldn't be an issue, but that's the biggest area I can see someone really regretting it - if they don't have many liquid funds.

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Re: anyone regret paying down their low interest loans?
« Reply #29 on: May 03, 2014, 04:02:59 PM »
The way I decided to look at it was mathematically. Each year my student loans gained $500 in interest. Each year I dragged those loans out, I would have to pay less. The less I paid would be invested. Once the difference between the amount I gained from investments (assuming 9%) was equal to the the extra interest incurred, that point was my optimal loan payment term.

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Re: anyone regret paying down their low interest loans?
« Reply #30 on: May 03, 2014, 04:15:30 PM »
I haven't paid down any low interest loans faster than necessary (i.e. paid the minimums), but I do regret not taking out more student loans.

We paid for my Master's Degree (and we paid for the wife's as well) all in cash.

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Re: anyone regret paying down their low interest loans?
« Reply #31 on: May 03, 2014, 04:25:41 PM »
I've never regretted paying off debts as quickly as possible, whether mortgage or education-related.

chasesfish

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Re: anyone regret paying down their low interest loans?
« Reply #32 on: May 03, 2014, 04:32:48 PM »
I did not payoff the really low interest rate debt early and invested.

My long term goal is to have X invested and be debt free.  I'm getting closer to my X number and now prepaying debt is more important to me.  I think it depends on where you are on your path.