Author Topic: Is my hair on fire?  (Read 8774 times)

milla

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Is my hair on fire?
« on: January 06, 2014, 12:15:01 PM »
We have a student loan still. Yeah, I know. It's gross. My husband doesn't want to pay it off "just yet" because he doesn't want to part with the money. It's for $4700 at 4.5% interest.
This is the only loan we ever got besides our mortgage so I really hate it. My husband thinks we're still making more with investments so we should keep it.
What do you all say?

Yes, we have the cash to pay it today if we chose to.

Catbert

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Re: Is my hair on fire?
« Reply #1 on: January 06, 2014, 12:25:54 PM »
Well, to me it depends on whether the $4500 is "invested" or is "cash".  You say both in your original post. If there is $4500 extra in your checking or savings account then pay it off!  However, if you'd really have to liquidate investments (and probably pay capital gains tax) then don't pay off immediately.

willn

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Re: Is my hair on fire?
« Reply #2 on: January 06, 2014, 12:35:20 PM »
We have a student loan still. Yeah, I know. It's gross. My husband doesn't want to pay it off "just yet" because he doesn't want to part with the money. It's for $4700 at 4.5% interest.
This is the only loan we ever got besides our mortgage so I really hate it. My husband thinks we're still making more with investments so we should keep it.
What do you all say?

Yes, we have the cash to pay it today if we chose to.

Well, its not making more if you are keeping it in cash! It would have to be invested to make that argument work.

The money is already spent, he just doesn't want to admit it.

How fast could you build back up 4700 in cash (or dump into investments) if you pay it off? A few months?

Disappear that loan asap!  4.5% + a risk premium + tax means any theoretical gain is very marginal.  Especially since you won't be raiding your investment account to do it.

 

milla

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Re: Is my hair on fire?
« Reply #3 on: January 06, 2014, 01:30:50 PM »
We keep 5k in a savings account at all times. It's our emergency fund. Everything else we have in Roth IRAs, 401(k)s and one T-IRA. So I can take 4700$ to pay it off today but that 5k would have to be replenished.

matchewed

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Re: Is my hair on fire?
« Reply #4 on: January 06, 2014, 01:33:16 PM »
Depending on how much is in the Roth IRA and how much is accessible as contributions you could pay off the loan w/ the 5k, but if you don't have an equivalent or larger amount of contributions in your Roth IRA I wouldn't pay it off in one lump.

Depleting your emergency fund for not a bad debt level and not a bad interest rate doesn't make a whole lot of sense unless you have a back up.

dragoncar

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Re: Is my hair on fire?
« Reply #5 on: January 06, 2014, 01:38:25 PM »
Not on fire... This one can go either way depending on your tax bracket, etc.  I agree to keep the emergency fund and pay off the loan with excess funds after 401k, etc

KingCoin

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Re: Is my hair on fire?
« Reply #6 on: January 06, 2014, 01:42:53 PM »
You can always reframe it for your husband:

If this loan didn't exist, would you be willing to borrow money at 4.5% and invest it? If the answer is no, you should probably pay it off.

Barring that, you can always compromise and pay off half of it. There's no law that says it has to be all-or-nothing.

milla

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Re: Is my hair on fire?
« Reply #7 on: January 06, 2014, 02:54:02 PM »
He wouldn't borrow at 4.5 but he would borrow at 2.5%. Oh boy. That's apparently his cutoff. To be honest he would be ok with paying half of it off but I would like that $60 gone from our budget and paying half of it doesn't change that. But you're right, maybe I can settle with him for half.

FastStache

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Re: Is my hair on fire?
« Reply #8 on: January 06, 2014, 04:48:55 PM »
Do you qualify for a student loan interest deduction? If yes, are you calculating that in your numbers?

milla

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Re: Is my hair on fire?
« Reply #9 on: January 06, 2014, 06:44:40 PM »
We do deduct the interest and it's so negligible I did not include it in our calculations. We pay about $144 of interest every year and we already have zero tax liability thanks to working less than full time to spend time with kids and putting a lot away into 401(k)s.

okashira

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Re: Is my hair on fire?
« Reply #10 on: January 06, 2014, 06:57:32 PM »
He wouldn't borrow at 4.5 but he would borrow at 2.5%. Oh boy. That's apparently his cutoff. To be honest he would be ok with paying half of it off but I would like that $60 gone from our budget and paying half of it doesn't change that. But you're right, maybe I can settle with him for half.

Settle for half. Then, a few months later with the balance at $1900, bring it up again... "IT would be nice to just go ahead and kill this tiny debt for piece of mind..."

Gotta love psychology.

Bruised_Pepper

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Re: Is my hair on fire?
« Reply #11 on: January 06, 2014, 07:00:29 PM »
The amount of interest is so small it's hardly worth fretting over.  Plus, if you lose your job and have to tap your e-fund, you can always put your loan on forbearance/deferment if its a federal student loan.  But then again, a $60 monthly payment is also so small, it's hardly worth fretting over either.

Is there some specific reason you want that $60 payment out of your budget?  Unless there is or you're super-uncomfortable with even a small amount of debt, I think this is a non-issue.

beanlady

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Re: Is my hair on fire?
« Reply #12 on: January 06, 2014, 07:38:28 PM »
There are real positive psychological and practical reasons to be debt-free, so I don't think you're unreasonable to be more excited about paying off this debt than making other investments. But if he can't be convinced, settle for half, save up enough for the rest over the next six months, and bring it up again! Maybe suggest it as a birthday gift or some such?

milla

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Re: Is my hair on fire?
« Reply #13 on: January 06, 2014, 07:42:45 PM »
No particular reason other than the $60 could be cut. I'd like to get our budget as lean as possible and the $60 is pretty much the last thing left. It's more obsessive than anything. I'm not very debt adverse at all, honestly, as long as it's under control (have the money to pay it and choose not to kind of thing) and I guess this is. I think that's exactly where my husband is coming from. He probably doesn't get why I want it gone.

imustachemystash

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Re: Is my hair on fire?
« Reply #14 on: January 06, 2014, 08:39:50 PM »
I was in a situation similar to yours.  I set a monthly savings goal that was a couple hundred dollars over our original goal and my husband promised me that we could wipe out my loan if we met the new savings goal for 6 months.  That really motivated me to get rid go the loan and be creative about saving money.

Fuzz

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Re: Is my hair on fire?
« Reply #15 on: January 07, 2014, 02:29:34 PM »

[/quote]
The money is already spent, he just doesn't want to admit it.
[/quote]
Makes sense to me.

I'd kill the debt. I also think there is value in having fewer monthly payments to track (e.g. if you change bank accounts or whatever, you have one less auto-debit thing to track). If you pay it all off, you keep it simple. 

Zaga

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Re: Is my hair on fire?
« Reply #16 on: January 07, 2014, 02:44:29 PM »
We have a student loan, and are investing.  But ours is about $60K and 5% interest.  We just can't quit investing for the time it would take to pay that sucker off.  It was originally $100K, and had some friends, so we're making progress.

Anyways, our compromise was to pick a date to have it paid off by, and set the payments to the level needed to pay off by that date.  It's going down now by over $1K a month, so for my peace of mind there is progress.  Just paying the minimum was making me twitchy.

nottoolatetostart

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Re: Is my hair on fire?
« Reply #17 on: January 08, 2014, 05:21:31 AM »
I'd kill it. Yes, your hair is on fire. As others pointed out, it's worth to have one less thing to track, no more conversations with your husband on it, keep's life simple.  Even if you save ~$140-$150 throughout the year, that is still important money.

Since you have the money sitting in an account, probably earning less interest, couldn't begin replenishing your emergency fund? use a credit card, if you have the balance, if a true emergency. 

It feels awesome to have no debt.....you are not there yet. GL with getting your husband on board.

milla

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Re: Is my hair on fire?
« Reply #18 on: January 09, 2014, 10:25:30 AM »
Well, I've had 'no debt' before and it doesn't feel any more or less awesome than it does now. We've had this loan for two years so we went quite a while with no debt at all.
I think we will just redirect new funds towards it rather than use what we have. That's primarily his problem with it, he doesn't like to use saved money for this but would be ok with making large payments from the next few paychecks. Oh well.

Weedy Acres

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Re: Is my hair on fire?
« Reply #19 on: January 09, 2014, 10:52:59 AM »
To me, debt--and its associated payments--are mental clutter.  I had a car loan once and hated having to write the $225 check every month.  So I paid it off in about a year.  Never again.  Debt/payments are more stuff to keep track of, and the little ones take the same amount of psychic energy as the big ones.  Thus a small debt has a higher hassle-to-balance factor, so I'd definitely give it a swift kick in the pants as soon as possible.

I like the approach of paying off half now since he's in agreement.  Or throwing big chunks of the next couple paychecks at it. 

AccidentalMiser

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Re: Is my hair on fire?
« Reply #20 on: January 09, 2014, 10:53:52 AM »
I have a similar quandary with our 15k worth of student loans.  Mine are at 2.2% and I won't pay them off early but I agonize over them regularly! 

Given your last post, I would divert any extra incoming funds and pay it off over the next few months if possible.  Sounds like a good compromise.


AccidentalMiser

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Re: Is my hair on fire?
« Reply #21 on: January 09, 2014, 10:54:24 AM »
... and, no, you hair's not on fire.