Author Topic: Pay extra toward student loans or open a taxable account?  (Read 1583 times)

OneCoolCat

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Pay extra toward student loans or open a taxable account?
« on: April 19, 2015, 04:07:59 PM »
Looking for some advice.

I currently have $46,000 in student loans at a 3.8% adjustable rate.  I pay the minimum every month.  I have a 401k at my job that I put the max into and up until now, all of my extra money was put toward my IRA for 2014 and 2015.  I'm at the point now where I can put my last $750 into my 2015 IRA today which is an awesome feeling!

Since my retirement accounts are being taken care of, I'm fortunate enough to now be able to focus on what to do with my leftover money.  I will have approximately $1000 extra each month which I'm leaning towards throwing all at my student loans.  If I do this, I can pay my student loans off in between 2.5-3 years from now and will save approximately $6000 in interest over the remainder of the loan period (years 3-10).  On the other hand I could open a taxable account, risk my adjustable rate going up, and start dumping it there.  If I were seeing better returns on my retirement accounts I would go with the later but since I've been investing I don't think I'm on track to beat 3.8% this year (mostly VTSAX). 





MDM

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Re: Pay extra toward student loans or open a taxable account?
« Reply #1 on: April 19, 2015, 09:08:05 PM »
Looking for some advice.
Polish your crystal ball until it tells you what your market return will be.  If higher than 3.8%, invest - if lower, pay the loans.

Seriously, you really are in the "gray area" between the "obviously you should ______" extremes. 

Either path is defensible at this time.  If you would really enjoy being out of SL debt (and wouldn't mind if you "could have" made more by investing), pay them off.  If you would really enjoy watching your investments go up (and wouldn't mind if you "could have" paid the loans instead of watching your investments go down), invest.

seattlecyclone

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Re: Pay extra toward student loans or open a taxable account?
« Reply #2 on: April 19, 2015, 09:21:53 PM »
Yep, either choice is fine. The interest rate is low enough that you'll probably do better by investing instead, but not so low as to make it a no-brainer. I had some debt with a similar interest rate that I chose to prioritize a few years ago. With the way the market has been doing I'm sure I would have come out ahead by investing that money. I could do the math to find out, but would rather remain ignorant. I don't really regret it though. It's nice to be debt free!

OneCoolCat

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Re: Pay extra toward student loans or open a taxable account?
« Reply #3 on: April 19, 2015, 09:34:56 PM »
Apparently VTSMX is up 1.78% so far this year.  It seems like the growth has slowed a bit?  I think i'm going to pay off the debt as interest rates will rise and I would have to pay taxes on the VTSMX growth so it would have to do better than 3.8% when its all taken into account.

ShoulderThingThatGoesUp

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Re: Pay extra toward student loans or open a taxable account?
« Reply #4 on: April 20, 2015, 05:33:42 AM »
Adjustable rate says to me, pay off the debt.