Author Topic: Pay off student loan or keep money to invest in a potential bear market?  (Read 3745 times)

BrianT

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Hello! I am hoping to get some good advice on my situation. I have a student loan balance of $10,568.32. Of this amount, $6,541.21 has an interest rate of 1.62%, and $4,027.11 with a rate of 3.62%. Overall, the interest is quite low - last year my total interest paid was only $297.22. My total monthly payment is only $183.41.

I currently have $31,231 in cash (mix of checking and mostly savings), and a brokerage account worth $20,837 as of yesterday.

I want to pay off the student loan, but I feel like a bear market is creeping up soon so I want to "double down" and put as much money into the total market index fund or an S&P 500 index fund. I'm torn. I feel like I'll miss out on an opportunity if I pay off the loan now.

Any thoughts?

gooki

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Ignore the timing the market thoughts.

You just need to decide, am I ready to invest or do I want to be debt free.

At those interest rates I'd be investing. But do something, keeping it in cash isn't helping.

Weedy Acres

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At that relative low balance I'd find the loans with their monthly payments pesky and annoying.  I'd pay them off today and use the 40k you'll have left to do some solid investing.

samburger

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At that relative low balance I'd find the loans with their monthly payments pesky and annoying.  I'd pay them off today and use the 40k you'll have left to do some solid investing.

This is what I'd do, too.

I'd also quit believing I have superpowers and can divine the future behavior of the market.

Zamboni

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I'll third the option of just paying them off and investing the rest.  I've had small 0% loans that I paid off just because the time it was taking me to make the payments was worth money to me.

Rebecca Stapler

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It's going to feel great to pay off those loans, do it! Or, if you're nervous about letting all that money go at once, pay off the higher interest one first and see how it makes you feel. (I'm pretty sure it'll feel awesome and you'll want to pay off the rest).

Invest the rest of your funds, and set up an automatic monthly deposit that's the equivalent of the monthly student loan payments you were making. That way, you can take advantage of dollar-cost averaging and stop driving yourself nuts by trying to time the market.

NewStachian

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I would pay them off in full, knowing that it was technically sub-optimal. $10k is low enough to not make a huge difference in your nest egg, but high enough to be a pain in the ass and stay on your balance sheet for a while. It will piss you off every time you look at it and you will feel like it shouldn't be there.

Regarding investments, I've swung the pendulum many different ways over the last decade investing, but my strategy now is 4-5 ETF's/funds at about ~75% domestic, ~20% international, ~5% bonds. This allocation isn't for everyone, but whatever you do, find some good ETF's/funds with low fees (IVV is a great iShare for the S&P at 0.07%).

The 4 rules I've adopted investing are:

1) Keep it simple (small number of ETF's/funds or it will become unmanageable)
2) Keep it cheap (low fees and obviously no load)
3) Keep it consistent (automate your monthly contributions)
4) Keep it properly allocated (I control this by putting more each month into the lower percentages instead of selling higher percentages)

Shandi76

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I'd pay off the student loans, even though they are cheap. It's actually what I did myself, and I've never regretted it. You'll still leave yourself with a fair chunk of money to invest.

BrianT

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I just love this community!

Thanks everyone for your responses so far. I have decided to go ahead and pay off the loans. It's simply not worth thinking about anymore!

El Gringo

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How in the world do you have student loans with such low interest? My undergrad loans are around 6.5%.....!

BrianT

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How in the world do you have student loans with such low interest? My undergrad loans are around 6.5%.....!
Purely timing. I graduated in 2006, just before the interest rate on loans went up. I consolidated the loans with Sallie Mae at the current interest rate at the time. Also, they lowered the rate by another .25% at one point because I paid on time for a number of years through automatic deduction from my bank account. So nothing special...just timing.