The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Scrooge McDuck on October 08, 2013, 06:41:44 PM
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Some advice would be welcomed with this one.
The 'better half' and I have over $100,000 in student loans. Student loans in NZ are provided by the government and are interest free while you live in NZ. You automatically pay 12% of your gross pay towards it each pay check.
The way I look at it is with our annual inflation rate of approx 2% we are getting a 2% reduction on the total balance every year we have the loan. e.g. $100k in 2012 = $98k in 2013 dollars.
So am I better off to not pay anymore than the minimum and invest the money I could've used to pay it on other investments? Surely getting 4% in a high interest savings account is a better option?
Scrooge.
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Yours is a pretty different situation from most posters on this forum, but I think it is actually better to only pay the default amount on your student loans.
For a zero-interest car loan I would still advocate selling the new car and buying something within your budget. But given that you already incurred this debt, and it's not backed by any asset you can't afford, and is accruing interest slower than inflation, I see no good reason (other than peace of mind) to pay it off any sooner than you have to.
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If you are getting zero percent interest I don't see any reason to pay that off one second sooner than necessary.
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Absolutely invest it. The loan just acts as a reduction in your net pay - you don't have to pay it when you're not working. There is no reason to pay it off faster whatsoever.
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We call this "decision" a Slam Dunk in the States.