Author Topic: Sanity Check - Student Loan Paydown  (Read 3359 times)

The Dutchman

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Sanity Check - Student Loan Paydown
« on: June 19, 2013, 08:49:53 AM »
I think I am going to do this but I just wanted a sanity check. 

I have 22k of student loans.  6k is under 3% so I will pay that off via the plan.  16k is 5% or higher (4k of that at 6.8%!). 

So I need to pay off that 16k as soon as possible.  I have devised a plan where I will divert all my investment money against my debt.  I will then divert all my money which currently goes to my various emergency funds (monthly).  Lastly I will take my money I have saved for down payment and car purchase and throw that against debt. 

If I stick to that plan I would be able to pay down my student loan debt of 16k in 11 months.  I would then be able to pay myself back for my down payment and car purchase in 4 years with the reduction in student loan payment.   

Is this full court press logical?  Do you agree I should divert investment funds to debt with has a 5% interest? 

hoodedfalcon

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Re: Sanity Check - Student Loan Paydown
« Reply #1 on: June 19, 2013, 08:53:13 AM »
Wow. I don't have any real analysis to contribute, but I think this is great. I am tossing around the idea of doing something similar but I haven't built up the courage yet. I've decided to at least hold off until my  efund is at 5K. I think I will feel better about diverting funds at that point. Good luck! It will feel so good to get those SLs taken care of.

rollie

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Re: Sanity Check - Student Loan Paydown
« Reply #2 on: June 19, 2013, 09:17:59 AM »
That sounds awesome. I think it's a smart idea. Getting more than a consistent 5% return on investments is a sketchy thing to bank on, whereas paying off your loan at 5% is a guaranteed "return" of 5%. Do it! You'll feel great too. I used my Vanguard to pay off Sallie aftter starting this blog and realizing that my particular fund was faring worse than the 4.5% on my loan! And yes, you free up that monthly payment to save again right away.

Nice work!

The Dutchman

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Re: Sanity Check - Student Loan Paydown
« Reply #3 on: June 19, 2013, 09:41:20 AM »
That sounds awesome. I think it's a smart idea. Getting more than a consistent 5% return on investments is a sketchy thing to bank on, whereas paying off your loan at 5% is a guaranteed "return" of 5%.

I agree; it is hard to bank on being above 5%.  This is a sure fire "investment" in my FI. 

velocistar237

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Re: Sanity Check - Student Loan Paydown
« Reply #4 on: June 19, 2013, 10:20:43 AM »
It sounds like you've lumped the 6.8% in with the 5%. Can you pay the 6.8% off first before moving on to the 5%? I realize that it's only 11 months, so the difference is pretty small, but if it would take an hour and save $50, it might be worth looking into.

I ask because at one point, all of my loans were rolled into one pile, and it took a few years before I realized I could pay off the 6.8% loans without also paying extra to the <3% loans.

Zaga

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Re: Sanity Check - Student Loan Paydown
« Reply #5 on: June 19, 2013, 10:21:51 AM »
Well, I'll tell what we are doing, in case it helps you think it through.

We have a large student loan at 5%.  We have decided to invest about $2K a month into tax advantaged accounts, and also pay enough extra on the student loan to get it paid off in 5 years. 

Yeah, we're taking a bit of one and a bit of the other, but our loan is large enough that we're not comfortable putting retirement investing on hold to get it paid off.

The Dutchman

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Re: Sanity Check - Student Loan Paydown
« Reply #6 on: June 19, 2013, 10:48:23 AM »
Can you pay the 6.8% off first before moving on to the 5%? I realize that it's only 11 months, so the difference is pretty small, but if it would take an hour and save $50, it might be worth looking into.

I have looked at this.  I have like 6 different loans between my wife and I.  We will tackle the 6.8% first and work our way down to five.  I agree it is not more than $50 but that it will take no more work to pay off the 6.8% prior to the 5% so that is an additional $50 saved.