Author Topic: Should I pay almost half of my student loans RIGHT NOW?  (Read 3113 times)

Lexipainter

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Should I pay almost half of my student loans RIGHT NOW?
« on: September 02, 2014, 11:28:47 AM »
Hi there,
I have some questions for student loans (Like, should I pay a bunch now?). Here is my info:

Stafford
1-01   $6,521.26   6.55%   

Stafford
1-02   $10,374.18   6.55%   

Direct Loan - Sub
1-03   $6,531.49   6.55%   

Direct Loan- Unsub
1-04   $9,884.81   6.55%   

TOTAL   $33,311.74       

I have been paying for 3 years and it's a 10 year loan. It started at $41,000. I pay $498 a month.

I am a teacher, so I don't get a ton of money, however I recently moved to Doha, Qatar to take advantage of more money (housing, car allowance, moving expenses paid, insurance, no taxes, etc). I just received my first paycheck of about $8,000 (which includes moving reimbursements, normal checks will be more around $3000). I have $8000 in my account already from selling my car and getting my last paycheck from my previous job. $16,000 is literally the most money I have ever had in my entire life. This is a lot of money for me.

My student loan is the only "real" bill that I have. In my current situation I do need to buy some culturally sensitive clothing ($500 tops, one time expense, I hope!), I need money for groceries (moderately expensive but reasonable... really not sure on this one, maybe $500 for the month), and some cell service ($5 for Republic, plus maybe $30 for local phone). My school pays for a bus, so taxis once or twice a week for groceries. Let me re-word this..

Normal Paycheck: ~$3,000 + $500 Transportation stipend

Bills
Student Loan: $498
Groceries: $500
Cell: $35
Transportation: $100
Eating out: $200

I've only been here for 2 1/2 weeks so these are guestimates. Eating out is super cheap, but we don't do it much normally. We have been more since we moved and we're trying to get to know the area and the other teachers. 

I really want to throw all of my savings, or at least most of it ($10,000 or more) towards my student loan. My husband thinks that is a bad idea. He thinks it's better for me to just leave it in my savings. I am some what obsessive about not wanting my debt. He thinks it's not a big deal and that I have plenty of time to pay it off and that doing it now, versus in a year or two, won't make a big enough difference.

Side note: Husband doesn't work right now but doesn't spend much money and has his own savings to use, though I do give him money to spend (still trying to figure out a good allowance :)

Would it make a difference to put a big amount towards my student loan? I think it would, but am I wrong? How much should I do? I am also planning on at least doubling up my payment while I'm here (2 yrs). Please help me do some math here!

gimp

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Re: Should I pay almost half of my student loans RIGHT NOW?
« Reply #1 on: September 02, 2014, 12:00:20 PM »
Wait a month or two to see a bigger picture of your pay and expenses.

rujancified

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Re: Should I pay almost half of my student loans RIGHT NOW?
« Reply #2 on: September 02, 2014, 01:43:16 PM »
What about knocking out one of the ~6k balances (or even the ~9k one) and saving the remainder? If you did that and paid $500-1000 a month, you'd be in great shape.

I get that there's an emotional component and 6.55% is high, for sure, but having a little money in the bank while living in a foreign country is probably a good idea.

SummerLovin

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Re: Should I pay almost half of my student loans RIGHT NOW?
« Reply #3 on: September 02, 2014, 09:40:16 PM »
I recommend paying off the unsubsidized loan of 9k first. Mainly, in case you are in a deferment situation, the interest on that loan remains capitalized, i.e. added to the loan balance if you don't pay it as it accrues interest.
If you don't have much savings then start on that, and get back to the other loans. Because your interest rates are fairly high, paying them off before investing is a good idea.  Once you've paid them all off, and you're used to making that payment, just keep making it to yourself in the form of investments. The key is not to increase your spending as you get raises, but pay yourself first.  Good luck!

MDM

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Re: Should I pay almost half of my student loans RIGHT NOW?
« Reply #4 on: September 02, 2014, 09:50:43 PM »
I really want to throw all of my savings, or at least most of it ($10,000 or more) towards my student loan.
...
Would it make a difference to put a big amount towards my student loan? I think it would....
Lexipainter, you have good instincts here - trust them!

To a first approximation, you would be ahead by $10,000 * 6.55% = $655 in one year if you put it toward your student loans instead of leaving it in a 0% bank checking account.

Sharpening the pencil some, let's assume you could earn 0.95% in the bank and your loan compounds monthly.  In that case, you would be ahead by
[(1+((6.55%-0.95%)/12)^12 - 1] * $10,000 = $574.60

Other posters have made good specific points.

As you would still have $6,000 in the bank even after paying the $10K, the risk seems low - so see the first sentence again....

Good luck!

Joel

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Re: Should I pay almost half of my student loans RIGHT NOW?
« Reply #5 on: September 02, 2014, 10:41:03 PM »
6.55% is a pretty good guaranteed return. I know I would be happy if I could get that return on my investments. I would be all in on paying off the debt.

Dicey

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Re: Should I pay almost half of my student loans RIGHT NOW?
« Reply #6 on: September 02, 2014, 11:31:44 PM »
Wait a month or two to see a bigger picture of your pay and expenses.
What gimp said, in spades.

Is there any possibility of your husband finding work while you're there?

I agree 100% about killing the debt, but I'd also make sure to do a Roth every year as well. You can't make up missed years, and as young as you are, you will benefit greatly from years and years of compound interest.

Also, not at all sure how this works, so hopefully someone else will jump in. Are your earnings absolved from US taxes as well? I'd want to be 100% sure of that so you don't get in a bind with the IRS.

expatartist

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Re: Should I pay almost half of my student loans RIGHT NOW?
« Reply #7 on: September 02, 2014, 11:37:59 PM »
I'd also make sure to do a Roth every year as well. You can't make up missed years, and as young as you are, you will benefit greatly from years and years of compound interest.

Also, not at all sure how this works, so hopefully someone else will jump in. Are your earnings absolved from US taxes as well? I'd want to be 100% sure of that so you don't get in a bind with the IRS.

If you're not working for an American company, and are making under ~90K/year, you:
* Won't have to pay taxes (but WILL have to file them, unlike most other nationalities)
* Won't be eligible for a ROTH or any other tax-deferred investments, because you're not paying US taxes

The OP should have a pretty good idea of COL before moving, there's loads of info available online. Sites like http://expatistan.com are very helpful.

Calvawt

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Re: Should I pay almost half of my student loans RIGHT NOW?
« Reply #8 on: September 03, 2014, 12:43:39 PM »
I would pay $5k immediately, then do the waiting for a month or two to see your expense levels.  If they are about what you thought they would be then pay the other $5k (or more).

As others have said 6.55% is a good guarantees return!


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