The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: SofiaBourbon on July 11, 2015, 03:01:41 PM
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My friend asked me if she should pay her car off. I said,yes. But still wanted to ask the forum.
Her loan $7200
Interest 4.79%
If she was to invest it at a 7% growth - she would make some money but still would have the car bill. Thoughts?
Thank you!
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OR she could invest it and lose it! 4.79 is a great rate for a guaranteed return.
Without knowing further details, if it was my money, I would first make sure (if this applies) that I was contributing enough to get any employer match on retirement and that I had a few grand in the bank, then pay off the debt as quickly as possible. Then I would roll over that monthly payment into my next savings or debt payoff goal.
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for me, 4.79% is in that murky "middle ground" where you could either pay off the loan quickly or invest the difference.
My only concern is when people don't pay off a loan early with every intention of investing the difference, but wind up just spending the difference.
OR she could invest it and lose it! 4.79 is a great rate for a guaranteed return.
As long as she's investing in broad index funds the likelihood that she will "lose it" is practically nil. And if that happens, we're all screwed.
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for me, 4.79% is in that murky "middle ground" where you could either pay off the loan quickly or invest the difference.
My only concern is when people don't pay off a loan early with every intention of investing the difference, but wind up just spending the difference.
OR she could invest it and lose it! 4.79 is a great rate for a guaranteed return.
As long as she's investing in broad index funds the likelihood that she will "lose it" is practically nil. And if that happens, we're all screwed.
I didn't mean lose it all. Just it could go down during the time frame when she was instead paying off her line.
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7% returns are unlikely with these high valuations. And you'd have to pay taxes on those returns. 4.79% is high. Pay it off. Plus, then she can cancel her comp/coll coverage (if she can self-insure) or just raise the deductible if that saves some money on insurance.
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Now she tells me she also has student loans ..
$2800 @5.3 %
$2000 @6.55%
$3000 @@4.25
$2700@6.55
$8800@3.15
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Now she tells me she also has student loans ..
$2800 @5.3 %
$2000 @6.55%
$3000 @@4.25
$2700@6.55
$8800@3.15
I'd pay those off before the car. Higher interest rate and also financed over a longer period most likely.
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Now she tells me she also has student loans ..
$2800 @5.3 %
$2000 @6.55%
$3000 @@4.25
$2700@6.55
$8800@3.15
I'd pay those off before the car. Higher interest rate and also financed over a longer period most likely.
Yup - changes the equation. She should tackle each of the two loans at 6.55% (sequentially). Could be wrong* but given her student loans and her car loans I'm getting impression that she's been spending more money than she's been earning. advice: Kill the two 6.55% student loans followed by the 5.3% and then the car loan (if there's anything left by that time). Stop buying things on credit until her debt is under control.
*there's an outside chance he/she is also a saver, in which case it becomes a bit more nuanced.
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Yeah, pay off the highest interest rate loan first, and then go to the next one, and the next one, etc.
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You should point out to your friend that her hair is on fire.
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Also, she might consider a So-Fi re-fi/consolidation of her student loans. Get the rate down first and then decide what to pay off.
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Now she tells me she also has student loans ..
$2800 @5.3 %
$2000 @6.55%
$3000 @@4.25
$2700@6.55
$8800@3.15
She should pay off the 6.55% loans first. The invest vs pay off debt thing does not really apply to her because she will likely spend her surplus cash instead on investing.