The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: webguy on August 14, 2014, 10:05:31 AM
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Hey guys,
I live in the US now but have about 18,000 GBP of student loan debt over in the UK with an interest rate of 1.5% (variable, changes every year based on UK inflation). By the current exchange rate this is about $30,000 USD. I have about half of that amount (8,000 GBP) over in the UK in a bank account earning about 2% interest, which I'm using to pay the minimum payment each month towards the loan - about 250 GBP/month.
I'm considering moving money from the US to the UK (about $17,000 USD) to pay off the remaining loan balance now. I have enough cash here that I wouldn't have to sell any stocks or bonds in order to do that. My reasoning for this are that:
- It seems like the US dollar is only getting weaker.
- I don't like being at the mercy of the exchange rate. If I keep paying it off slowly then when my 8,000 GBP I have over there runs out in a few years and I have to move some more money over anyway then the exchange rate could be awful like it was a few years ago (2USD to 1GBP!!) which makes my loan even more expensive.
- I hate having debt in another country. If it was a US loan at 1.5% then I wouldn't pay it off, but as it relies on all these factors outside of my control, such as exchange rates and the inflation rate in the UK, then I worry about it more.
So my questions are;
- What would you do?
- If the outlook for the US dollar is that it may get weaker due to inflation in the coming years then should I move even more money over to the US and use it as an inflation hedge?
Any help, opinions or suggestions are appreciated!
If it helps, my current financial situation is:
Cash: $59k
Stocks: $204k
Home equity: $100k ($168k left on mortgage at 2.6%)
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You don't sound like someone who would be happy speculating on foreign exchange. Pay it off, and you never have to think about it again. Peace of mind is priceless.
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what former player said - if the exchange rate is acceptable to you right now, and you have the cash, pay it off. Exchange rates are volatile, and it is already a variable rate loan. Lots of risk here, and you have the money to just pay it.
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I'm looking at doing the same thing, only difference is the currency.
At 1.5% is sort of doesn't make sense to pay of, but the peace of mind and one thing less to worry about makes it worth it.
At most you'll make or lose a $1000 based on the decision. Better spend your energy making more money or spending less.
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Thanks for the advice guys. I think you've convinced me that paying it off is the best course of action due to uncertainties surrounding exchange rates and such, and for peace of mind more than anything.
Following up on my second question, as I have a UK bank account what do you think about the idea of moving some extra money over there and putting it into a CD or savings account to act as a hedge against the US dollar losing value due to inflation? I know that this would be considered a speculative investment and I certainly wouldn't move all of my money across there, but say 10-15% of my stache. It seems that a lot of people agree that the US is likely headed for higher inflation over the coming decade and it seems like it might be a smart move to spread some of my wealth across a different currency.