Author Topic: Student Loan payoff vs Investments/Savings/Retirement  (Read 579 times)

takexthexbridge

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Student Loan payoff vs Investments/Savings/Retirement
« on: April 14, 2018, 09:03:54 AM »
Hey, I知 brand spanking new to this idea of budgeting, FI and MMM and trying to get out of the paycheck to paycheck lifestyle. I知 about to be 32 and as a late bloomer I am only two years out of school where I got a Masters in Filmmaking and roughly 96k in student loan debt.

My average interest rate between all the different types of loans is about 5.7%. My income is around 35k-40k before taxes (it fluctuates due to varying bonuses). I知 single but with a girl I intend to marry in a few years.

I知 doing my first round of budgeting this month and I think on average I should have about $1000-1200 leftover after expenses each month to throw at either my loans, savings or investment and I was hoping to get some advice on whether or not I should throw it all at student loans or maybe do some sort of split so I知 doing some investing and building up a portfolio. My math is that I need to make around a $500 payment at least to make sure I知 paying off more than my interest is accruing each month.

Syonyk

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Re: Student Loan payoff vs Investments/Savings/Retirement
« Reply #1 on: April 14, 2018, 10:18:18 AM »
You should do the math against the actual rates on the loans versus what you think you can get in investments.  I'd offer about 3.5-4% as a benchmark for rate of return.

I'd throw the money at the higher interest rate loans first.  Or, if you're not particularly well motivated by math, go with the Ramsey debt snowball approach of attacking the smallest ones first so you see progress.  But that's not optimal, and since you're asking on this forum...

$96k of student loan debt on a $40k income is well into the "debt emergency" realm, especially if the average is over 5%, so I'd go after that, hard.  Paying off >4% loans will be a better use of money than anything in investments, at least right now.

takexthexbridge

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Re: Student Loan payoff vs Investments/Savings/Retirement
« Reply #2 on: April 14, 2018, 11:31:19 AM »
Yeah, I致e done the simple math version of avalanche vs snowball repayment and assuming I never have a pay increase (which is highly unlikely outside of job loss), paying the small amounts vs the highest interest first saves me about $10k in interest so yeah I definitely agree going for highest interest first is the way to go.

I知 working on getting a reliable secondary income going to increase my payments until my current income goes up. I知 one of three full time employees in a small business that is growing and growing so I have a line of sight to significant increase in my income. But in the meantime I think supplementing with a secondary is going to be necessary.

Syonyk

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Re: Student Loan payoff vs Investments/Savings/Retirement
« Reply #3 on: April 14, 2018, 11:37:37 AM »
Yeah, $10k on a $96k debt is worth paying off high interest first. :)

Good luck!  In terms of "investment," any extra income you can earn now and throw at the high interest debt will pay off in terms of reduced interest charges.  There have been plenty of people in your position who have paid off similar debts in a few focused years, so it can be done faster than you imagine, if you really set your mind to it.

In terms of "getting married in a few years," my advice would be to try and resolve at least all the high interest stuff before getting married.  Having that sort of financial sword hanging over a new marriage is not a great way to start out married life, and based on the number of divorces that are fundamentally about money, it's wise to make sure you're both on the same page with how you want to spend - before you get married.  Remember, "efficiently spending money" is just as important as making money.  My wife stays at home and doesn't bring anything in, but she can wring blood out of a nickel when it comes to finding amazing ways to get stuff for almost nothing.  We've got another kid on the way, so she's been shopping for clothes for him (our first was a girl, and we tried to get a lot of neutral stuff, but she had her own ideas about how many pink dresses she needed).  She finds things like "bags of baby clothes for $5 at estate sales" and pulls out stuff that's literally never been worn - tags still on it!

COEE

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Re: Student Loan payoff vs Investments/Savings/Retirement
« Reply #4 on: April 14, 2018, 11:46:29 AM »
Your debt to income ratio is 2.56!  Your interest rates are around 5.7%!  You are in what mustachians call A HUGE FLAMING EMERGENCY!  Treat it as such!  Seriously - stop reading MMM forum right NOW and go get a second job at the grocery store or someplace bringing in another $15-$30k and put every penny of that towards your debt.  With your additional $1-1.5k/mo you'll be out in about 2-3 years and save yourself a ton in interest.

https://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/