Author Topic: Stupid to crush my student loans?  (Read 1669 times)

APBioSpartan

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Stupid to crush my student loans?
« on: September 07, 2017, 10:53:54 AM »
For some reason, I have always had some sort of "millennial rage" towards my student loans that sometimes make me ponder doing stupid things to get rid of them.  It must be some sort of "fight the man" thing?  Regardless, would I be completely dumb to "cash out" my Roth IRA (I.e., take back 2 years of contributions) to crush them?  Here's some details:

Age: 25/26
Combined income: $155,000 + bonuses
Cash: $7,000
401k: $40,000
Roth: $11,513
ESPP: $1,500
Car Loans: -$16,000
Student Loans: -$14,500 @ 5.00% (Down from $63,000.... ugh)

I probably just need to settle down, but figured that I would ask opinions.  Feel free to talk me out of it or share your experience with student loans
« Last Edit: September 07, 2017, 10:59:11 AM by APBioSpartan »

Raenia

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Re: Stupid to crush my student loans?
« Reply #1 on: September 07, 2017, 11:04:59 AM »
I definitely do NOT recommend pulling from your ROTH IRA to pay off your student loans.  If you want more specific advice, I'd recommend posting a full case study, but based on the interest rate you should be funding your IRA for the year before paying extra toward the loan.  See the Investment Order for more details.  I'm also assuming your car loan is at a lower interest rate than the student loan?  If it's higher, you should definitely kill that debt first.  Either way, a 16k car loan is indicative of a car you can't afford - consider finding something cheaper that you can buy for cash and redirecting that car payment toward your student loan instead.

slappy

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Re: Stupid to crush my student loans?
« Reply #2 on: September 07, 2017, 11:20:26 AM »
I agree with posting a case study. And definitely do not pull from IRAs. You can't put that money back in the future.  Like you said, just settle down. :) With your income, you will get rid of that debt in no time.

Rimu05

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Re: Stupid to crush my student loans?
« Reply #3 on: September 07, 2017, 11:46:01 AM »
Why not just throw the extra that you have to that loan? The loan is pretty tiny right now and with your income, this can be easily done in like three months. Don't pull money out of your roth.

therethere

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Re: Stupid to crush my student loans?
« Reply #4 on: September 07, 2017, 11:51:45 AM »
If it helps, you are deducting interest on your taxes so your effective interest rate is only 3.75%. Personally, I'd try to refinance the student loans to get a lower rate. Then I'd work on maxing out your 401k contributions for the tax savings and adding to Roth IRA's with any excess.  Unless you are at risk of a cash flow problem during a job loss, or having the payment stresses you out mentally, there really is no reason to pay them off.
« Last Edit: September 07, 2017, 11:53:34 AM by therethere »

Laura33

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Re: Stupid to crush my student loans?
« Reply #5 on: September 07, 2017, 12:03:02 PM »
Yes, it would be dumb to cash out your Roth contributions.  Once you take them out, you can't put them back, and you lose the tax-free growth and compounding on that money.  Ex:

If your current Roth makes 6% for the next 40 years, when you are 65, it will be worth $113K by itself, with no additional contributions.

If you take out $10K to pay off the loans and get the same 6% return, the remaining @$1500 will be worth about $10K when you hit 65. 

You make a lot of money and don't have much left to pay off.  Apply that Millennial rage to whacking the shit out of your expenses and pay off the loans by the end of the year with the money you save. 

therethere

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Re: Stupid to crush my student loans?
« Reply #6 on: September 07, 2017, 12:22:12 PM »
I assumed by "combined" he meant married. If the bonus is <20k, with that income and maxed 401k contributions you would get pretty damn close to the full student loan interest deduction. Even though on 15k it is miniscule.

frugaliknowit

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Re: Stupid to crush my student loans?
« Reply #7 on: September 07, 2017, 01:24:44 PM »
Never cash out retirement money to pay debt.

Keep "throwing grenades" at the debt.  It'll be gone before you know it:)