Hi! I am 22, no debt other than 14k of federal student loans. Walk to work, bike in town, low rent, eat at home, boyfriend and I have one 1994 clunker, no cable or internet at home, don't buy stupid things, perfect credit card payment history, have a $4k Vanguard index fund, keep heat at 52 during Montana winters, etc., always learning and working at things I can do, but I'm frugal and happy. I make around $24.5k a year (first year working a real job), free health and dental insurance, and save $600 per month and apply $100 a month toward loans.
I apologize if this question has been asked before. I've seen MMM touch on it briefly on some comments but I was hoping for some analysis based on my situation...
I did AmeriCorps for 2 years and thus had a large education award that I applied toward my loans, around 10k. Because I did this all in one shot, I don't have a loan payment due until 2015. Right now per month I'm saving $500 in a savings account (about 4 more months until I reach my goal of 5k), invest $100 in my mutual fund, and put $100 to loans. $3k of my loans are at 6.4% interest rate and $11k are at 5.6%.
So my question is, when I finish building up my emergency fund, how much of my $700 would you put to loans and how much would you invest? I feel like, long-term, given my age and situation and the small amount of debt I have, it'd be better to invest $500 in the mutual fund, $100 in savings, and $100 to loans until 2015 when the minimum payment goes up to $200 or something and then pay that all the way until my loans are paid off, instead of aggressively going for the debt. In other words, I think my debt is a slightly less emergency than everyone else's............?......like maybe just one hive of bees instead of ten hives of bees stinging me relentlessly?..... I took a giant whiteboard to do the math over 30 years, both in the situation of paying the loans off faster and having more to invest sooner or investing a larger amount over a longer period of time. Investing earlier won out by about $5k, obviously though there are many unknowns of the future. MMM mentioned that he used to think the way I do with his mortgage, that he could just have it forever because it was at such a low interest rate, but then he changed his mind and paid it all off for the psychological factor of getting out of debt. What exactly are the benefits of that factor? I've talked to financial advisors and they have told me it's a bad idea too, for no reason other than the average American will likely let a monthly payment slip here or there and think it's not a big deal, yadda yadda. I'm torn, because it seems like even the most savvy of money folks would advise against what seems to me the most fruit bearing option. Am I missing something? Thank you for your perspective, informed outsider!