Sell some of my Index Funds/Mutual Funds to pay off remaining student loans?

[FIBY45]

The numbers:

My salary per month: around $2,700

Wifes salary per month: currently part time at around $1,800-2,200 (she will be back full time in August and her salary will rise to $4,900 a month.

Those salary numbers are after tax

We have around $35,000 in a Vanguard account that is broken down into the following:

-Around $15,000 in VEUSX (European Index Fund)

-Around $12,000 in VTSAX (Index Fund)

-Around $8,000 in a Roth IRA (Index Fund)

We have about $1,200 in an emergency fund.

We have a 15 year mortgage with an interest rate fixed at 3.1% and owe around $162,000. House valued at around $220,000.

No credit card debt.

We currently have around $11,000 in student loans remaining. The interest rate on these loans is 7.2%. This number at a little over $150,000. We have come a long way paying this down and I can see the light at the end of the tunnel. We recently changed our payment plan to $385/month after my wife went part time with us having a baby. We also took a personal loan from my parents to help shave this number down and we pay them $375 a month to pay that back (juice is not running on the amount borrowed from my parents).


This is where the question arrives. Would it make sense to sell some of the European Index Fund or S&P Index Fund to clear out that $11,000 student loan? Am I wrong when I look at this from the view point of if I pay of the remaining student loans it is similar to getting a 7.2% return on my money? I feel like that is a good % and has a good chance to match or do better than the market. Help needed from people wiser than me. Thank you for your time in looking over this and sorry if I left anything out. I look forward to yall's advice.

[financialfreedomsloth]

You could, 7.1% is a high interest to pay. So yes it would be a nice return on that 11.000, but ONLY if you then keep investing what you normally pay to the student loans. Rebuild that investment of 11.000!

In your place I would first check if I couldn't get any credit card with less than 2%interest for that amount and use the credit card to pay of the loan, and then pay off the credit card before the intrest goes up, or if it is not payed off in full, transfer the remaining balance to another low intrest credit card.
I know there is a strong bias here against credit cards, and a lot off times it is for good reasons but if you can get one at a low or 0% intrest they can really help in paying down debt. Anything below 2 a 3% would be acceptable for me.

[frugal_c]

I would be very tempted to pay down the student loan.  You are basically earning 7.2% guaranteed on your investment.  However, you have to consider taxes.  It might not be quite as advantageous if you can claim the interest as an expense.

I think financialfreedomsloth makes some good points with the credit cards or home equity loan if you can get it.  I will leave that up to you.  I am very skeptical of the markets, especially the US markets, given how expensive they are so would probably just transfer to the student loan.  Good luck.

[ShoulderThingThatGoesUp]

Definitely look into how taxes affect the math, but at that rate Id certainly be tempted.

[Linea_Norway]

I also vote for selling the stock. Markets are high, so it's not a bad time to sell stock. And you have a really high student loan. After that you have enough left in your other funds that you will profit from any markets going further up, which is never fully garanteed.

[zolotiyeruki]

Another vote here for selling the stock and paying off the loan.  Then take the money you're currently contributing towards your loan, and plow that back into your IRA(s)/401k's.  When you sell the stock, make sure you don't touch your Roth money.

[Mr Mark]

Another vote here for selling the stock and paying off the loan.  Then take the money you're currently contributing towards your loan, and plow that back into your IRA(s)/401k's.  When you sell the stock, make sure you don't touch your Roth money.

And another. Kill the debt (and if you can get points doing so go for it)

But indeed replace the debt payments to saving. Think how great it will feel to get that nasty inescapable debt off your back.

You could always try giving them a call to see if you could clear the debt for a small discount maybe? Life is often negotiable. 

[farfromfire]

You should sell some of the stock, but do a tax calculation based on the cost basis of each fund, and if they're short or long term gains. If you're indeed in the 15% bracket (including this sale) and these are long term gains (held for at least a year) this can even help, taxwise.

[FIBY45]

Thanks everyone for the replies. I am going to look into all of these options before pulling the trigger. What a great resource to be able to come here and get different perspectives.

[lovesasa]

You could, 7.1% is a high interest to pay. So yes it would be a nice return on that 11.000, but ONLY if you then keep investing what you normally pay to the student loans. Rebuild that investment of 11.000!

In your place I would first check if I couldn't get any credit card with less than 2%interest for that amount and use the credit card to pay of the loan, and then pay off the credit card before the intrest goes up, or if it is not payed off in full, transfer the remaining balance to another low intrest credit card.
I know there is a strong bias here against credit cards, and a lot off times it is for good reasons but if you can get one at a low or 0% intrest they can really help in paying down debt. Anything below 2 a 3% would be acceptable for me.

This!

This is what I did for my final student loan. Got a 0% balance transfer for 18 months and used it to pay off the 10K I had remaining. However, make sure you can pay it off in full before the 18 months are up or the deferred interest charges will eat you alive. Can you afford to pay $617 a month towards the balance? If so, you can pay off that $11K in 18 months. Keep in mind there will probably be a balance transfer fee that is a small percentage (1-2%?) of the total amount, but this will be SIGNIFICANTLY less than the 7% interest you are paying now. And you wouldn't have to liquidate your investments.

Or you could do some mix of both?

[FIBY45]

Unfortunately the company that owns my student loans does not allow for payment through Credit Card or this would be a great option. Thanks again for the advice!

[lovesasa]

Mine didn't either. What we did was got the "balance transfer" as a cash deposit to a checking account, then paid the balance from the checking account.