Not sure what to do next?

[PrinsKheldar]

Hi,

(Sorry for the bad english, it's not my native language)
Now I've been following the forums and the "MMM-way" for quiet som time and since I first discoevered all of this I've made som significant changes in my life. So nowdays i spend only about 30-35% of my income, the rest have been going straight to killing my old debt. This have now lead to that in a few months I will have repayed all my debt exept for my student loan. I really like the idea of being completely debt free but I cant really make up my mind of what to do next.

I would be looking at just about another year of repaying the student loan before beeing finished and the interest is very low (0.6%).

Now to the question:
I'm considering to make a little break before continuing putting all excess money towards repaing the student loan and instead increase my capital for a few months instead. I know I probably should stick to repaying it all as soon as possible... but, I also like the idea to have more money in my savings account ( read VTI). I imagine it would be a kind of "rewarding feeling" for being frugal, car-free and making smarter choices when it comes to spending/saving... I think it will make me feel a bit more secure if I have a larger pile of money... does this make any sense at all? I really need a few helpfull pointers of what to do next... Input and thoughts on how to proceed, motivation for the one choice or the other...

I'm thinking that having a few more bucks at my savings account would really help me keep my motivation up...

[larmando]

At 0.6% you could also keep the minimum payment and just invest. No big deal, just do what you prefer and move on. Imagine two scenarios: (1) in a year you're debt free but missed good returns, possibly much higher than the interest you saved; (2) in a year you still have the payment but your investments are worth less than you put on them. Which one feels worse for you? As you see each choice has a good and a bad outcome. But neither is wrong.

[DrF]

Ah, here's another scenario for you. A year from now you break your leg and your car dies and you loose your job. Would it be better to have cash in your bank account or paid off student loans?

At that low of an interest rate, the no-brainer is to get an emergency fund setup, then start saving in tax advantages accounts (401k and traditional IRA). Then if all those are maxed save in a taxable investment account.

[PrinsKheldar]

Thanks for the inputs!

I do think building a larger emergency fund is a smart strategy.

[Indexer]

I'm going to second setting up an emergency fund.

Concerning student loans I could pay mine off today. I don't because the interest rate is about 3%. I would hope over the long term I can average better returns than that. At 0.6% it is a no brainer. Traders on Wall Street wish they could borrow at 0.6% to then invest in something earning more. Crap, at that low of an interest rate you could park the money in US treasuries and yield more than 0.6%. You are borrowing money at less than the risk free rate of return. Don't think of it as a hair on fire debt that you need to extinguish. Think of it as leverage at an insanely low rate. You should stretch that out as long as possible.