Author Topic: Six-month CD vs. six month student loan payoff?  (Read 1596 times)

KurtBikes

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Six-month CD vs. six month student loan payoff?
« on: December 30, 2013, 03:37:09 PM »
I have $12K in student loan debt after having whittled it down from $35K in the last two years. I want to pay off the last bit in the next six months (beginning January 2014i.e., two days from today). My interest rate is 2.88% and it's locked in through loan consolidation a few years back.

My question is, is it wise to pay off as much as possible each month for the next six months (say, $2K/month) OR put that money into a six-month CD and then pay the balance? I have never opened a CD and am not sure where to look. I currently have a checking and savings account as well as a Vanguard Targeted Retirement account (and a $15K limit on my Venture card with zero balance).

Thanks!

gillstone

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Re: Six-month CD vs. six month student loan payoff?
« Reply #1 on: December 30, 2013, 03:51:28 PM »
Unless the CD rate you can get is higher than the student loan rate, you would do better to pay the loan off.  Since the going rate for a 1 year CD is hovering near 1% and a 6 month is much lower, a payoff would be better.  Also, once you've purchased the CD you cannot make another deposit on it.  There are "one-way" CD's out there but none for such a short term and likely none that will allow monthly contributions.

Frankies Girl

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Re: Six-month CD vs. six month student loan payoff?
« Reply #2 on: December 30, 2013, 04:07:47 PM »
Best CD rate I saw was for a 5 year and that was 2%. A 6 month CD is only earning .61%, so you'd technically be losing money by delaying the loan payoff to lock the money into that... CD rates haven't been worth it for at least a few years.

I actually had two; one just matured at 2.75% and one matures next December at 3%, but there's no way I'd get one right now.

If you have the cash, and the choices are only loan or CD, then pay off the loan, but you'd be better served putting in the minimum payments (as your interest rate is pretty low) on the loan and using the extra cash to open a Roth or upping your contribution to your retirement account. Investments should outperform the rate you've got on that loan.

Khan

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Re: Six-month CD vs. six month student loan payoff?
« Reply #3 on: December 30, 2013, 04:21:03 PM »
Beyond CD's, your returns are less then guarenteed. There's something to be said for inefficient choices that give a great peace of mind(such as paying off a student loan and attaining freedom from seriously evil debt that bankruptcy can't even wipe), vs. attempting to place your money elsewhere.

Dave Ramsey, despite how wrong he is from a numbers perspective, is absolutely right when it comes to human emotion.

I vote for payoff the debt, pay yourself a little at the end as a reward, and then take the next steps forward into a financially controlled future.