Quote:
Originally Posted by maat55
The longer you keep the debt, the longer you are at risk. OP is where he is today, I would concentrate on paying off the debt even before the 401k match. In a short period of time he would be debt free and have gobbs of money to invest without the monkey on his back.
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This is pure foolishness, IMO.
Obviously sidetracking/ hijacking the thread, but when I see useless drivel like this, I cannot help but respond in the event some lurker mistakes this for real sound financial advice.
1) student loan interest is tax deductable. You don't even need to itemize to get 25% or 15% of the interest paid back every year.
2) the match is FREE money.
3) investing early established a savings habit. The creation of the savings habit is more important that nearly any other financial habit (except living on less than you earn).
Those above 3 things are facts which apply to most people.
For some additional commentary, keep reading.
I did not tell the OP to pay down the debt, or not pay it down. I suggested the 20k is best spent from a net worth perspective on investing. The compounding curve greatly favors TIME- the time money is invested is a bigger multiplier than the actual amount inside the account. The gobs of money you mention does not account for the lost time. Unless the amount of the student loan payment is high enough to overcome time (possible but not probable), then the advice given in the quote above is flat out wrong, IMO.
So invest early and get the match- compounding works from the day you begin.
As more disposable income is available, a person can consider using it to pay down debt. But there are bigger issues in some cases. A person making 210k per year will pay more in taxes than in interest on a 2.6% debt. I'd think the goal is to make the 210k work better for the individual, not live life based on some principal that if a person is or is not debt free is some type of status symbol.
I paid my student loans off early (took 8 years when repayment period was 10). I invested each of those 8 years to get at least my match and now I have 160k in bank (I have only been working for 11 years). I would not have anywhere near 160k had I paid down the debt aggressively, and I would also have paid more in taxes had I taken that same advice to pay down debt at all cost.
Maybe the monkey on your back is heavier than the monkey's I have dealt with all my life.
There is little risk in carrying student loan debt... that risk of carrying debt was brought up a few posts ago and I don't buy that. What risk? The idea that if I file bankruptcy I still get the debt? Well my 401k and Roth IRA are also possibly exempt from same bankruptcy too, no? I don't know about the retirement accounts for sure, but I understand the only thing those accounts can be affected by are divorce or IRS freezing the accounts for another reason (criminal activity or similar).
I do not advocate keeping debt forever. I believe debt should be retired in it's time and do not like "interest only" debt without seeing principal eroded each payment. In case of this thread I could see OP "rounding up" payments to nearest $100, then investing the rest as a broad, diversified financial plan. This is how I started paying down my debt, and how I pay down some of my debt to this very day.