STUDENT LOAN - I need your ADVICE!!!!

ScottA · #1 (**permalink**) 07-20-2007, 06:45 PM

I am at a loss as I am not sure what to do.
The biggest debt I have now is a $54,000 student loan @ 8.25% interest.
This is $375/mo interest alone.

I have a car loan @ $10,000 @ 8% and that's about it for debt (no mortgages or credit card balances, etc.).

ASSETS: I have about $15,000 in cash and an income of $3,600 NET (after taxes).

MY DILEMMA: Where should I put my cash? Should I pay down the principal on my student loan? Should I invest it and continue to pay down my student loan slowly @ about $400/month? Should I keep a certain amount as cash in the event I have a financial downturn? I don't want to see my hard-earned cash just disappear into the student loan's principal, but then again, maybe I should as I am paying $375/mo in interest!

Please help!!!

PrincessPerky · #2 (**permalink**) 07-20-2007, 08:16 PM

You need some in cash in case of emergency (the amount depends on your monthly expenses, 1K minimum, one month expenses simple, 3-6 for a 'pro' EF), but If I were you I would pay off the car (so in case of that emergency no one can take it from you) and then pay off heavily the student loan...but I belong to the school of 'debt owns you' Others might tell you to invest.

Actually my first question would be do you need the car that you owe 10K on, and if you trade it for a cheaper one would you be happy? That isn't one size fits all answer, maybe your car is your baby, or maybe you have some reason to keep a whatever size car...just figured it would be one place to look into.

PS anyway you look at it, your hard earned cash is going to that student loan for a loooong time...

missschinn · #3 (**permalink**) 07-20-2007, 10:53 PM

Just my opinion......The student loan will continue to grow. I believe they are usually compounded. Do what you can to repay that loan quickly. try to pay more than what they are asking for. The faster you pay them the better. Good Luck!

humandraydel · #4 (**permalink**) 07-21-2007, 08:36 AM

Pay the student loan. By paying the student loan off you are getting a guaranteed 8.25% return on your investment. There isn't any investment that can guarantee that return. Is it a private loan? The interest rate may be variable, which gives even more of a reason to pay it off quickly.

Oh, and I should add that this assumes you are contributing to a 401k and receiving the maximum match from your employer. Something like that can be an instant 50% return on your money and outweighs the student loan interest.

ktmarvels · #5 (**permalink**) 07-21-2007, 11:54 AM

First I would build an emergency fund, so if something unforeseen happens you won't have to get into credit card debt. While the experts recommend 3-6 months of expenses, even $1000-$2000 would be a good cushion.

Then I would work towards paying off the debt. Obviously the high amount of debt, and rate, are what are worrying you about the student loans. I would be more likely to pay off the car first though. The interest on the car isn't tax deductible and if you get behind on payments they can repo your car, but no one can take away your degree!

mbhunter · #6 (**permalink**) 07-21-2007, 10:19 PM

Ktmarvels beat me to it. I'd add that they may be able to repo your car quickly, depending on what state you live in.

anonymous_saver · #7 (**permalink**) 07-23-2007, 11:26 AM

Fund retirement account with work up to your employers match, if you aren't already.

I would get rid of the car. This is because of the high interest rate. I would buy a car with cash only.

Save up one months of an emergency fund.

Live very cheaply and pay off extra towards your student loan first. Have you consolidated by the way?

boefixepa · #8 (**permalink**) 07-23-2007, 03:06 PM

Just out of curiosity....why is the rate so high on your sudent loan? Is there some way for you to lower that? Check into refienancing it or something....I've never seen one with a rate that high, so I am assuming it is not a government loan of any kind.

I'd sell the car, if it is not your baby, and get by with a less expensive car until you can make some serious headway on that student loan.

ScottA · #9 (**permalink**) 07-24-2007, 02:02 AM

I really appreciate all of your advice.

To answer some of your questions: The student loan WAS consolidated in 2002 by the Dept of Education Direct Loans (Willian Ford) and they gave me an interest rate of 8.25%. I really didn't know too much about personal finances then and didn't realize what I was getting myself into. Now it's too late, I'm locked into a huge interest rate regardless of where the prime rate actually is. They won't allow you to re-finance. How is this even possible in America? It's like robbery.

I don't think buying anything cash is that great an idea, though, as FICO scores would stagnate. In any event, I'm selling my current car and will be leasing a new one.

Other than that, I really don't live extravagantly, but will soon need to upgrade my apartment.

I guess I really don't want to live like a pauper, just to pay back the student loans. Maybe I won't even live long enough to pay them off anyway, so I think I'll keep a certain amount liquid as you all recommend in case of an emergency and learn more about other investment vehicles (retirement accounts, etc) and pay the loan off very slowly @ $400/mo, unless I happen to come into some money some day.

DebbieL · #10 (**permalink**) 07-24-2007, 05:07 PM

I don't recommend the car lease. Why not buy a cheaper (but reasonably good) used car with the proceeds of your car sale?

rebeccae55 · #11 (**permalink**) 07-24-2007, 06:45 PM

I vote for using your $15,000 like this:

$1,000 baby emergency fund.

Pay off car and KEEP car. Do not move up in car and whatever you do, DON'T lease a car. You'll look back on leasing with the same regret you have regarding the unfavorable terms your accepted on the student loan.
Based on your income and student loan debt, moving up in car would be a mistake.

Reduce student loan debt immediately by $4,000.

Once the car is paid off, pay what you've been paying towards the student loan PLUS the amount of your car payment.

BTW, how did you get $15,000? Saving systematically over time or was it a gift? If you've been saving, congratulations! If so, add your savings to the student loan. In other words, attack that loan with all you've got.

Good luck and congratulations for being pro-active about your future!

dcox20 · #12 (**permalink**) 07-25-2007, 01:18 AM

disagree

Why not lease?

Go to your local city hall and file for a business license - start some lame internet business (free blog site that runs adsense) and run your lease through the company, you can then track/write-off expenses and generate a real-tax savings.

We lease property that depreciates and purchase property that appreciates - oldest rule in the book right?

of course none of this helps you now - so here goes: Always start with whatever carries the highest interest rate, once it's paid off, roll-over the amount you were paying into your next highest interest rate debt. Continue until debt free and then begin putting money away into a nice brokerage account or some other investment

ScottA · #13 (**permalink**) 07-25-2007, 01:22 AM

I guess I'm not clear as to why everyone is opposed to my leasing a car. I've done quite a bit of research and as long as you choose a car with good residual value, don't overpay on the price of the car, don't put too much down as a cap reduction, make sure the factor is reasonable, and allow enough miles as you usually drive (for me about 12k/year)...you are really only paying for the depreciation of the car. I also don't like to idea of having to eventually pay for the inevitable repairs after 100k miles and my car now has 80k. I think it may be a false economy to keep an old car, not to mention the cramp on my image and lifestyle (I live in LA, so your car kind of reflects your personality).

Please let me know why you think leasing would be a mistake, because I've already negotiated the new lease and am just waiting until I sell my car to sign the papers and take delivery of the lease.

As far as the student loan goes, I think I will take your advice and put about $4k to bring down the capital, then just pay monthly until I die, or come into bigger money. I'll invest the rest.

BTW, you guys are great - i wish I had found this forum long before!

dcox20 · #14 (**permalink**) 07-25-2007, 01:24 AM

additionally - if you are going to lease, be realistic - are you going to be putting more than 12-15kmiles on per year? if so be prepared for overage charges, or be prepared to purchase the car at the end of the term... if that's the case then make sure you get a car that holds it's value well (Honda, Acura, Toyota, Lexus) so you can purchase and resell to break even rather than pay the overage.

also try to take advantage of any lease deals companies may have - usually on their entry-level models but they're just as good and you don't really need the gps... lol