when, if ever, do you throw money at good debt?

[StepRightUp]

To make it more interesting, in an effort to save more for retirement, I am saving up the $3K minimum to open a brokerage account with Vanguard, in addition to my IRA (which is maxed for 2011).

Instead of retirement, would you debt-haters use that $3K to pay down what will then be a $14,800 student loan balance at 3%. I am 33 y/o btw in case that influences your thinking.

[jpg7n16]

This is one of those cases where it depends on your appetite for risk. You can theoretically earn more than 3% on your money by investing it elsewhere rather than throwing it at your loans.

On the other hand, if you don't like debt and want to clear the loan, then paying extra would make more sense.

Do you mind being leveraged? Would it be advantageous for you to get the loan paid off soon (example would be sometime in the near future you apply for a mortgage and having the SL debt on your credit report would impede your ability to get a pre approval for the amount that you want), or can you afford to keep the debt around and just invest your moneyt elsewhere.

Part physcology, part personal that depends on your own attitudes and life plans.

There you go. You just answered your own question.

I agree 100% with these two posts.

To make it more interesting, in an effort to save more for retirement, I am saving up the $3K minimum to open a brokerage account with Vanguard, in addition to my IRA (which is maxed for 2011).

Instead of retirement, would you debt-haters use that $3K to pay down what will then be a $14,800 student loan balance at 3%. I am 33 y/o btw in case that influences your thinking.

What would I personally do? Save up and start the brokerage in addition to my retirement accounts. Pay the minimum on loans, and invest as much as possible.

Given what you've said above, what do I think you should do? Focus on paying off the loan first, then save up for the brokerage account.

[MonkeyMama]

[/B]personally do? Save up and start the brokerage in addition to my retirement accounts. Pay the minimum on loans, and invest as much as possible.

Given what you've said above, what do I think you should do? Focus on paying off the loan first, then save up for the brokerage account.

Good advice!

I should clarify, in your situation, I didn't see it as a good debt. I think both answers above are fair, depending on the overall situation.

[littleroc02us]

If there weren't student loans like there wasn't mortgages, only the rich would go to school and buy homes. As it stands now it seems more and more, people can only go on for higher education with parents help or massive student loans. Which doesn't seem fair in choosing who gets to be a doctor, lawyer, etc.

Read the book Zac Bissonete "Debt free U" he has shown how he went to Umass debt free, he is a senior now and works to pay for school. He didn't blame the system he went out busted his butt and found a way.

[StepRightUp]

This is fascinating and paralyzing at the same time. It seems that there are two philosophies:

1. Debt is evil. Debt is risk. Remove it at all costs. It should be the number one priority. "Good Debt" is a myth.

and

2. Invest. Invest. Invest. Retirement savings is paramount after high interest debt is taken care of (I have none). Pay the minimums on low-interest loans and invest the rest.

I may adopt a mix of the above because I believe in balance of risk. I could open the Vanguard account because I do need to save more for retirement and a brokerage account is the necessary vehicle for this. Once I open this account July 1, I will have achieved a 16% savings of my yearly gross for retirement halfway through the year, including a maxed Roth IRA.

I could then use the last six months of the year to max my student loans payments with what I would have been contributing to retirement in those remaining months, reducing the balance by about 28% in those six months.

I love this forum.

[MonkeyMama]

I think as with anything, I think the extremes tend to be the most vocal. I presume a fair amount of people, even on these forums, fall middle of the road. These things are never black and white. They are usually pretty grey.

[MrPolarZero]

In my case, I always make it a point to put a part of the money that I get into some investments. This way I am sure that my money goes into something good.

[LivingAlmostLarge]

littleroc, the people who are rich or poor have it made in college. if you are a student whose parents are middle class you get jack squat nothing. No grants, no scholarships, etc. Then if said parents who supposedly are going to contribute $x dollars don't then the student gets penalized.

Second, if you can't live at home for 2 years while attending community college then what? $6100/semester umass so $24k for 2 years tuition and throw in $6k for 2 years community college and books. That's not bad if your parents allow you to live at home for free = $30k. My parents would not. I'd have to pay rent and a share of my earnings, sorry no free ride.

But then again I went to a state school and walked out with $10k loans and don't regret it for a moment. I worked during all 4 years and summers. My parents made too much to qualify for any aid, no scholarships. Most of my friends had some school loans but not a ton (most I had heard was $20k) at a public university. They all worked, they borrowed, and they got jobs. No one had crushing loans until medical or law school or something like that.

I think that people should consider the debt before going. But expecting everyone to walk out debt free? seems to expect that all people can work full time and still get passing grades. It also expects people to live with their parents for free from age 18-22. Meaning that the adult age actually should be 22, not 18. But it could happen.

[littleroc02us]

littleroc, the people who are rich or poor have it made in college. if you are a student whose parents are middle class you get jack squat nothing. No grants, no scholarships, etc. Then if said parents who supposedly are going to contribute $x dollars don't then the student gets penalized.

My family is middle class, we got grants because we had 3 people going to college at the same time. As for no scholarships? Bull*&^%$$! My post was talking about how people blame society and class, when they should go out like Zac Bissonette and myself and work and find scholarships. I wasn't a braniac in highschool, but I managed to win a scholarship by creating a video of my hometown and they gave me money for college. I also had 2 jobs while attending college and worked my butt off. The point is that people need to be creative, because there are ways to make it through college with less debt even if your middleclass.

Second, if you can't live at home for 2 years while attending community college then what?

Rent. I sold camera's fulltime 4 days a week. Also, who says one has to go to college right out of highschool. Take a year or two off, get a job and save money.




I think that people should consider the debt before going. But expecting everyone to walk out debt free? seems to expect that all people can work full time and still get passing grades.

I did it, come on lets be real, what did we all do at college, we socialized majority of the time right?

[jpg7n16]

My family is middle class, we got grants because we had 3 people going to college at the same time. As for no scholarships? Bull*&^%$$! My post was talking about how people blame society and class, when they should go out like Zac Bissonette and myself and work and find scholarships. I wasn't a braniac in highschool, but I managed to win a scholarship by creating a video of my hometown and they gave me money for college. I also had 2 jobs while attending college and worked my butt off. The point is that people need to be creative, because there are ways to make it through college with less debt even if your middleclass.

He wasn't talking about merit based scholarships - he was talking about general scholarships.

There are no scholarships out there for being a middle class white guy. If you're poor, you get money. If you're rich you don't need it.

Every scholarship I had, I earned. But it's just like a job. And even with scholarships, I still had school debt.

Rent. I sold camera's fulltime 4 days a week. Also, who says one has to go to college right out of highschool. Take a year or two off, get a job and save money.

I wonder how many people started off with this idea, and got stuck in a job that they swore they'd only take for a year or two. Sometimes people don't always get back to going to college.

And I have already made enough to offset the costs of my college through a job I qualify for that I wouldn't have without the degree. (oh I'm 25 and graduated at 22, made back all my college costs by 23)

I did it, come on lets be real, what did we all do at college, we socialized majority of the time right?

Let's see, I remember taking 18-21 hours a semester, working 30-35 hours a week to pay for room board and tuition, studying multiple hours to maintain my scholarships, community service hours to maintain my other scholarship, and socializing a few hours a week.

And I still graduated with some student loans.

And I don't regret it.

[littleroc02us]

There are no scholarships out there for being a middle class white guy. If you're poor, you get money. If you're rich you don't need it.

I guess since I am a middle class white guy, I was never looking for handouts or for someone else to take care of me (Big Gov't), I survived because I was responsible for my own well being again as I stated "I'm not going to blame society and class for having school debt, that's my responsibility and I was creative and hardworking to minimize it.

[littleroc02us]

Let's see, I remember taking 18-21 hours a semester, working 30-35 hours a week to pay for room board and tuition, studying multiple hours to maintain my scholarships, community service hours to maintain my other scholarship, and socializing a few hours a week.

And I still graduated with some student loans.

And I don't regret it.

Congratulations, but I went to Winona State University my first 2 years and a ton of students were socializing way more than studying that's for sure.

[StepRightUp]

Ok, in case anyone wants to get back on topic , here is some math I worked out which may be of interest.

There is $9,160 in question.

Let's assume 2 scenarios. In the first, I throw it all at student loans, in the 2nd, I invest.

1. I pay off the loans as fast as I can. I contribute an additional $824/mo in 2011, then an additional $92 per month above my min. payment from 2012 on. The loan is paid in 22 months and results in $354 total interest paid.

2. I pay the minimum balance on my student loans and invest the rest. The loan takes 52 months to pay and results in $1072 in total interest.

#1 saves me $718 in interest (1072-354). This savings is not fully realized till after 52 months (the duration of scenario #2).

$718/$9160 = 7.8% over 52 months

Thus, in order for paying the loan vs. investing to be a wash mathematically, I would need an investment vehicle that provides at least a 7.8% return (can't forget a likely expense ratio or fees) over 52 months.

That's about a 1.8% annual return. (An expense ratio may bump it up.) I don't think that's too hard to find.

Mathematically, this seems an argument for paying the minimum on loans and investing.