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    Student Loan Payoff

    Hi everyone. Here is my situation:

    I just payed off my car not too long ago (YAY!). Of course after I pay the thing off, I have to get a bunch of repairs done, which I had to use some emergency funds for. So I have refill my fund which I will be done with shortly.

    All I have for debt is about $26,000 in student loans. I have no other debts. I am also possibly taking a new job in the next month which will be a slight increase in pay plus bonuses. I was toying with the idea of straying from the Dave Ramsey plan. Instead of paying of the loans, I was thinking of fully funding my emergency fund, putting money into a 401k (100% match up to 5%), and then paying off my loans.

    My rationale for this is that I do not necessarily feel safe with only $1,000 for EF. I have realized that $1,000 does not go very far. Also I don't feel that I should sacrifice retirement to pay off loans. Please note that I plan on pursuing the 100% down plan for home ownership, so this student loan debt I currently have should be the only debt I will have for the rest of my life.

    What are your thoughts? Is this a good plan? Should I treat my student loans as if they were to be paid off in Baby Step 5?
    Check out my new website at www.payczech.com !

    #2
    Just as a general practice - it would be a very rare situation before I would pass on an employer match.

    Like - you need the money or you can't buy food - rare.


    If I were in your shoes, I may even contribute 5% to 401k, then build up EF, then SL. So I have no problems with your plan as is.

    Comment


      #3
      Remember, Dave Ramsey's plan is NOT about what is best financially. He freely admits that. His program is to motivate those who aren't motivated to do the right thing on their own.

      If you are motivated and educated and capable of staying on track, you don't need to follow Dave's plan. I sure didn't. Passing up a free 5% match is silly as long as you don't use that as an excuse to drag out your debt repayment indefinitely.

      As for the EF, I agree that $1,000 doesn't go too far. I wonder for how many years Dave has been teaching to have a $1,000 starter EF. I think that number needs to be inflation adjusted. One car repair can set you back that much or more. I wouldn't want to have just $1,000 to my name if I could possibly avoid it.

      I think your plan sounds just fine.
      Steve

      * Despite the high cost of living, it remains very popular.
      * Why should I pay for my daughter's education when she already knows everything?
      * There are no shortcuts to anywhere worth going.

      Comment


        #4
        Thanks for the replies. That is what I was feeling. I know I don't have to follow DR's advice to a T. I am plenty motivated and educated myself and can make calculated decisions on my own. I guess I had a feeling in gut that paying of the loans first is not my best bet.
        Check out my new website at www.payczech.com !

        Comment


          #5
          What interest rate are you paying on your student loan? How quickly can you save your full EF?

          Comment


            #6
            If you are comfortable having debt all your life,thats fine.Just wondering if you have considered the interest rate and other charges that can get added onto your student debt over time.I hope you have done your calculations right before taking the risk.

            Comment


              #7
              Originally posted by studentloansescape View Post
              If you are comfortable having debt all your life,thats fine.
              I think you misread the original post. OP didn't say he would have the debt for the rest of his life. He said this was the only debt he expected to ever have from now on. That didn't mean he wasn't going to pay it off.
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


                #8
                My student loans vary on interest rates but the highest is like 6%. Most of my student loans are indexed to LIBOR.

                As for holding my debt for my entire life? Obviously someone did not read my post. This is this only debt I have right now, and I do not plan on taking out additional debt for my entire life. I am going for the 100% down plan for home ownership; I do not want a mortgage.

                I ran my expected numbers for my new job and I should be able to fully fund the EF by April 2012. If I hit my bonus in December, then I will have it funded then.

                After my emergency fund is funded and I am investing 5% in my 401k for the match, I will attack the student loans with everything I got. Basically all I am doing is postponing the payoff of my loans to Dave Ramsey's Baby Step 5 (as if it were a mortgage). I will be debt free before I am 27 for sure.

                Edit: Just an FYI, I will be making minimums on my student loans the entire time I am setting aside the EF. There will be no other charges to be concerned with; all my student loan payments are set on auto-pilot.
                Check out my new website at www.payczech.com !

                Comment


                  #9
                  If it were me, I would still pay off the student loans first, simply because of the risk that debt brings into your life. The promise of FUTURE pay and banking my life on that is a scary proposition, and one that has gotten a LOT of people into a LOT of trouble. Be careful presuming upon the future.

                  The $1,000 is to catch most small emergencies that come up. If you wanted to bump that up to maybe $2,000-$3,000, I think that's fine. But I would attack that debt as soon as possible. Stop paying the penalty of interest.

                  That being said, you are doing a good job with your money. Keep up the good work, and keep using the ol' noggin.

                  Thanks for sharing!

                  Comment


                    #10
                    << I am going for the 100% down plan for home ownership; I do not want a mortgage >>

                    May I ask why? Also, what will you do in the meantime? Rent? Live with family?

                    Comment


                      #11
                      I will rent while saving up money. I live in the Midwest where it is actually cheaper to rent than to buy. I crunched the numbers and I can save up enough to buy a house in under 10 years. The same house with a mortgage would take over 10 years. The way I see it- I can own a home outright quickly...by taking on a mortgage. I would much rather buy a house and not worry about the debt.

                      Also, with homeownership there are maintenance costs that I will not have to worry about if renting. Don't worry; I'm not your typical twenty-year-old with a wishy woshy dream . I have a brain for this stuff and know what I am doing.
                      Check out my new website at www.payczech.com !

                      Comment


                        #12
                        Sounds like you have a well thought out plan. Best of luck to you!

                        Comment


                          #13
                          Actually, I intend to suggest that clearing the student loans will be a priority.However,from subsequent posts of dczech09,it seems like hes well prepared with a action plan.So,why not go with it.Best of luck.

                          Comment


                            #14
                            There is no way that I would pass on the employee match. It sounds like you have a well-thought out plan. Best of luck to you!

                            Comment


                              #15
                              Management

                              Looks like you built a pretty sound plan What type of student loan do you have? Is it Subsidized or Unsubsidized? Subsidized loans usually have fixed interest. If that is you case, then your plan should go uninterrupted, unless of course our economy as a whole will collapse in a few years. But that's a different subject.

                              Good Luck

                              Comment

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