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    Student Loan Payoff

    Hi all. Had about 70K in Federal Loans that I owed, but recently paid off a large amount of them (26K) through an inheritance I received. It killed me to do it, but the Interest Rate on these loans were high (6.8%) and, I didn't want to get into debt further. However, my Doctorate loans are paid, and i'm almost done with the degree. I have about 40K in loans left, and I am alomst age 36. I have some money left, no credit card debt, but I really don't own anything either. For the money that is left, I have set up rollover IRA from a 401K from a previous job that I can put money into now. I'm wondering if I huge mistake by paying that much to wipe those loans out. Any thoughts?

    #2
    I'm not really sure what you're asking. If you want to know if you should have paid off the 26K, that really doesn't matter at this point since it is already done. However, knocking out 26K of 6.8% debt certainly wasn't a bad idea.

    If you are asking what you should do going forward, we need more info. And I'm not sure what you are saying about the IRA or where that enters into the picture. If you can list your income, your debts and your assets, we can give more advice.
    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.

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      #3
      Originally posted by musicprofessional View Post
      I'm wondering if I huge mistake by paying that much to wipe those loans out. Any thoughts?
      I too would like to see more info about your overall financial situation before passing judgment. But like DS said, you cant undo it, and it can't have been that bad of an idea.

      What makes you feel this may have been a bad decision?

      What made you decide to do it in the first place?

      Comment


        #4
        I think the biggest thing that hurt was going from 42K in the inheritance, down to (now) 8K..however, knocking out that debt out was a relief, don'tget my wrong! I had some cc debt that I knocked out, too. But, the rest of the money I have left from the inheritance is now in the bank, and staying put. The part that's getting to me is the big picture, versus reacting to paying that debt down, and wanting to get it out of the way (6.8 Interest)...(ie: money for a house, new(ish) car, or some other big investment down the line).It may have been the best thing I did in the long run, or should I have kept the debt and invested that money, and not paid that much as much of this debt? Basically being 'young,' I don't know if this financial decision was the best choice. With the money I do have left though, I'd like to keep investing in either the rollver IRA which I have established, or a Roth IRA...or, something else...? Hence, the posting.
        As far as the rollver IRA goes, I currently have about $5,200 in there, and have put in $500 for 2012 (so far). Time is our biggest asset, and I'm trying to find what wold be best for my young financial future, so my money can growm and I can have options. I'm not married, nor do I have a family...that helps.
        I also work in a field that's pretty tough (Music). I don't have a lot of money coming in (at the moment) but, what I do have, I save in the bank, or have put in the IRA. I also keep my expenses low. On the work front job, I teach lessons privately and play gigs. Down the line, I'll either teach public school, go into the military part-time (Reservist) do something else, or....I may win that elusive music performing job, or teach college full-time....once, I can finish this Doctorate. I've tried to cover ALL of the bases professionally, and want to find the best investment decisons I can with what I have to work with.

        How much should I be putting away, considering my age, career and the TIME that I have to work with? Thank you for your help!
        Last edited by musicprofessional; 03-31-2012, 08:57 PM.

        Comment


          #5
          Originally posted by musicprofessional View Post
          I think the biggest thing that hurt was going from 42K in the inheritance, down to (now) 8K..however, knocking out that debt out was a relief, don'tget my wrong! I had some cc debt that I knocked out, too. But, the rest of the money I have left from the inheritance is now in the bank, and staying put.
          Well I for one feel you took some good steps in the right direction. You paid off CC debt (always a good thing) and got rid of a ton of your SL debts too. That $26k was costing you $1,768/year in interest. When you figure how many years it would have taken you to pay them off, you've saved a lot - and that is a very responsible way to handle the inheritance.

          For the rest of the $8k, it may be best to leave it there in the bank. You go on to say in your post that you are in a difficult field for employment. That tends to require a larger emergency fund set aside. Including this $8k, how much do you have in your EF? How many months could you last on that amount if you lost your job?

          It may have been the best thing I did in the long run, or should I have kept the debt and invested that money, and not paid that much as much of this debt? Basically being 'young,' I don't know if this financial decision was the best choice. With the money I do have left though, I'd like to keep investing in either the rollver IRA which I have established, or a Roth IRA...or, something else...? Hence, the posting.
          Don't beat yourself up over this too much. Yes, maybe you would have ultimately earned more by investing in the market instead of paying down your loans, but there's really no way to know. By taking risk in the market, you are expected to earn 7-11% long term. You got 6.8% with no risk - guaranteed. (and tax free to boot) So as mentioned above, it couldn't be that bad.

          How much should I be putting away, considering my age, career and the TIME that I have to work with? Thank you for your help!
          In general, you should be saving somewhere 10-20% for your retirement. I always recommend that you strive over time to get into the 15-20% range. But given that you are "young" (don't know your actual age) you may be on the lower side at first. Especially while you're dealing with SLs. So you may have to start out at 5-7%. And that's okay. Start somewhere, build over time. And the sooner you increase it, the better.

          Comment


            #6
            Getting rid of the debt is the way to go but do not do it at the expense of an emergency fund. If like you say ALL you have is $8,000 then I would keep that as an emergency fund and then work the student loan payments into your budget. However any money in excess of a good emergency fund should go towards paying debt.

            Comment


              #7
              Congratulations, well done.

              Comment


                #8
                That $26k was costing you $1,768/year in interest.
                I did a similar thing last year. I had 20K of grad student loans at 6.8% and after playing around with interest payment calculators (I used bankrate.coms mortgage amortization schedule) showed that i'd save about $10,000 in intestest over the life of the loan. It also really stands out when you get the tax form for the interest at the end of the year on how much you are pissing away.

                It was a tough decision for me because I am getting married and saving up for a down payment. But all those monthly loan bills were killing the amount of monthly mortgage we could pay (I was obligated to pay 300 a month for student loans, my fiance 300 too). Now I just have $100 a month for my undergrad loans at like 3%.

                Comment


                  #9
                  Hi, all. Thanks for your postings! I feel much better knowing I made the right decision for my future. I have about 41K left to pay, but at a much lower Interest Rate (3.25%). They are Federal Loans, and I consolidated them years ago (34K Stafford Sub, $6,700K Unsub). I'm currently on an IBR status with my loans, BUT I have been paying on the unsub loans since the beginning of the year. The Interest doesn't stop on those. The Sub is different. The goal for this year is to knock out the unsub loan amount as much as I can, and also save the 1K to start the Roth IRA. I should also be back in school within the year to finish the Doctorate, too. Being (almost) 36, I feel getting this stuff in place is very important for my future. I guess my next question is this: should the unsub loan, or setting up the Roth IRA take priority? In my eyes, both do...I may also have to buy a different car soon, but I'd rather not think about that item...those come and go, and always depreciate...unless, you get a car that has a high resale value at the end (Honda, Toyota, Hybrid, etc). Thanks!
                  Last edited by musicprofessional; 04-05-2012, 07:45 AM.

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