Help with making financial decision stu loan!

[Savingbtime]

Godly, So let me think this straight, you rather me put those extra $100 towards the ROTH than towards the student because of the 1.875% apr for the life of the loan?

Then when my wages increase I can put bigger lump sum towards the loan itself. But interest would have accumulated further already?

I want to be able to see th big picture like you. Help me, please!

I have been reading about finances and trying to make so much sense of it so I know what to do and how to do it. This is when I bumped into this site and I thank God for all of you.

[Savingbtime]

You know what? Now that I keep thinking about it.... What Ineed is someone to probably revemp my budget and suggest how I should go about thiings knowings that:

Monthly income $1700
Stu loan $127,070.23 ( I checked after this month's payment)
Monthly expenses $800
No cc debt

Thank you

[Goldy]

Oh, I never said it was guarenteed. The market average was 8% ROI but since you said you were a conservative investor I took off a few points of interest becaue you will have a much higher bond allocation than others do. Your return will be smaller but less volitile.

I would argue that you need to move out of that money market fund and into something that is still fairly conservative but makes more than .8% Inflation is going to destroy your savings if you kept that in there until you retire.

In my opinion, you need to max out your roth because once you pass your boards you will probably be above the contribution limit so now is the time to get that funded as much as possible. Similarly, dont forget that while your income is low you can claim the interest on your SL's so really they are only 1.4%.

[Goldy]

Godly, So let me think this straight, you rather me put those extra $100 towards the ROTH than towards the student because of the 1.875% apr for the life of the loan?

Then when my wages increase I can put bigger lump sum towards the loan itself. But interest would have accumulated further already?

I want to be able to see th big picture like you. Help me, please!

I have been reading about finances and trying to make so much sense of it so I know what to do and how to do it. This is when I bumped into this site and I thank God for all of you.

If it were me I would not pay a dime extra on those SL's until you were making more money. For now I would ensure that I was maxing out my roth each year and contributing to my companys 401k if they had one. With such low interest rates your SL's will become cheaper and cheaper once inflation and time are considered. Also, since your balance is so high its almost more helpful (for me anyway) to think of this as a mortgage instead of just student loans. The point of this is that its not something you can pay off in a few years, its something that is going to be with you for a long time.

I am somewhat similar to you in that I really dont like having debt. We refinanced our home loan to 2.5% and have 15k worth of student loans at 2.2%. Instead of throwing all our money at the debt we have chosen to max out our Roths and contribute heavily to our 401k's for the past 3 years and all of the sudden we have 250k saved for retirement and we are only 28 years old. Our interest rate return is significatnly higher than your SL interestrate of 1.875%.

With that said, I still pay extra on my mortgage each month because I hate debt. I would only do this if I could max my savings and still have money left over.

[Savingbtime]

If it were me I would not pay a dime extra on those SL's until you were making more money. For now I would ensure that I was maxing out my roth each year and contributing to my companys 401k if they had one. With such low interest rates your SL's will become cheaper and cheaper once inflation and time are considered. Also, since your balance is so high its almost more helpful (for me anyway) to think of this as a mortgage instead of just student loans. The point of this is that its not something you can pay off in a few years, its something that is going to be with you for a long time.

I am somewhat similar to you in that I really dont like having debt. We refinanced our home loan to 2.5% and have 15k worth of student loans at 2.2%. Instead of throwing all our money at the debt we have chosen to max out our Roths and contribute heavily to our 401k's for the past 3 years and all of the sudden we have 250k saved for retirement and we are only 28 years old. Our interest rate return is significatnly higher than your SL interestrate of 1.875%.

With that said, I still pay extra on my mortgage each month because I hate debt. I would only do this if I could max my savings and still have money left over.

Godly, I actually do think of it as a mortgage, like you said! The reason why I chose not to have a401k at work, is because the company does not match, so I went for a ROTH.

Correct me if I am wrong but i think I should, just like you, throw extra at the st loan since I consider it my mortgage, just as you are doing with yours ( your mortgage). There is only '0.3% difference between your mortgage and your student loan. Note that the student loan is the only debt that i have. So now I am confused

As far as the market is concerned, I have yet to understand anything there. That is why both the Roth and the traditional Ira are in a money market. I feel that before getting involved in anything I have to understand what I am doing.

The inflation kinda threw me off there a sec... I don' understand that, really... So please enlighten me about it.

[Savingbtime]

Oh, I never said it was guarenteed. The market average was 8% ROI but since you said you were a conservative investor I took off a few points of interest becaue you will have a much higher bond allocation than others do. Your return will be smaller but less volitile.

I would argue that you need to move out of that money market fund and into something that is still fairly conservative but makes more than .8% Inflation is going to destroy your savings if you kept that in there until you retire.

In my opinion, you need to max out your roth because once you pass your boards you will probably be above the contribution limit so now is the time to get that funded as much as possible. Similarly, dont forget that while your income is low you can claim the interest on your SL's so really they are only 1.4%.

Bond allocation? so ou are suggesting that I get my feet wet with the market? I don't get that concept of stock market yet

How did you calculate that interest was just 1.4%? Those are the technical stuff that I do not get! so basically after claiming the student loan, it decreases automatically? So what your are telling me, is to keep the debt, let the interest increase, claim it in the taxes just so I can save.... Max out the Roth. Am I coming ahead when I do that?

So my question to you is, how do I tackle the debt and the Roth at the same in such a way that I can come ahead? What is the formula?

Thanks Godly, you are really getting me to think and I love. I really feel challenged and I am loving. Infant to charge of my finances and I feel by talking to you all that aim doing one at the time.

[Goldy]

Bond allocation? so ou are suggesting that I get my feet wet with the market? I don't get that concept of stock market yet

How did you calculate that interest was just 1.4%? Those are the technical stuff that I do not get! so basically after claiming the student loan, it decreases automatically? So what your are telling me, is to keep the debt, let the interest increase, claim it in the taxes just so I can save.... Max out the Roth. Am I coming ahead when I do that?

So my question to you is, how do I tackle the debt and the Roth at the same in such a way that I can come ahead? What is the formula?

Thanks Godly, you are really getting me to think and I love. I really feel challenged and I am loving. Infant to charge of my finances and I feel by talking to you all that aim doing one at the time.

Ok, first things first. Since you can claim student loan interest as a decuctable it reduces your income by the amount of interest you paid. Since it reduces your income you no longer have to pay 25% tax on that money so you can think of that interest rate as 1.4% instead of 1.875 because you are getting money back. Make sense?

I wouldn't get too hung up on fully understanding the market. I dont and I doubt that there are many people who actually do. Many investment companies have recently developed some funds called target funds that you select based on your target retirement date. Here is one I picked from Vanguard

https://personal.vanguard.com/us/funds/snapshot?FundId=0306&FundIntExt=INT#hist=tab%3A0

So, these funds automatically adjust and become more conservative as you get closer and closer to retirement. Its like autopilot for retirement funds. If you look a the fund that I sent you you can see that over its entire life it has averaged 6.5% and is returning 3.5% this year. Both of those numbers are well above the 1.4% interest saving that you would get by simply paying off your loan.

Make sense?

[Goldy]

Also, I forgot to comment on one thing. Interest doesn't increase, it actually decreses since each payment chips a little principle away which reduces the amount of interest you need to pay.

As for your question about investing and paying off the SL, my gameplan would be to pay the minimum on the SL until you have maxed our your retirement savings. Time is on your side since your debt will be essentially worth less each year due to inflation and you will be making more money as your career progresses.

[Savingbtime]

Also, I forgot to comment on one thing. Interest doesn't increase, it actually decreses since each payment chips a little principle away which reduces the amount of interest you need to pay.

As for your question about investing and paying off the SL, my gameplan would be to pay the minimum on the SL until you have maxed our your retirement savings. Time is on your side since your debt will be essentially worth less each year due to inflation and you will be making more money as your career progresses.

We'll yes Godly, the interest does decrease and it will do so faster if I allocate more towards the principal. That way the principal decrease, so the interest accumulated is forced to follow. That's what it makes sense to me to add the extra. That way the debt to income ration decreases slowly but surely. Along that path, I am freeing up money and increase wealth, so to speak.

I have stuck in my head that debt is to get out to the best of my ability while saving at the same time. So I will pay $600 monthly to the st loan, I had already called them to set it up to $600 earlier this week. That is by just $12.32 to the $587.68 monthly.

But according to you, because of my age (36), I have some catching up to do with the retirement, so for now, as income will increase, I should allocate the most I can towards the Roth. And once income is at the MD level, just pay big chunks on it.

So due to inflation, it's better for me to build up a Roth than to try to pay off student loan since they are at 1.875% ?

Let me know if I got it right this time. Thank you Godly.

[Savingbtime]

And Godly, have you also heard of smarterbank? I bumped into while reading an article on bankrate.com regarding banks who helps you pay student loans. I taught I'd mention it to you since you are also repaying your student loans. I personally don' to have it.

I also found this article, please check it out. Should I Pay Off My Student Loans Early? - Are There Advantages to Having Student Loans?

How to Decide Whether to Invest or Pay off Debt: 8 steps

[Goldy]

We'll yes Godly, the interest does decrease and it will do so faster if I allocate more towards the principal. That way the principal decrease, so the interest accumulated is forced to follow. That's what it makes sense to me to add the extra. That way the debt to income ration decreases slowly but surely. Along that path, I am freeing up money and increase wealth, so to speak.

I have stuck in my head that debt is to get out to the best of my ability while saving at the same time. So I will pay $600 monthly to the st loan, I had already called them to set it up to $600 earlier this week. That is by just $12.32 to the $587.68 monthly.

But according to you, because of my age (36), I have some catching up to do with the retirement, so for now, as income will increase, I should allocate the most I can towards the Roth. And once income is at the MD level, just pay big chunks on it.

So due to inflation, it's better for me to build up a Roth than to try to pay off student loan since they are at 1.875% ?

Let me know if I got it right this time. Thank you Godly.

Exactly! I might also look at getting a target account instead of your moneymarket Roth. Keep in mind that this is only my thoughts and opinions so make sure to get feedback from the other forum members too.

[Savingbtime]

Exactly! I might also look at getting a target account instead of your moneymarket Roth. Keep in mind that this is only my thoughts and opinions so make sure to get feedback from the other forum members too.

Thanks Godly for responding... So I have looked over at my monthly savings and decided to round up the Roth contribution to $100. I see what you mean by neglecting the retirement. I did not realize I was doing that. Thanks for pointing it out to me!

I did some further readings and posted 2 articles above. Please make sure that you check them out.

I keep going back to the fact that debt is debt, no matter what! So wouldn't be best to allocate $100 towards the student loan and $100 towards the Roth since they are, as you explained it pretty much, neck in neck with glitch of more or less .6% between the 2 of them (interest in student loan 1.4% according to the math with tax deduction and inflation)??????????????????

I think i am getting there but.... I am trying to understand the tax bracket and the inflation part of it all.... Would I not come ahead by doing both $100 allocated to both (stu loan and Roth)? What am I missing?????? When reading your answers, I feel like you rather me just focus on the retirement and neglect the loans due to age.

when I am examining it and thinking maybe I should pick up on both. So instead of putting 60, put 100 towards Roth. That is 1200 on each yearly towards stun loan and Roth!

I am going to insist and persevere until I GET this!

Thank you all, because I really do want to get this once and for all!

[Goldy]

Thanks Godly for responding... So I have looked over at my monthly savings and decided to round up the Roth contribution to $100. I see what you mean by neglecting the retirement. I did not realize I was doing that. Thanks for pointing it out to me!

I did some further readings and posted 2 articles above. Please make sure that you check them out.

I keep going back to the fact that debt is debt, no matter what! So wouldn't be best to allocate $100 towards the student loan and $100 towards the Roth since they are, as you explained it pretty much, neck in neck with glitch of more or less .6% between the 2 of them (interest in student loan 1.4% according to the math with tax deduction and inflation)??????????????????

I think i am getting there but.... I am trying to understand the tax bracket and the inflation part of it all.... Would I not come ahead by doing both $100 allocated to both (stu loan and Roth)? What am I missing?????? When reading your answers, I feel like you rather me just focus on the retirement and neglect the loans due to age.

when I am examining it and thinking maybe I should pick up on both. So instead of putting 60, put 100 towards Roth. That is 1200 on each yearly towards stun loan and Roth!

I am going to insist and persevere until I GET this!

Thank you all, because I really do want to get this once and for all!

Sure, you would come ahead by investing 100 and paying off 100 per month but you would not be ahead when compared to just investing. So far this year I am up just under 15% on my 401k. Plus, keep in mind that you really need to max that Roth which will require either a lump sum of 5k or a monthly contribution of 416. If it were me I would just toss 5k from your savings account into the roth right now and be done with it for 2012.

[Savingbtime]

Sure, you would come ahead by investing 100 and paying off 100 per month but you would not be ahead when compared to just investing. So far this year I am up just under 15% on my 401k. Plus, keep in mind that you really need to max that Roth which will require either a lump sum of 5k or a monthly contribution of 416. If it were me I would just toss 5k from your savings account into the roth right now and be done with it for 2012.

Gotcha! I am learning ! Will get on it for the Roth contribution!

100 extra towards to student loan and 5000 total for the Roth each year until the MD salary kicks in and I no longer qualify for the ROTH!

I will continue to keep you guys updated on my progress..... Thank you all ( thank you Godly )

[Savingbtime]

A little update

Just the few months that I have been applying the extra $112.32 towards the student loan, ohhhhh my GOD, have I seen a difference.... I am down to $124608.13 I am happy with my progress and thanks to all of you... I will continue to keep you updated... Again thanks to younalll