Best Step for Recent College Grad?

[dietwater53]

Hi all,

I graduated college in May and am beginning a new job. I’m hoping for some general financial advice. Basically, this is where I stand:

- $8,300 in student loan debt at a fixed 3.4% interest rate
- $16,000 in living expenses for the next 12 months (including health care, transport, rent, etc.)

- $40,000 salary with traditional/Roth 401k options – 19 avail. funds
- $9,000 in savings currently

I’d like to know what you all think the next “best” move would be. Should I pay off my student loans as fast as possible? Should I contribute as much as possible to my employer’s 401k? Both equally?

Technically I could pay off all my student loans very quickly—definitely within the year, but I understand it’s better for my credit rating to pay the loans off incrimentally over time.

Thanks in advance for any reply!

- Jon

[disneysteve]

I could pay off all my student loans very quickly—definitely within the year, but I understand it’s better for my credit rating to pay the loans off incrimentally over time.

Don't worry about your credit score. Worry about your finances. If you can repay your loans within a year, do it.

[Mesem]

Don't worry about your credit score. Worry about your finances. If you can repay your loans within a year, do it.

I agree with ▲. It is best to keep it simple.

[Dvoll]

Agree, keep it simple.

Don't know what your match is on 401k.

#1) Start with contributing ~8-10% of your salary to 401k immediately and increase it over time as your income grows.

#2) I would take ~3K and knock balance down to 5400 immediately. 5400/12 = $450/mo to student loan then its paid off in a year (not bad)

#3) take the ~$450 or so you were using to pay SL to either up 401k contributions or add to savings account or a combination of the two.

You still have 5-6K in savings as a cushion/emergency fund along the way but still paid down debt pretty quickly.

Just hold off on any big purchases such as trips, new car etc until your goal is reached.

[MonkeyMama]

Agreed with everyone else.

I think knocking out the student loan, very quickly, is wise. So is keeping some cash on hand. So is setting a minimum 10% contribution to retirement. So I completely agree with the plan that Dvoll has laid out for you. (Except I guess I'd say 10% minimum to retirement).

[cardtrick]

I have to disagree with everyone else. At a 3.4% interest rate, I see no reason why you should pay off the loan. Focus on saving and make the minimum required payments on the loan. Build up a nice portfolio with your savings. And learn more about investing.

[snafu]

I've a different point of view. I suggest you write out a 5 year plan. Goals for income, position, marital status and whatever is important to you. After 12 months do you expect to move? Will you buy a car? I'd max 401K to any matching, Roth to income based allowable, create an emergency fund to three months basic expenses, and open a benefit based credit card. The rule for CC is to utilize no more than 30% of card limit and pay the balance at least one business day before due date. [There is no advantage to pay the balance before billing date as it doesn't register as credit used.]

Once you've set goals it will be easier to decide how quickly to pay off SL. Don't know your age or Risk tolerance but personally, I'd open a low cost, low fee Index Mutual Fund like Vanguard and dump extra sums. Keep in mind it takes a minimum of two business days to sell MF segments and have sums in a linked chequing a/c.