However, I still have student loans. A small remainder of a loan leftover from undergrad 8 years ago, currently doing the minimum payments on that (10 year repayment plan), plus a larger loan that hasn't come into repayment yet from the program I finished this past summer.
I crunched the numbers, and if I were to stop traveling, stop buying clothes, and stop drinking for about a year, I could pay them off without otherwise affecting my lifestyle (or the 25% that goes into savings). Of course, that's a pretty big imposition to begin with (particularly the travel, since I'm in a long distance relationship).
The interest rates are reasonable, around 3% on the smaller loan and 5 or 6% on the larger one. Both are subsidized federal loans. But, my savings account doesn't earn that much interest... last I checked... it keeps going down.
How aggressively should I be trying to pay these student loans off? Cut my losses and do it in a year? Middle of the road for 2-3 years? Use the 25% of my income that I'm directing to the bank instead for a year to get rid of them? Or is it better to just ride them out on the minimum payments?
I know that regular payments are good for building credit, and I don't have a lot of other payments right now - rare use of credit cards (and never carry a balance), no mortgage, no car payment. My credit is good, but I want to keep it that way.
I anticipate wanting to buy an investment property in an expensive market in five years or so, if that makes a difference.
Curious to read other thoughts on this.
If you happen to come across any extra cash, apply that to the balance at that time.
I'm so jealous. My wxh left me with a lot of marital debt. I got all of the stuff, but I also got all of the debt for stuff that I didn't really want, but didn't trust him to actually pay for.
The interest rates are reasonable, around 3% on the smaller loan and 5 or 6% on the larger one. Both are subsidized federal loans. But, my savings account doesn't earn that much interest... last I checked... it keeps going down
Maybe look into some other investment options. Is the 25% savings for a long term goal or short term? If you don't have plans for the money for a few years, a mutual fund in a taxable account could average an 11% return.
3-6% on the loans isn't terrible, especially considering you get some of that back at tax time Depending on your marginal tax rate, you will get 10-33% of that interest back so 3-6% isn't entirely accurate. Maybe throw extra at the 6% and let the smaller one ride.
Oh and you sound pretty on track. I don't think halting your social life for a year will change your financial picture enough to be worthwhile.
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Keep saving until you have at least a 8-10 month savings, and then consider backing off that some to pay more on the loans. If plan to buy property in about 5 years, then make a 5 year plan where you 1) maintain your emergency fund; 2) have a down payment; and 3) have your loans paid off.
If the fact they exist are driving you crazy pay them off early. I wouldn't deprive yourself though to do it in a year. Maybe a more reasonable 2 year plan.
I borrowed 85K from 1990-1995 for college/med school; I had ten years to pay them off after my deferment ended (1998). I paid off the high interest accruing by the nanosecond loan as soon as possible. The others I paid off more gradually; every time I finished paying off one loan I used the money the next month to start paying off another loan. In doing this I managed to pay them all off in 6 year instead of 10. I ended up paying back 101K on the 85K that I borrowed so I thought that was pretty great.
I'm one of those people who COULD NOT STAND having debt although I realized my money would have been better off going into a mutual funds plan. Oh well....
What are your goals?
1. Put the max in a Roth IRA and continue on your savings plan
2. Stock up on an emergency fund 6 months or start a mutual fund
3. Enjoy yourself and put any extra after the above towards extra payments.
There is bad debt and good debt and school loans with a low interest rate is not considered one if the truly bad debts. Save and shore up your retirement then the loans.
Hope that helps.
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The 25% is roughly to keep building the accessible savings, the kind I can grab when I have emergency surgery or get divorced or something like that. How much is enough there? The traditional wisdom I grew up hearing was 3mos, but in a recent financial planning seminar I attended they said in our current economy 12mos is better. Does that all need to be in the same account though? If I have 3 or 6 months easy to grab, that gives me 3 to 6 mos to free up more if needed... Right?
Is there a free online college class I can take about investment options? Where do I learn this stuff?
When I was aggressively paying off XWH's med school student loans, I kept a spreadsheet that showed how many months I'd cut off the repayment plan with extra payments, how much money I was saving overall, etc.
Is 20% enough to max out your 401k? Are the investment options in your 401k decent? (If not, you may want to do an IRA instead, with enough in your 401k for the match.)
Best books I've found for investing are "Random Walk Down Wall Street" and "Bogleheads Guide to Investing" Granted the latter is biased toward low-cost index funds, but so am I! It's very hard to consistently beat the market, and fees eat up so much of most people's investments.
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Does that all need to be in the same account though?
No, as long as it is quick and easy to liquidate without any tax or penalties. You might try a Roth IRA. With a Roth you can take out the principal (the money you put in) at any time without tax or penalty, but you if take out the interest before you retire then you do have to pay tax and penalty. If you do this, pick a low fee, medium risk mutual fund or index fund until you get a better feel for investing.
I have generally heard that you should have a 8-10 month (equal to expenses, not income) emergency fund so that you can survive if you got laid off.
It will be more aggressive and as long as the money is in the account then as you get older automatically over time become more conservative.
I would put at least 3-6 months of savings then put 3 months into a mutual fund. You want to try to keep that money in st least 5 years if not longer to grow.
You can go to the websites and look at their historical return although it isn't a guarentee.
More importantly if you haven't put anything in your Roth I would do that and your contribution before April 15th this year will go towards 2013.
Good luck and you can do it. The Target retirement funds are nice because you don't have to really know in depth the different funds and classes etc.
Man, your interest rates.... holy cow, I couldn't have dreamed of interest rates that low with my student loans!
Congratulations on getting to a more secure spot financially...I know it's a big relief when life feels a little less risky.
The 6% one is 3-4x the size of the 3% one though, so it makes sense to put extra funds toward that (and since it hasn't come due yet, it hasn't actually accrued any interest yet).
If I want to buy a condo in DC, and expect the downpayment to be roughly 2 years of my salary, what's the best way to invest/save toward that?