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Student Loan Consolidation
Kismet
Registered User regular
Registered User regular
So, I'm graduating with my Masters in Computer Science come next semester. I'm out of my grace period because I was only able to take one class last semester (not enrolled at least half-time) and my repayment is supposed to start come August.
The debt I'm currently under is right about $36,000, this is the consolidated amount from all of my loans, and I have an interest rate of 6.625% fixed (20 years).
I chose a graduated payment plan because I felt it would be best for flexibility when I'm still looking for a job, moving, and so on - so for the first 2 years I'm paying ~$225 a month, then it goes up to like $325 for 18 years.
So, what is my best course of action in regards to paying this loan off?
I should also mention I have in the neighborhood of $3,000 in various other debt, which is basically credit card debt.
My current plan is to pay that off as soon as I can, which should be easily done within a couple of months. I'm hitting about double the minimum now just because that's all I can afford working for the college.
So, #1 priority I assume is getting rid of the credit card debt, which is easily done at most within a year, probably more like 4 months.
So, once I have that finished, and I've been making my regular student loan payments in the mean time, is the smart bet to pay the rest of my debt off as quickly as possible? And I'm talking about in comparison to getting into some kind of savings, Roth IRA, 401k, high-yield savings, whatever - I have virtually no idea about this type of money stuff.
So basically my question comes down to:
Repay ASAP instead of using money to save
vs.
Save money elsewhere (IRA, 401k, Savings, whatever) and pay the debt for the full term
If I'm thinking about it correctly, it's basically a function of interest, ie: would I get more value for saving or paying off debt, but I don't know if that's actually how it works. Not to mention, I don't know what kind of value to expect for saving anyway.
Halp!
The debt I'm currently under is right about $36,000, this is the consolidated amount from all of my loans, and I have an interest rate of 6.625% fixed (20 years).
I chose a graduated payment plan because I felt it would be best for flexibility when I'm still looking for a job, moving, and so on - so for the first 2 years I'm paying ~$225 a month, then it goes up to like $325 for 18 years.
So, what is my best course of action in regards to paying this loan off?
I should also mention I have in the neighborhood of $3,000 in various other debt, which is basically credit card debt.
My current plan is to pay that off as soon as I can, which should be easily done within a couple of months. I'm hitting about double the minimum now just because that's all I can afford working for the college.
So, #1 priority I assume is getting rid of the credit card debt, which is easily done at most within a year, probably more like 4 months.
So, once I have that finished, and I've been making my regular student loan payments in the mean time, is the smart bet to pay the rest of my debt off as quickly as possible? And I'm talking about in comparison to getting into some kind of savings, Roth IRA, 401k, high-yield savings, whatever - I have virtually no idea about this type of money stuff.
So basically my question comes down to:
Repay ASAP instead of using money to save
vs.
Save money elsewhere (IRA, 401k, Savings, whatever) and pay the debt for the full term
If I'm thinking about it correctly, it's basically a function of interest, ie: would I get more value for saving or paying off debt, but I don't know if that's actually how it works. Not to mention, I don't know what kind of value to expect for saving anyway.
Halp!
Kismet on
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Posts
You've got the right idea. The first thing to do is get that credit card debt down. One thing that's worth a try is to call your credit card companies and try to talk them into reducing your interest rates - it's usually pretty easy to do. Double the monthly minimum is pretty good on credit card payments. Obviously, the more you can pay, the better. If you're responsible about making your payments on time and if you can resist the temptation to rack up any further debt, transferring your CC debt to a card with a low or zero percent introductory rate can make things easier.
Regarding saving vs paying down debt: There isn't an investment in the world that will reliably return enough money to outpace your credit card interest over the long term. There is one notable exception to this: an employer-matched 401k. Basically, some employers will match whatever money you put into your retirement plan, dollar for dollar, up to a certain maximum amount. That's basically free money and there's no reason not to take advantage of it.
The other thing to keep in mind is that you really should have some money in your savings for emergencies. Aggressively paying your credit card debt down is great, but unless you've got at least one month's living expenses (preferably two months plus a little extra for emergency car repairs) you run the risk of racking that debt back up if you lose your job or your car breaks down.
the "no true scotch man" fallacy.
And the consolidation was basically a must for my situation, at least for now.
Meet Barack Obama
Meet Barack Obama
If you do the math that is a pretty big difference, but still pay of the CCs 1st.
If you've got credit card debt that isn't on an introductory rate, you should be using any of your money for savings, you should be paying it down.
To the OP: there are a lot of things you need to consider, here. Over the long-term, at your age, a retirement investment is going to give you a better ROI (Return On Investment) than paying down your student loan. An aggressive, well-diversified small capital stock portfolio is going to give you a substantially better return over the long-term than 7%. So, if your choice is between paying down your student loan, or investing in retirement, invest in retirement, especially matching 401k programs (as Feral said) and Roth IRAs.
Now, beyond that, there are some other concerns to take into account. If you're making less than $65,000 (or less than $135,000 when married and filing jointly) the first $2500 in student loans are tax-deductible. Odds are, that top bit of money is going to be falling into the 25% bracket, so, say you were paying $2000 in interest this year, and had made $40,000. The government would deduct that $2000 from your income, meaning you wouldn't have to pay taxes on it (this is even true if you take the standard deduction), meaning that $2000 would only cost you $1500. This reduces your interest by 25% (or from 6.625% to a little less than 5%). If you were to slow down your student loan payments, to pay them back as slow as possible, you could pull in more than that on a CD pretty easily, to say nothing of a mutual or index fund. Hell, I pull in 5% on my savings account, which is enough to beat that.
So, basically, unless the tax code changes, you want to change your payment structure so it takes 100 years to pay those down if you can. It's good debt, that you can leverage to make money in the long term pretty easily.
Yeah sorry I meant paying down the CCs 1st, then the student loan, but making the min on the loan.
This is assuming your loan has the lower rate.