Financial question

[Droopy]

I've got enough money together to pay off my student loan- $4600. That will only leave me with about $2200 in the bank, however, if I choose to pay it off. Do you think this is a wise move or should I wait to pay it off and save more money? I will be saving at a rate of about $1000 a month until August after which time I'm not sure what my income will be. It should be decent, but I may not be able to save at the rate that I currently am. My current monthly expenses are $1700 a month. What do you think?

[La Lioness Priyanka]

1. students loans have low interest rate, so i dont know if i would rush to pay them off

what interest are you earning on that money thats currently in your bank?

[Droopy]

2. I'm not earning anything on the money that's in the bank

Or very little anyway. Something like 1%. My student loan is at about 8%. I also have a credit card debt that is about 5% fixed and then there is my mortgage which is 6.25%.

I'm on a debt paying off mission. I'd like to be debt free in the next five years. It's just a question on how soon I should start paying this stuff off. Should I count on my income and go ahead and pay off the student loan? Or should I play it safe and save more money?

[La Lioness Priyanka]

3. hmm in general people advise to pay the credit card first since credit card APR's vary

especially if you miss a payment.

[flvegan]

5. 8%? Pay it off.

Pocket the $400ish/year in interest you're throwing away.

Then, send it to me. :)

[Droopy]

7. LOL!

You would charge a commission for financial advice wouldn't you? And your a damn phys ed guy!

[flvegan]

12. Nah, of course not.

I majored in finance in college, though. I know my economics.

[pitohui]

18. 8percent is just too high, i vote pay it off

if you had no emergency fund and no credit card at all, my advice might be different but you have a couple thousand dollars saved already

as it is, assuming the 8% is the highest interest rate on any debt you have outstanding, yes, pay off the loan


when we were working to pay off our debts, we paid off the most expensive debt first and paid it very aggressively -- most of ours was credit card debt other than the mortgage and we knew, in an emergency (we'd already been through some emergencies) that the credit cards were still there so there was no need for a HUGE emergency fund in the checking account where it would be earning little interest

the last debt to be paid is the mortgage because in an emergency, if the emergency was so bad you lost your home, you don't get back what you pre-paid, so you wait to pay down on the mortgage until you are very, very confident you can handle anything that hits you without ever putting your house at risk

we paid off everything else we owned, then built an additional emergency fund, funded the max in our IRAs, and then went ahead and aggressively paid down the mortgage

it took us longer than five years but we had low and irregular income for some of those years, whereas your job is pretty secure, right?

[Droopy]

19. Yes, my job is secure

The rate of pay may not be, though. But I know if I even get the lowest bid that I'm still going to be okay. I just might not be able to save like I am right now.

[DarkTirade]

4. Just remember that things can happen.

Jobs can go under without warning. It's better to err on the side of caution than it is to blow it all early. :) Even if it's for a good thing.

I've been there before. I almost ended up on the street because I had plenty of money and I was saving on a monthly basis, so I decided to get some things out of the way... then my job went under with no warning and I had no income.

[Droopy]

6. That sucks

And I guess that could happen to me, too. I think the job is secure, but me being in it may not be so secure. I'm a trucker and this company has almost a zero tolerance on dollar amount damage due to accidents. I think it's $5000. You can rack up 5 grand in a hurry if you are in an at fault accident in a big truck.

[BOSSHOG]

8. One suggestion

not relevant to your original post. Pay yourself first. If you do not have a ROTH IRA open one as soon as practicable (like Monday.) We can do anything we want but stop the clock and you are losing interest on your future right now.

Pay off $3,600 of your loan and put a thousand on an IRA then you'll still have some bucks in the bank.

You will always have debts. Don't think of that as a bad thing, as long as you are saving by paying yourself first.

[Droopy]

11. I can't help but think of debt as a bad thing

I can be debt free by the time I'm 40 if my job holds and I don't have to buy a new car. I do have a 401k going and I'm 35 years old. Given those facts would you still suggest the Roth IRA right now?

[BOSSHOG]

16. In a word

YES!!! "If your job holds?" "If you don't need transportation?" "If you don't need a roof over your head?" "If you don't need groceries?" Being debt free is a myth and thats okay.

"By the time your 40?" So you won't have any needs into your 40's and 50's and 60's?

Doing away with that student loan is an outstanding Idea but if ya take a few bucks of your plan and pay yourself by opening a ROTH IRA NOW you will have at least 25 years of interest being earned for YOU.

When I was in the Navy I heard so many of my contemporaries saying, I'm retiring next year (average age 40ish) so I guess I better start saving money.

I don't mean to be flippant my friend and I love your passion for money management but it starts with you and paying you first.

You will always owe somebody something but you might not have a nest egg. Its all up to you. And is all up to you now. I wish you the best of luck with your plans.

[ConcernedCanuk]

9. I'd say keep the $4600 - use your projected savings to down the debt.

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So the loan will be gone in 5 months, and you have the security of knowing you have 3 months expenses at hand.

It's always nice to have financial security that does not rely on future income.

That's my 2 cents worth.

[Droopy]

14. That's an option I'm kicking around

And I guess it would be prudent to have as much money on hand as I can. I just hate having that debt hanging over my head. I want it gone yesterday!

[ConcernedCanuk]

17. "it would be prudent to have as much money on hand as I can" - You just answered your question

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With the way the economy is fragile right now,

keep cash.

[Gormy Cuss]

10. Your reserve won't be very big, and you don't know what your income will be like after August.

Since you expect to be adding $1000 a month until August, it sounds like you'll have the cash to pay off the loan and pay down at least a portion of the credit card balance without leaving yourself without a cash reserve. Congrats!

So your cash on hand is $6800. That's a decent reserve for unexpected expenses. Ten thousand would be even better because that expenses x 6 months, but a 4 month reserve is darn good.

What I would do in your shoes: unless the credit card balance is higher than the loan amount, I'd start paying off the loan in large chunks, say $500-1000 per month, and increase credit card payments until the combined total= $1000 per month for the next few months, with the goal of paying off either the cc or the loan completely before August.

[Droopy]

15. The school loan balance and the credit card are almost the same

Within a couple of hundred dollars of each other. But the credit card loan is 5% fixed for the life of the balance. It was one of those balance transfer deals. And the school loan is 8%.

But I see what you are getting at. Keep my current level of savings and start paying down the loans.

[Lil Missy]

13. I'd pay off the 8% loan.

And good for you for saving so diligently.

[Turbineguy]

20. 8%

Pay-off territory. Use the decrease in expenses to pay the credit card next. Then you will have saved both payments which is just like added income.