MemberFirst post on the new board. Woohoo!
So what do you prioritize? Debt reduction or savings? I have a ton of student loan but earn too much to write off the interest. This past year I refinanced and stopped aggressively paying them off in favor of maxing out my 401k. Not sure it’s a good move as there are benefits and drawbacks to both.
MemberGrannyPantiesRock: I do both in moderation I guess. I have 6% auto drafted to my 401k, but that doesn’t max it out. And I have a low student loan payment because I’m a “lucky” underemployed person. I generally pay more than my minimum required, but it sucks with the fact of interest accruing. I don’t want to put off retirement savings though, because time is really what helps there. I’m 24 and started saving at 22 once I graduated college and got a job with a 401k.
MemberIf you’re able to do both, I’d pay some into retirement and continue paying off your loan as aggressively as possible – but I wouldn’t do either or. Unless you have a zero rate, that interest is going to keep compounding against you in the meantime. Debt like that is an albatross, it’s going to hold you down – my parents (in their 60s) have friends still paying off school loans, which sounds like such a sub-optimal scenario to me. Once that loan is paid off, you have a lot more flexibility, especially if you wanted to change jobs / industries, where you may take a pay cut. I’m 13 months away from school being paid off – the pain of having less free cash in the short term has been frustrating at times, but I think worth it in the end, as that loan interest adds up fast.
Btw- if you don’t already know, see if your provider will give you a discount on the rate if you set up an automatic monthly debit – I know WellsFargo does and it has saved me 25bps in interest each month – hey, every bit counts!
MemberWe do both – but my student loans are low relative to the national average in the States, so I’m making a push to get mine paid off before I’m 30, and then I can focus on retirement. My rationale is that the intetest on the loans will accrue faster than interest on savings.
MemberDepends on your interest rate. We could just finish paying off my FI’s student loans right now if we chose to, but the interest rate is so low that we choose to save for retirement and other things while paying them off slowly.
MemberI agree that it depends. Does your employer match for your 401k? Also what’s your student loan interest rates? If you have really low rates it’s be best to do both. My job offers nothing so I’ve just been paying my loans. They cannot be discharged in case of bankruptcy, so I figure why not. Once they’re paid off I’ll start some type of retirement account…
MemberDave Ramsey suggests putting as much as your employer matches and not a cent extra and put all extra money toward debt reduction (snowballing it). No sense in missing out on employee matching but once you finish paying off your debts you can afford to put more into retirement (401k/Ira).
MemberInterest is a thief. I always favor paying off debt over other options.
MemberI’m aggressively paying off my loans. At my normal repayment rate, I’m paying over $30/month in interest on one of them and probably $50/month on the other. I have a pension through work too, so I guess it’s an easier choice for me.
MemberFor what it’s worth, I don’t plan on snowballing by lowest amount, I plan on going by interest rate. Every time I see the balance increase in my student loans I get angrier and angrier. Lol
MemberIf you get a 401K match, DO IT. Contribute the most that you can.
If you don’t have a 401K match, the question is: is the percentage of return on your investment (for retirement) greater than the percentage of interest on your student loan? For most people, it is a toss up. Plus, your return isn’t necessarily guaranteed going forward, but your interest rate sure is.
MemberDave Ramsey says to pay down debt first, so that’s what I’m doing!! if your income is spread thin over everything you won’t ever make real progress. By focusing on one thing at a time you can get debt out of the way and then your income will more than make up the missed retirement contributions. It’s just much more effective!
MemberI am aggressively paying off my student loans. I have a decent chunk in retirement, but we are hoping to increase that number in the coming weeks (husband just started a new job with substantial pay increase). With extra money I ALWAYS pay down debt first. Debt is so horrible and I want to be debt free when we buy a house relatively soon.
MemberWe hit student loans and luckily had them paid off in under 5 years. It saved us over 100k in interest (between my husband and me). Thought it would be smartest to hit that and then put the extra away for the future.
Memberagree with pp’s depends on interest of student loans and if you are getting matching 401k contributions. If the interest rate is higher than 5% I would pay off the loans. Call the loan company and ask them for numbers they should be able to walk you through how much you will pay in interest if you keep current rate of pay until you pay them off And other scenarios of how much total you would pay if you were paying the more aggressive previous amount. That should be a wake up call if you need to pay them or not. It was for me. I am on a regular payment schedule with principle and interest and ten years in already paid them double what borrowed in interest and principle and still owe more than half of what I borrowed. I also hope that when you say you stopped paying aggressively you don’t mean you are paying minimum payment which is usually interesr only bc then you will never ever pay off the loans.
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