Pay off Student Loan vs Save money for house
I sold my house and have 100K from the sale. I have about 60K in student loans. Should I pay it off from the sale of my house or save that money for the next house? I pay $1000 every month on student loans and paying that off will be a big relief from a monthly disposable income standpoint. TC:175K
What is the interest rate of your student loan?
Interest rate is at 5%
Student loans are sure interest that you are paying off, though it might be low. Investing the money will (by avg s&p) will nost likely give you better value on similar amoint of money.
As in not pay off the loan and invest in an index fund or something?
Pay off the student loan. The use the $1000 /month freed up how ever you like.
Pay off that loan, just do it.
Everyone is wrong. Invest the money. You can always defer your student loans for job loss.
Not if they’re private
Invest, it will easily beat 5% rate. Also some companies repay student loans. Biden can also give some rebates in it.
The people here saying to invest are ignoring the psychological aspect of it. How many months are left on the loans and what are the interest rate? If they are 6%+, i would argue that it’s better to pay it off. There’s likely a pretty substantial market selloff coming and it fucks with your head psychologically to have significant draw down. Say you lose 33% of it…. Which buy and hold proponents consider normal volatility. How are you going to feel when you log into that account and there’s $66k left. It hurts. And you’re going to beat yourself up for not just posting off the loan. You might even end up selling the bottom and paying off the loan. You say you wouldn’t do that, but it’s actually really hard to think straight. There’s a lot of emotional attachment to money and trades are a few clicks. Another way to look at it: you’re getting a guaranteed 12% nominal return for the rest of the loan (1k * 12) That’s good even with inflation.
OP: what’s your NW and Age. If your NW is below 100k and your student loans is the only debt AND your YOE is. Less than 5. Pay down 30k is student loan and invest the rest in VTI/SPY/VT index funds. If your NW is less than 50k, pay down 20k, remaining 80k invest it in Index-fund AND every month pay $1000 from this fund as an additional payment towards investment. Also, with 175k TC , you should never able to make meaningful progress on your loans.
It depends on when you want to buy the house. If you want to buy it within a year then you should keep the student loan since the interest on this loan is 5% vs mortgage 7-8%%. Investing vs paying off the loan is risky since the rate of return should be around 7% considering income taxes. Taking an option of 7% risk free return by paying off the loan is a no brainer.
Fair point. Ill invest and get the return. I do plan on buying in a year. May get a less expensive house this time. Thanks for your insight.
Pay it off