Welcome to City-Data.com Forum!
U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Economics > Personal Finance
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 09-10-2014, 11:03 AM
 
Location: Rio Grande Valley
13 posts, read 19,057 times
Reputation: 11

Advertisements

Hello all,

New to this site and some of you seem to know what you are talking about so I would appreciate some help.
My husband and I just entered the real word of Money and are kind of confused as to how to do things, or at least I am since I handle all the money. We make an ok living together but I am drowning in school loan debt! I am still in my grace period and am planning to start making payments this month. I am going to go with the avalanche method to pay of my debt since it makes the most sense to me at this point. I have $43,000 in school loans 5 subsidized and 5 unsubsidized. My subsidized loans are mostly 1-3k but 2 of them are 6K and 7K but the one with 6k is older so with interest it has about $1000 in interest. Which loan should I tackle first? Do you go for the one after you add in the interest or only solely look at the amount owed?

Also, does it make sense for us to be saving most of our income for a home rather than pay this off? All of the loans are mine but since he makes most if the money It doesn't feel right to put more money into my loans? Right now we are putting about 12% into loans, 50% to saving for a home, and the rest to live and pay bills (we don't have many). Is this a smart approach I figured at this rate it would take me almost 4 years to pay off my loans but I don't see myself doing this for that long. Also how will this affect us at tax time, having most of our money saved up?

Thanks
Reply With Quote Quick reply to this message

 
Old 09-10-2014, 11:08 AM
 
4,236 posts, read 8,084,975 times
Reputation: 10208
All I can tell you is that un-sub loans need to go to the head of the line for any additional payments.

I’m sure you’re thinking why?

1. If you need to go on deferment the interest is still accruing.
2. These loans have higher interest rates.
Reply With Quote Quick reply to this message
 
Old 09-10-2014, 11:40 AM
 
Location: Vallejo
21,658 posts, read 24,781,820 times
Reputation: 18883
Highest interest rate gets paid back first. Dave Ramsey goes into an exception somewhat in that student loans can't generally be discharged (death, disability excepted for federal loans) whereas other types of debt can. That's more a nuance. If your student loans are 2% and the mortgage is going to be 4.5%, save up for the down payment. There's also pucker factor. I'm fine letting my student loans sit there as I'd rather put as much as I can into my 401k. While investment returns aren't guaranteed, historical returns are higher than the 4.25% I pay on my student loans.

Not much rent/buy disparity where I live, so buying isn't a really high priority for me. On the other hand, if I wanted to start a family it probably would be for non financial reasons.
Reply With Quote Quick reply to this message
 
Old 09-10-2014, 11:58 AM
 
Location: Sunnyside
2,008 posts, read 4,705,369 times
Reputation: 1275
The way I'd do it is to pay off the lowest amount loans first. Once paid off put that money plus what you were paying on the next one, and so on. Then by the time you get to your higher loan amount one, it's got a lower principal amount since you've been paying on it, and you'll be paying a lot more onto it.

Since your loan amounts are so spread out and small, the interest amount won't really be that big of a deal so I wouldn't really worry too much on paying off the highest interest rate amounts.
Reply With Quote Quick reply to this message
 
Old 09-10-2014, 12:15 PM
 
2,294 posts, read 2,768,226 times
Reputation: 3852
You've left out the most important part which is the interest rate.

I disagree with skinnayyy completely. Because your loans are all relatively small, there's less of that "feel good" worry since you'll still be paying off the loans. If one of your loans was $40,000 and the others combined made up $3k, then you could make the argument that you might want to just finish off the smaller loans, but realistically when the balances are the same, it doesn't matter from that perspective.

At the same time, you're paying money for that "feel good" factor. That's money that could have been used to pay off your loans faster. Depending on how close your interest rates are, it may not be significant, but since you have unsubsidized loans, that's probably a good indication that there's a big spread.

I'd take a guess that you're unsubidized loans may even be higher than your mortgage rate, which means those should be your priority even over a down payment. Paying 8% interest so you can avoid borrowing at 5% just doesn't make sense.
Reply With Quote Quick reply to this message
 
Old 09-10-2014, 12:26 PM
 
Location: Boise, ID
8,046 posts, read 28,365,004 times
Reputation: 9470
Definitely go higher interest rates first, regardless of balances. The question is at what point do you stop paying toward the loans and start saving for a down payment.

If you will be getting a mortgage at 4%, say, and itemizing your taxes (not everyone does this, even though some people insist everyone does when they buy a home), you'll get to write off some of the mortgage interest. But you also get to write off some of the student loan interest, so these write offs are close enough to a wash to ignore. So if your loan was going to be at 4%, pay off any student loans that are charging you more than 4% first. Then save for your down payment.

Also, you are probably fairly young. It is good to save for a house, but don't jump right into buying one. Make sure you are reasonably sure you won't be moving for at least 5 years before buying anything.

Finally, even before paying off student loans or saving for a house, if either of you have a 401k available at work with a company match, take full advantage of that, over everything else.
Reply With Quote Quick reply to this message
 
Old 09-10-2014, 01:07 PM
 
Location: Rio Grande Valley
13 posts, read 19,057 times
Reputation: 11
My unsubsidized loans are all at 6.8% except for one that is 3.86%. That is why I was asking which of those 2 loans to tackle first since they are both the same interest rate.as far as my sub loans I am not even worried about those yet since They will not start accruing interest until March of 2015. The interest on them is 3.4% for all of them. I am not sure what you guys mean by my loans being small since I get a panic attack every time I think of 43000 for loans! I kick myself everytime I remember how I spend those refund checks.

I am young and so is my husband but we had our son very young which is why we are in a hurry to buy a home. We are actually planning on building a home so the way we plan is to not have a mortgage if we do some serious savings in the next couple of years. We live in the south were it is totally achievable, my whole family has taken that route and we like the idea of no mortgage to pay. What I'm asking is how will it affect us financially having no mortgage and saving all of our money?

Also, like I said earlier these are all my loans so as much as I would like to put all our leftover income towards them My husband will not go for it. We agreed to put a good amount towards them and once we have a house and our payments increase we can lower the amount we are paying towards student debt. Does this make sense?
Reply With Quote Quick reply to this message
 
Old 09-10-2014, 01:56 PM
 
Location: Boise, ID
8,046 posts, read 28,365,004 times
Reputation: 9470
If the interest is the same on 2 loans, I would always pay off the smaller one first. Make it go away so you can use the money you were paying on it for the next loan on the list. Given what you've said about buying a house cash, I'd change my previous advice and say just pay it all off now.

Look at it this way, if your money is sitting in an account now, it is likely earning less than 1% interest, if any. You are losing 6.8% or 3.4% or whatever interest you are paying on the loans. If you are spending $500 a month in interest (I just made that number up, no idea what you are actually spending on interest), while your money sits in the bank at 0.005% interest, you are throwing $499.99/month in the garbage.

In the meantime, you are saving for buying/building a house for cash with no loan. If you pay off all your debt, then ALL your non-bill money can go straight toward the house, and you won't be throwing $500 away every month.

In other words, you are putting 50% of your income toward the house and 12% toward debt payoff now. But part of that 12% is going to interest. If you pay off the debt, you can put the entire 62% toward the house and not be paying any interest at all.

However, I will reiterate that you should think about starting to save for the future as well. Compound interest is an amazing thing. My one regret is that I didn't start saving for retirement until I was 30. By that time, I'd owned a house for about 5 years, and had no non-mortgage debt, but I wish I had started maxing a Roth IRA right out of college, and taken a bit longer to pay off the debt. Getting the company match on a 401k if one is available is a no brainer, as that is an automatic 50-100% return on that investment, which you can't beat.
Reply With Quote Quick reply to this message
 
Old 09-10-2014, 02:38 PM
 
1,260 posts, read 2,034,126 times
Reputation: 1413
Quote:
Originally Posted by Lacerta View Post
Look at it this way, if your money is sitting in an account now, it is likely earning less than 1% interest, if any. You are losing 6.8% or 3.4% or whatever interest you are paying on the loans. If you are spending $500 a month in interest (I just made that number up, no idea what you are actually spending on interest), while your money sits in the bank at 0.005% interest, you are throwing $499.99/month in the garbage.

In the meantime, you are saving for buying/building a house for cash with no loan. If you pay off all your debt, then ALL your non-bill money can go straight toward the house, and you won't be throwing $500 away every month.
Agreed. You are asking about tax implications when saving for a house. None at this time, of course, since you don't own a house and don't have a mortgage.
however, I'd like to address the idea of buying for cash. With mortgage interest rates at around 4.25% you are losing money, as Lacerta pointed out, by saving for a house and not paying more towards your loans.
As far as tax implications of not having a mortgage. My interest rate on my mortgage is 4%, but I'm in the 25% tax bracket, so, after my tax deduction my effective mortgage rate is 3%. This, of course, is not always that straight-forward, since it depends on your other deductions and where you are in the tax bracket, but in my case it is. In fact, my mortgage keeps me from pushing into 28% bracket. Considering my house appreciated about 10% since I bought it 2+ years ago, this is some cheap money, even if I consider maintenance.
I hear you about a child, I also had my first child very early. I would not get hung up on buying a house mortgage-free. Especially, if school choices are involved, and you need to move sooner rather than later. I would pay more towards the loans and get loan-free and buy a house at about the same time. You are likely to have a pretty large downpayment by then, even if you tilt your percentages more towards loans. It is going to be a small mortgage!
Reply With Quote Quick reply to this message
 
Old 09-10-2014, 04:52 PM
 
9,729 posts, read 7,552,701 times
Reputation: 24162
Quote:
Originally Posted by lsanchez888 View Post
Hello all,

I am still in my grace period and am planning to start making payments this month. I am going to go with the avalanche method to pay of my debt since it makes the most sense to me at this point. I have $43,000 in school loans 5 subsidized and 5 unsubsidized. My subsidized loans are mostly 1-3k but 2 of them are 6K and 7K but the one with 6k is older so with interest it has about $1000 in interest. Which loan should I tackle first? Do you go for the one after you add in the interest or only solely look at the amount owed?
There will be minimum payments due on all of your loans. Set them up for automatic payments and you can sometimes get a slightly lowered interest rate. We did a mix of both recommendations - if you see very small loans, go ahead and make the extra payments to get rid of them (also looks better on your credit report that some are paid off), but try to make the biggest payments on the highest interest loans.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:


Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Economics > Personal Finance

All times are GMT -6.

© 2005-2024, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Contact Us - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 - Top