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here is my situation. i am currently unemployed. had to move in with my parents after i lost my job in january.
I have 45K in my tsp which i can cash out and get back around 32K after doing calculations on my tax bracket. this is assuming the worst (i wont find work in 2010). havent been able to land a job in 4 months.
that being said:
my student loans, i have been paying slightly above the minimum amount every month for about 10 years ($275 monthly).
so after 10 years, the total has gone down by only 8K. that sort of infuriates me.
at first the student loan was 6.5 interest, now its 5.5 % interest because payments are automatically EFT'd from my bank account.
i just looked at my great lakes student loans account and i have been paying over $100 in interest every month all these years.
i dont understand all the tax stuff. all i know is i paid $1500 in student loan interest in 2009, it goes down slightly every year. i feel like im going to end up paying double the original balance of 35K if i keep making just the minimum monthly payments.
i really want to be rid of this student loan burden. if i do this, after all is said and done i would end up with around 8K between my bank account and the left over tsp money after cashing out.
that would allow me a few more months to keep looking for a job.
i just need a push, i want to cash out on my tsp account and pay off my student loans unless its a very bad idea in my current situation.
Last edited by bradyischamp; 05-13-2010 at 11:34 PM..
i dont understand all the tax stuff. all i know is i paid $1500 in student loan interest in 2009, it goes down slightly every year. i feel like im going to end up paying double the original balance of 35K if i keep making just the minimum monthly payments.
It should feel that way, as you will indeed pay double the original loan amount. By default student loans are 10-year loans, but you obviously consolidated your student loans into a 20-year loan which dramatically increases the amount of interest you pay. Although, assuming you have not deferred the loans you should have more like $10k paid off over 10 years.
Paying off the student loans quickly may not be the best use of your money though, you are only paying 5% and the interest is tax deductible.
I think you don't understand the "loan interest"... say over 30 years, you would of paid 20,000 in interest but instead of spreading the 20,000 equally in each year, they put most of it in the first 15 years... so when you are paying, you are paying mostly interest at the beginning... so even though you paid a lot it doesn't reduce the principal by a lot... I wouldn't touch your retirement plan... I would try to keep paying it off as you have already pretty much paid all the interest on that loan already since you are 10 years out... there is only a "little" bit of interest left and mostly principal... by the way, the mortgage loans work in the same way with interest being paid off first before principal... we all live and learn... do NOT refinance the loan, do NOT use your retirement money towards your loan, and DO use the money in your bank to live and find a new job...
Get a deferrment while you are out of work, so that you can save your existing cash for job hunting. When you are employed again, pay an additional amount each month (even $50 makes a huge difference) and pay them off more quickly - that will save you some charges.
It should feel that way, as you will indeed pay double the original loan amount. By default student loans are 10-year loans, but you obviously consolidated your student loans into a 20-year loan which dramatically increases the amount of interest you pay. Although, assuming you have not deferred the loans you should have more like $10k paid off over 10 years.
Paying off the student loans quickly may not be the best use of your money though, you are only paying 5% and the interest is tax deductible.
UserId - I usually don't agree with you but I definetly agree with you on this.
Student Loans should be the last debt you pay back. Like USERID said the interest rate for Student Loans is lower then most loans and the interest is tax deductible. Another benefit not mentioned is the option to defer payments. If you ever have a period were you can't make your minimum payment you can defer payments for as long as something like 48 months over the life of the loan. You don't get penalized or take a hit on your credit score. The only thing is that the interest is added to the balance of your loan when you defer payments.
A couple of years ago I had to do it and it was really easy. I just had to call them then sign and mail back a form saying I agreed to defer payments for 6 months. How many other types of loans allow you to do this?
you can ask to your bank about your Interest Rate.
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