#StudentLoanDebt #FinancialTips #InterestRates
Hey everyone! 💸 Have you ever felt conflicted about whether to pay off your student loan debt all at once or keep it around for a bit? I recently paid off my $24k student loans with interest rates of 2.5% and 3.5%, but now I’m wondering if I should have approached it differently.
Here’s my dilemma: I’ve heard that it might be better to hold onto low-interest debt like student loans and instead invest the money elsewhere. If I had kept the $24k in a High-Yield Savings Account at 4.5%, I could have potentially earned more interest while making minimum payments on the loan. 🤔
So my question is, why do people always say to pay off debt as quickly as possible without considering other options that might actually be more beneficial in the long run? What are your thoughts on this?
Possible solution:
– Consider the interest rates on your loans before deciding whether to pay them off immediately
– Evaluate potential investment opportunities that could yield higher returns
– Consult with a financial advisor to create a personalized repayment plan.
Let’s discuss and share our insights! 💡 #FinancialDecisions #DebtManagement #InvestingTips
> I could have put the $24k in a HYSA at 4.5% and made at least 1% interest if I had just kept the 24k and payment minimum payments.
Not really. Assuming you’re in the ~20% tax bracket your HYSA is taxable income on federal AND state level. At best it’ll be even.
>What the heck is the point of people saying to pay of debt as the first thing you should do when I could have just kept the student loan, had an extra 20k+ at hand and a little bit of interest for myself on it?
It depends on who you ask but generally paying off low interest debt assuming the monthly payments are manageable is ill advised. However if you’re looking to qualify for a mortgage in the future, having lower DTI will allow you to have more borrowing power.
Would I have paid off 2.5-3.5% loan asap. No. Would I have kept it in a HYSA? No. I would have kept it in the market. As a reminder YoY Sp500 has over 25% returns. That’s what you should be more upset about not the $200 before taxes you would have made parking 20k in hysa.
It’s about discipline, I think. A debt is something you *must* pay. Saving/investing – no one is forcing you to do that. So – it’s safer to get rid of the debt, because if you don’t have that discipline, and you get into trouble – you have a debt you can’t pay.
It’s not necessarily wrong to pay off low interest debt, just potentially suboptimal.
Not sure who “people” are that told you to do this, but it isn’t typically the prevailing wisdom of this sub. It would be one of the core tenets of someone like Dave Ramsey and anyone who listens to him, though.
It’s never bad to be in less debt. Don’t sweat this decision and know that you’re in a position to make a more informed decision about what you want to do the next time around.
That 1% interest would have yielded you all of $240 plus you would have had to pay taxes on it. I think the better “feeling” between making a little money versus paying off a large chunk of debt would be the latter.
As for those advising that you could have put it in the market, that is true but at the same time, while the market has been on an upward trajectory right now, that’s not always the case. Playing the market is always about how much time you’re in it because there are some years where things can go down, others where they go up but on average, over time the market goes up. That’s not always the case year-to-year.
Eh once you take into account taxes that 1-2 percent will be a pretty small number, possibly even a negative one.
It’s good that you’re thinking about it though, you should figure out your tax bracket and do the math yourself to see what the outcome would have been, great practice for the future.
Being debt free is POG, congrats. Only good debt is generally a mortgage because that asset gains value.
It’s not the worst thing you could have done.
I was in a similar situation and made the minimum payments on the loan and Increased my retirement savings.
On a spreadsheet that would probably be the “optimal” thing to do, but a spreadsheet cannot qualify how debt makes you feel.
It’s done and over. Celebrate paying off the loans and start working towards your next goal. You are in a better place than many others.
As others have said, discipline is the key here. There is nothing wrong with your strategy of paying the smallest payments, while your accrue savings with higher interest than the debt. If fact it is a better way of doing it, because having that lump sum for a rainy day will provide a nice cushion in case of problems that you don’t expect.
However, not everyone has that sort of discipline, It can also be mentally rewarding to cross off loans as they are paid off. These milestones can give people a sense of accomplishment, where they have less debt to their name, and so they no longer worry about it.
Also you should focus on higher payments on the higher interest debt, vs the lower interest ones, regardless of the amount owed.
Paying off your debt in this situation is not bad. As others have pointed out, you would have been taxed on the HYSA interest, and your savings wouldn’t have really been that much. And HYSA rates have only been this high for a year or two, and will probably be going down again soon. This is not worth worrying about. Paying off the debt was a good thing.