Is this a bad idea?

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alohabear
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Is this a bad idea?

Postby alohabear » Wed Feb 13, 2013 12:33 pm

As I've stated previously here, one of my goals this year and next is to pay off my student loans. I've been carrying them around for more than a decade and I'm ready for them to be gone. One of the things I decided to do was to decrease my TSP contributions and put the extra money towards my student loans. I decreased my contributions down to 5% so I still get the full match; however, now I'm second-guessing my decision. The pro is that I'll have $250ish more per month to throw at the student loans. The con is I'll have $250ish less a month going towards my retirement. Also, that will result in ~$450 more in federal taxes I'll pay this year since that money won't be tax deferred. Thoughts?

Tightwad
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Re: Is this a bad idea?

Postby Tightwad » Wed Feb 13, 2013 6:35 pm

If the interest rate is high on the student loans, then it's a good idea to get them paid off. If it's low then saving for retirement would be better in my opinion. At the end of the day, either way is putting you one step closer to your financial goals.

stannius
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Re: Is this a bad idea?

Postby stannius » Thu Feb 14, 2013 10:31 am

As long as you have the discipline to actually send the money to the student loans, it's not an unreasonable idea.

alohabear
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Re: Is this a bad idea?

Postby alohabear » Thu Feb 14, 2013 11:56 am

Tightwad wrote:If the interest rate is high on the student loans, then it's a good idea to get them paid off. If it's low then saving for retirement would be better in my opinion. At the end of the day, either way is putting you one step closer to your financial goals.


Thanks for weighing in Tightwad. One loan is at 6.8% and the other two are at 4.38%, so yes, they are relatively high interest by today's standards. I'm also not getting much of a tax break anymore on the interest paid.

stannius wrote:As long as you have the discipline to actually send the money to the student loans, it's not an unreasonable idea.


Thanks, Stannius. That won't be an issue. I've already put $800 extra towards them so far this year, and I'm tracking my progress on the fiscal fitness board on this site to ensure I stay focused.

potatoslayer
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Re: Is this a bad idea?

Postby potatoslayer » Sat Feb 16, 2013 1:43 pm

tax write off is no bargain no matter how much you look at it. Sending the bank $1 to save 25 cents in taxes is a bad deal.

Knock the loan out. How big is the loan in reference to income?

I had a scenario a couple years ago where my checking account paid 3.5% and my student loans were at 3.25%. Even though there was basically a wash between the two the feeling of accomplishment of never making a student loan payment again was worth whatever miniscule interest carrying the balance would have brought forward.


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