[Finance] Should we pay off student loans with money from savings?

Do you think you can beat the 6.25% by investing?

 

Sounds like your wife's problem.

 

Do you have any other loans or credit cards with a balance and have interest rates that are higher than 5%?

 

Isn't student loan interest tax deductible?

 

I would pay them off and never look back, that's what we did with my wife's student loans when we got married.

We follow the Dave Ramsey plan, you should check it out...

 

This is no reason to keep it around. Pay $1 in interest to save 20 cents...

 

If student loan interest is tax deductible I see no reason to use money that is building positive interest (savings) towards paying money that essentially has zero interest (student loans).

There is such a thing a good debt. It helps build your credit score and keeps you from using a credit card (rainy day, emergency) after you've killed your savings paying off the student loan

 

Depends on the interest he's earning with the money in savings no?

 

I have not seen a bank paying more that 1% in years...

 

i don't think debt helps build your credit score. on time payments and a low debt to credit limit ratio do.

and as RRG mentioned, you don't want to pay interest to save a few cents.

 

Do not touch your emergency fund.

Paying off loans early, for some, has to do if it makes you sleep easier at night. If the loan is causing you stress, paying off early may be a smart move.

 

This is a question only you and your wife can answer. In essence, can you afford to pay off a big chunk from your savings and still have enough money to cover expenses should an emergency occur - for example, lose a job.

From a financial point, you are probably earning minimal interest if your money is in a typical savings account. These question tend to arise if your interest you are earning on your savings is more than the interest you are paying on your loan.

For example, if someone has a car loan at 1% that they could easily pay off, but the money to pay it off is invested and earning 6%+, there is no financial need to pay it off (unless you are applying for a loan or something that wants you to have less debt on the books).

 

If the loan is causing you stress - financial or emotional - I would pay it off. After that, I would build your savings back up as quickly as possible. Contribute the money you used to pay towards the loan to your savings instead...and then some.

What if you built up your savings enough to have a 3-month emergency fund AFTER paying off the loan and THEN paid it off? Good compromise between people saying to do it or not do it.

 

Its deductible but starts phasing out at 60k-80k AGI for a single person. 130k-160k AGI for married. It's also a deduction not a credit so you are probably only getting less than 20 cents on the dollar like Rockets Red Glare had mentioned.

Do you have any way of reducing the interest on the student loan? I had consolidated my student loans a few years back and got it lowered to about 3% interest on it then they took another .25% off for auto payments. Maybe you guys should look into that as an option.

 

If you are interested in making a stock portfolio, I would do min payments on the loan, and put the rest of that money in your portfolio which could easily make 7-10% return. In theory, you're essentially making money by not paying off your loans right away since the rate isn't back breaking. Any loan under 4% (about same rate as inflation) should be paid off at full length since it's essentially $1 for $1 the same cost if not free money.

That is of course easier said than done, since your portfolio will have it's own fluctuations, but over the long haul, you'll see more money in your pocket going with a portfolio, granted there isn't a crash in the market.

 

In the same situation as you. We just paid off my wife's student loan(s). Pulled it out of savings.

Did my taxes last year and we couldn't write the interest off. Said to hell with the 6.7% interest and another 8 years of that crap.