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What would YOU do? - bazookaman - 09-25-2008
Ok. I've been listening to Dave Ramsey podcasts for a while now so I know what he would say. But i just cannot bring myself to do it. I owe a couple grand on my student loan. I actually have that amount in a money market account. So i could pay it off right now. However, it would leave my money market account emergency fund almost empty. Not quite but almost. I know it makes logical sense. The student loan charges me WAY more interest than i could ever get from my MM account, but i just cannot bring myself to drain most of the account. What would you do?
Re: What would YOU do? - NewtonMP2100 - 09-25-2008
. . .how much is the interest rate. . .?
I would get the emergency fund 1st which is supposed to be 6 months (I think?) then pay off the loan later. . .it can be little at a time as long they don't charge you (some loans charge you if you pay extra/earlier. . .)
Re: What would YOU do? - rgG - 09-25-2008
I personally hate being in debt, but you shouldn't be without an emergency fund, especially with things like they are now. Figure out how much your emergency fund should be, and then use any extra to pay down the loan. That is my advice, for what little it is worth.
Re: What would YOU do? - bazookaman - 09-25-2008
interest rate is around 8 or 8.5 I think.
Re: What would YOU do? - NewtonMP2100 - 09-25-2008
bazookaman wrote:
interest rate is around 8 or 8.5 I think.
i don't think that is too bad of a rate. . . I would get the 6 months worth of living expenses 1st, emergency fund. . .then use any extra funds to pay off the loan at your own pace. . .but that is just me. . .
Re: What would YOU do? - Will Collier - 09-25-2008
How long will it take you to save up another two grand, and how reliable is your income? If the answers to those two questions are something you can live with (there's no right or wrong answer, except maybe "not at all" to #2), then go ahead and pay it off.
Re: What would YOU do? - Seacrest - 09-25-2008
I would welch on the student loan and run crying to the gubmint for a bailout.
Well....OK.
Actually, I faced a similar situation a few years ago.
I took the following approach:
Instead of looking just at the numbers, I also looked at time.
Since my SL was an installment loan, I knew that I had 48 or so more payments to make if I just kept paying the minimum. (I also knew what that would cost vs the so-called "10-day payoff amount"). I knew that if I took the money out of a low to non-existent interest-bearing account (this was the era of 1% Fed Funds rate, after all), paid the loan, and then simply put the same amount of my payments monthly back into the account, I would be much better off in the long run, so that's what I did. I now have tem times the amount of the student loan balance in my account as a rainy day fund, and boy, am I gonna need it.
YMMV.
(I knew back then that we were headed towards a bad economy, but it was not evident then. These were the GoGo, heady days of house-flippin' and yada yada. At this point in time, the risks to the economy are much more tangible -- despite the fact that investors are buoyed today by talks of bailouts. I would suggest, maybe a one foot in, one foot out strategy and pay off half now, then take a wait and see approach.)
Re: What would YOU do? - Don C - 09-25-2008
The other factor, which Dave also talks about, is your comfort level. If you pay off the loan but cannot sleep at night worrying about the lack of a safety net then it is not a good decision.
There is value, though not monetary, in feeling secure.
BTW: my wife and I have opted to not pay off the mortgage (6%) even though it would save us money to do so. She want the security of the cash in hand. We are paying extra each month so we are getting the safety of the account plus some advantage to paying off the loan.
Re: What would YOU do? - Paul F. - 09-25-2008
If you're that close, and a couple grand is pretty close... I'd NOT touch the emergency fund, but get as agressive as your budget allows to get it PAID OFF.
Like you yourself said, it's costing you money in interest every month that you don't have it paid off.
Start looking at how much money you'll have in a year, or two or three, if you start putting your monthly payment on that damn loan into YOUR OWN bank account!
Re: What would YOU do? - dk62 - 09-25-2008
With any dependents, emergency fund is a must.
Also, psychologically, you are more likely to try your best to pay off the loan than to replenish you savings in a timely manner.
And that is what I AM doing - keeping the emergency fund in money market and paying off the cars (home does not count, as I do not have enough saved for that).