09-25-2008, 06:28 PM
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.)
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.)