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Just sold house. Pay off student loans or save to open new business?

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  • Just sold house. Pay off student loans or save to open new business?

    Hi everyone,

    I recently sold my house and have $330,000 sitting in my bank account. I plan to cold-open an eye clinic in 2017. My spouse's salary is $283k a year.

    Should I pay off our student loans at 4.49%? Or, should I save the money to fund my new business?

    My private practice consultant has recommended that I pay off my student loans.

    I suspect the benefits are:
    1) Increased cash flow because debt service eliminated. This will help me get a business loan.
    2) Interest on a business loan is tax deductible. Student loan interest is not (because of our income.)
    3) Banks like give larger loans more than smaller loans

    Should I follow their advice?

    Many thanks in advance.

  • #2
    The reasoning is sound, however, no need to go into it blind. Just talk to banks and loan officers or others who have done it to see whats preferred in the loan range you're considering. Then check it against your personal preferences and probabilities in your practice environment and choose the most beneficial option.

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    • #3




      Hi everyone,

      I recently sold my house and have $330,000 sitting in my bank account. I plan to cold-open an eye clinic in 2017. My spouse’s salary is $283k a year.

      Should I pay off our student loans at 4.49%? Or, should I save the money to fund my new business?

      My private practice consultant has recommended that I pay off my student loans.

      I suspect the benefits are:
      1) Increased cash flow because debt service eliminated. This will help me get a business loan.
      2) Interest on a business loan is tax deductible. Student loan interest is not (because of our income.)
      3) Banks like give larger loans more than smaller loans

      Should I follow their advice?

      Many thanks in advance.
      Click to expand...


      You have nailed the reasons. All things being equal, you should pay off the student loans. However, nothing wrong with following  Zaphod's advice. Plus, at your joint income level, you should be able to save a lot more by the time you open your eye clinic with no debt payments. This also presumes you have crossed all the other T's - disability insurance, no credit card debt, plenty of term life, umbrella, emergency fund, etc.

      Just curious, though - not going to buy another house?
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Thank you both for the great advice.

        We do plan to buy a house in 1-3 years.  All the other T's are crossed, although some revision is necessary.

        We are planning on saving up for a down payment for a house over the next year or so.  My wife and I would love to buy the home of our dreams, but we agree that a more modest home would be better for us financially.

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        • #5
          You have good reason to be a Thankful Guy.

          Keep in mind that's it's not an all or none proposition. You could partially pay down the loans, and save the rest for future cash needs. With your wife's income and yours, the ongoing cashflow should help you polish off the loans completely, and / or help finance the business or home purchase when the time comes.

          Best,

          -PoF

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          • #6
            The safe move is to payoff your student loans.  Student loans are not dischargeable in bankruptcy.  If you sink a lot of money into your clinic and it goes kaput, or struggles for several years, you will still have that mound of student debt.

            There are very few good reasons to hold onto student loans unless you're one of those old guys/gals who consolidated at 2% back in the day.  Better to carry mortgage debt, business debt or even credit card debt depending on the rate.

             

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