which strategy would you use

[HopingForFIRE]

My very slight dilemma is this. I've paid down 240k loans down to 20k in 2.5 years. It is a sofi 5yr variable loans at 4% currently.

The Dave Ramsey psychology option:
Pay off the loan asap. I could do this in 2-3 months with my current cash flows. This would have me paying $133-200 in interest. This would be at the expense of tied up cash flow and delay contribution to my solo 401k making me pay around 8k per month to it to make my max contribution for the rest of the year.

The fiscally minded option:
I have a credit card offer from discover that's 1% up front and 0% for 10 months for an effective apy of 1.2%. If I go this route it would cost me $200 and free up cash flow (so far I've done backdoor Roth and HSA for the year but only 5k for solo 401k so far). My plan on this route would be to open up Chase savings which is offering $200 for 90 days if 15k is put into it, no fees if 3k is left in it for 6months. I suppose this route would also tie up some money but it would make it essentially free interest ($200 gain for $200 fee) but it would somewhat add a psychological burden to still have loans for another 10 months. If I forego the savings plan then I'd pay 2k per month on the card and put the rest towards 401k and our other goals for the year.

Again sorry for all the details but I think they are necessary to make an informed choice.

[Zaphod]

So wait a minute, you're doing all this mental/account gymnastics for a 200$ possible gain? Not to trivialize it, but you should be able to lose 200$ and not even notice it. I wouldnt let 200 cause me any of these headaches or thinking.

There are tons of 0% cards to choose from if you chose this route, just get a new one, research and find the best offer. Dont just go with what you have because you have it.

I think you're looking at it the wrong way and comparing costs/tradeoffs that dont really matter with regard to the time frames of the options you're really choosing between, ie, loan paydown vs. retirement funding.

[WallStreetPhysician]

HopingForFIRE wrote:

My very slight dilemma is this. I’ve paid down 240k loans down to 20k in 2.5 years. It is a sofi 5yr variable loans at 4% currently.

The Dave Ramsey psychology option:
Pay off the loan asap. I could do this in 2-3 months with my current cash flows. This would have me paying $133-200 in interest. This would be at the expense of tied up cash flow and delay contribution to my solo 401k making me pay around 8k per month to it to make my max contribution for the rest of the year.

The fiscally minded option:
I have a credit card offer from discover that’s 1% up front and 0% for 10 months for an effective apy of 1.2%. If I go this route it would cost me $200 and free up cash flow (so far I’ve done backdoor Roth and HSA for the year but only 5k for solo 401k so far). My plan on this route would be to open up Chase savings which is offering $200 for 90 days if 15k is put into it, no fees if 3k is left in it for 6months. I suppose this route would also tie up some money but it would make it essentially free interest ($200 gain for $200 fee) but it would somewhat add a psychological burden to still have loans for another 10 months. If I forego the savings plan then I’d pay 2k per month on the card and put the rest towards 401k and our other goals for the year.

Again sorry for all the details but I think they are necessary to make an informed choice.

Click to expand...

Agreed with Zaphod. Keep things simple and pay off the loan ASAP.

[HopingForFIRE]

Thanks. As I admitted, it's only a slight dilemma.

[Gas_Doc]

As long as the 401k gets fully funded by the end of the year, just pay off student loans now and work 1-2 extra hours to make up that $200 difference. I mean, if you are really trying to make money off of a credit card offer, why not get one of those cards that offer a $500+ sign up bonus like the Marriott Rewards Premium Card ($720), Chase Sapphire Preferred ($500), Barclaycard Arrival Plus ($500), or Hilton AmEx ($500)?

[DMFA]

Yeah...this is paralysis by analysis.  Even if the math favors doing something besides paying the loans, the relatively short term and low amount make it unlikely to make much of a difference. Think of how $200 compares with your hourly work rate...is it worth it?

IMO: just pay the loan.

[HopingForFIRE]

I've already chased credit cards and have the CSR card and AAdvantage Citi card when it was offering 100K points.  As for the whole $200 item that's not even the issue.  I make between 300-350/hr depending on RVUs for the month.  The issue was the cash flow but maybe I'm over thinking it.  I appreciate everyone's input.

[Zaphod]

HopingForFIRE wrote:

I’ve already chased credit cards and have the CSR card and AAdvantage Citi card when it was offering 100K points.  As for the whole $200 item that’s not even the issue.  I make between 300-350/hr depending on RVUs for the month.  The issue was the cash flow but maybe I’m over thinking it.  I appreciate everyone’s input.

Click to expand...

In my opinion, if cash flow is the issue just cut back on all of these payments until you feel safe with your cash flow. As long as you're filling all these buckets this year, it doesnt matter. You dont get a badge for completing them 3 months earlier, and certainly not one for stressing yourself out because you wanted to be done super fast.

You're doing an awesome job, dont over think it.

[EnjoyIt]

HopingForFIRE wrote:

I’ve already chased credit cards and have the CSR card and AAdvantage Citi card when it was offering 100K points.  As for the whole $200 item that’s not even the issue.  I make between 300-350/hr depending on RVUs for the month.  The issue was the cash flow but maybe I’m over thinking it.  I appreciate everyone’s input.

Click to expand...

If you have a cashflow issue, then maybe you should delay paying off your loan by 1-2 months.  Get yourself the cash cushion that makes you comfortable, and then continue as planned.  You are on a great course for freedom.  Why waste your stress and brain power on a few hundred or a month or 2 difference.

[smartmoneymd]

Agree with the other posts. Don't sweat the small stuff. Focus your energy on earning more on your job, saving money elsewhere (I've met a handful of "frugal-minded" people who easy spend quite a bit of money on weekend beer).

[DMFA]

Hold up, math check.

Assuming you pay accrued interest each period and then equal parts of the principal...let's use four and twelve months.

I = (r / 12) * (1 + [n-1]/n + [n-2]/n + ... + 1/n)p

I = (r / 12) * ([n+1]/2)p

I = (.04/12) * ([4+1]/2) * 20,000 = .00333 * 2.5 * 20,000 = $166.67 in total interest over 4 months

I = (.04/12) * ([12+1]/2) * 20,000 = .00333 * 6.5 * 20,000 = $433.33 in total interest over 12 months

So, pay just over $5,000/month for four months and lose half an hour's work in interest, or pay about $1,700/month over a year and lose under an hour and a half's work in interest.

You're between a pillow and a soft place. ...is that an expression? I'm inventing it. You heard it here first.

[HopingForFIRE]

It's a daily accrued interest but I hear you. I'll stop worrying about it and just pay them off a little slower. I appreciate everyone's response and now that I'm reading my post. I think my original choices were probably me being myopic.

[HopingForFIRE]

Also I like that phrase. Sounds so cushiony.

[hightower]

You've done a killer job getting so far.  But sounds like you're sick of throwing money at debt.  I was in a similar situation earlier this year when I still had about 28k of high interest loans to finish paying off. I wanted to start contributing to a taxable brokerage account immediately at that point and was sick of making huge payments to Navient. So I just paid off the remainder of my navient loans with two credit cards through Plastiq. I put them on a zero interest introductory credit card from Chase and another one from Citi and paid a 1 time 2.5% fee for doing it.  That fee was easily covered by the Chase Sapphire card benefits I also signed up for at the same time.  So, now I have 21 months to pay off that last $28k interest and fee free and I've been able to immediately start saving money in a taxable account.  I look at it as a free loan for 21 months.  I'm still forced to make minimum payments on the balance of course but eventually I'll have enough in my taxable account that if I get sick of dealing with the card balances I can just pay them off immediately.  Or I could just transfer them to another zero percent interest card at the end of the 21 months if I want.  I've seen several cards that have free transfer offers and interest free for 12-18 months.  Its a minor thing for sure, but its nice to hold on to my own money for as long as possible while earning interest in a taxable account.

[DMFA]

HopingForFIRE wrote:

It’s a daily accrued interest but I hear you. I’ll stop worrying about it and just pay them off a little slower. I appreciate everyone’s response and now that I’m reading my post. I think my original choices were probably me being myopic.

Click to expand...

Daily accrual, but it doesn't capitalize/compound. That just means it's (.04/365)*30 (or 28, or 31) instead of .04/12; minuscule difference. Excel's =cumipmt function will give you a markedly similar number.

Even at continuous compounding, , P[(n+1)/2] * (e^[.04/12] - 1) = $166.94, a whole $0.27 worth of interest over the prior calculation over four months (assuming you pay accrued interest plus $5,000).

Long story, um, long: you can do whatever you want; you're still fine. If you can flip the debt with CC payments for points and then pay off the CC, that's free money, but I don't think Mohela (SoFi's student loan servicer) allows CC payments.