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pay off loan in lump sum vs continue on current course

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  • pay off loan in lump sum vs continue on current course

    I have 148k @ 0.43% private loan (1.99% variable 5 year term) and am approaching the point where I have enough in cash to just pay off the loan in full. However, this cash is in HYSA's and is earmarked in several "buckets" for various savings goals including house downpayment etc. Ironically enough, loan interest rate is slightly LOWER than HYSA rate currently, which is 0.5%. Income is about 250k. It is very tempting to just pay off the loan and be done with it, but it would then take some time to build savings back up. It might be doable with the extra cash flow every month however. Thoughts?

  • #2
    You can't go wrong anyway for now until the interest rate changes. You could save more then when the interest rate is higher than the savings rate pay it off, or pay it off now, or save more and then pay, or pay it off now....

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    • #3
      First - have an emergency fund in place.

      Second - depends on how you feel about debt. I'm the type who doesn't want to keep that hanging over my head. In particular, if I had the cash to pay them off now while interest rates are super low.
      Helping student loan borrowers manage their student loans. StudentLoanAdvice.com. [email protected]

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      • #4
        The rate is so low on your loan that it makes sense to not pay it off for the extra liquidity.

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        • #5
          I struggled with a similar scenario recently as an attending 3 years out of residency myself. I had 300 k in loans and got it down into 100k in 2 years. However, my variable loan rate kept dropping and was less than 0.2% 10 months ago and I opted to go with minimum payments and dump all extra money into my taxable account which has grown to six figures in less than 8 months and keeps going up. I know that most on here tell you to pay off student loans ASAP but I am really glad I funded my taxable aggressively over this stretch. I am sleeping just fine knowing I will pay of my loans 6 years after residency (I know this is against the WCI gospel of 3-5 years payoff) but expect my net worth to hit 2 commas at that time as well.

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          • #6
            I’d be making the minimum payments with that rate.

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            • #7
              Originally posted by White.Beard.Doc View Post
              The rate is so low on your loan that it makes sense to not pay it off for the extra liquidity.
              excellent work. congrats on your success. I truly think about this daily and I think my approach will be somewhat graded-i.e. gradually take more from what I would pay on the loans and put into taxable.

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