i personally only pay extra on my SL that have interest rates > 6%. the majority of mine are <4%, and i just pay minimums on those (and plan to pay minimums for a long time because interest rate is so low). do you have any other debt with an interest rate higher than SL? if so, since your rates are so low, i would prioritize other debt over SL
Post by curbsideprophet on Jan 26, 2013 8:27:27 GMT -5
Are you maxing out retirement? If not, given that your rates are so low, I would start putting that money towards retirement. Is the interest rate fixed on all loans, or is there a chance it could go up at some pt. If you have no other debt, are maxing out retirement and do not have any other big purchases coming up, I think it is fine to pay extra on the loans.
The only reason I see to pay it off quickly is if you want to have the flexibility to change careers. I look at mine as akin to a utility payment each month.
Have you looked at an amortization calculator to see how much interest you will pay over the life of the loan if you only pay the minimum? I did this and realized I would pay almost double what I initially borrowed so I paid off my loans quickly. I would put a couple hundred more on each time and when I got bonuses they went directly to the loan. I had a fully funded e fund and was maxing out on 401k contributions when I did this.
I wouldn't do that if I was going to invest the money otherwise. If you are planning on just having extra spending money or putting it into a cash savings account - I'd pay extra.
My loans are at 5.75% (or around that) and I hope to pay them off ASAP. At the rate I'm going I will have paid double what I originally borrowed. Not cool.
it's just that my student loan balance is so big (i went to law school) that i feel this need to pay extra per month.
that said, if it's not beneficial for me to pay more, then i won't. it will just mean more $ in my pocket, right?
i guess i should have clarified... i will not be paying extra to loans that are low interest rates, because my money could be better utilized in other investments. i also have tons of loans from med school. once my higher interest rate ones are paid off, i will continue to pay minimums on the ones that are around 3% for the life of the loan. i will take the extra money that would have gone to loan repayment and invest it. if you just pay the minimum and take that extra money each month to just spend on random things, it would make more sense to get the loan paid off. but, if you can use that "extra money" and invest it and make an amount of money greater than the interest rate on the SL, you have come ahead. does that make sense?
the federal rate is fixed. private rates are not (at least, i don't think so).
i haven't calculated how much interest i would pay if i only paid the minimum, but i'm certain it would be a lot!
if i didn't pay extra, i'm not sure i would invest the "extra" money. i mean, of course i could, but would i do it, who knows...i'm lazy like that. it'd probably sit in my bank account.
perhaps i should talk to a financial consultant of some sort to learn more about investing.
I decide based on interest rate, primarily. We pay the minimum (and use the longest, most drawn out payment plan) on all the loans under 4%. But we're aggressively paying off the one at 7.25%. Once that's done, we'll snowball the money to pay off the 5.75% and maybe the 5% SL.
Half of mine were private loans at prime, when prime was 7-9%. I paid those off super aggressively and got rid of them in 3 years.
The other half is government loans that are locked at 2.875%, and I generally pay the minimums, but sometimes I'll throw an extra thousand or so at them. Maybe that isn't the most MM thing to do, but I want them gone.
Post by Heisenberg on Jan 26, 2013 18:08:20 GMT -5
Since you don't have any other debt, your retirement and efund are fully funded, I'd keep doing what you're doing. The thought is basically if you can save money at an interest rate greater than the interest you are being charged to have money lent to you, then you should save.
and as a side note: I'm jealous of everyone who has such low interest rates. My private consolidation loan at my bank is 4% but *could* go up to the fed rate of 6.8% (I certainly hope with some sort of notice!) and my federal student loan is fixed at 6.8%.