« previous   investing   next »

pay off debt or save and invest?


By xlr8   Follow   Wed, 8 Feb 2012, 7:25pm PST   10,003 views   63 comments   Watch (1)   Share   Quote   Permalink   Like   Dislike  

I have about $180 thousand in student loans that I am very slowly paying off. Its at about 4.7% average rate.
Should I make extra payments and try to pay off the loans, or should instead invest and grow money that way?
Last year I made out with 6.5% overall return on my investments.

« First     « Previous     Comments 24-63 of 63     Last »

Eliza   befriend   ignore   Sun, 12 Feb 2012, 1:09pm PST   Share   Quote   Like (1)   Dislike (1)     Comment 24

If you can swing it, you might try placing an equal value on these three things:
1) Put some money aside for that theoretical 6 month basic expenses cushion. This money should not be invested. It should be in something boring and stable, chugging along at a guaranteed rate with FDIC or NCUA coverage. Things happen, and you might need that money to get by at some point, and you want it to be there even if the stock market is acting funny.
2) Fill your retirement accounts (or at least an IRA for each of you if you are eligible).
3) Pay off that loan so that you can stop worrying about it. Get the lowest interest rate you possibly can.

xlr8   befriend   ignore   Sun, 12 Feb 2012, 1:43pm PST   Share   Quote   Like (1)   Dislike (2)     Comment 25

You cannot walk away from student loan debt. This has been tried years ago when students graduated and declared bankruptcy. Now government will go after you to pay the loans back

Clara   befriend   ignore   Sun, 12 Feb 2012, 2:34pm PST   Share   Quote   Like   Dislike (2)     Comment 26

Another reason why I think PHD is so overrated. From a totally financial point of view, you can't afford the degree. Why spend a lifetime paying for it... "Y U No smart enough to figure that out to begin with??!"

tdeloco   befriend   ignore   Sun, 12 Feb 2012, 3:35pm PST   Share   Quote   Like   Dislike (1)     Comment 27

Clara says

Another reason why I think PHD is so overrated

"Don't let your schooling get in the way of your education"
-Mark Twain

StoutFiles   befriend   ignore   Sun, 12 Feb 2012, 10:19pm PST   Share   Quote   Like (1)   Dislike (1)     Comment 28

scott777 says

Find a way to WALK from this debt. Unless you have a really great job. It sounds unethical but it is even more unethical to loan this kind of money to a young person without any collateral.

It's a good thing he can't do this, otherwise we'd have a huge wave of people not paying off those loans either. No one forces you to sign up for decades of debt slavery. If you make that decision and it fails financially, you have to own up to it.

Hopefully this guy is making enough money to pay back his debts. The rule of thumb is your starting salary should be greater or equal to the amount of debt you have.

mdovell   befriend   ignore   Mon, 13 Feb 2012, 12:22am PST   Share   Quote   Like   Dislike (2)     Comment 29

Clara says

Another reason why I think PHD is so overrated. From a totally financial point of view, you can't afford the degree.

I was under the impression it depends as to what institution you go to.

I still don't see how 180K was possible unless it included graduate and undergrad and even then that's pretty high

Here's chicago which for business is pretty high end
http://www.chicagobooth.edu/phd/costs.aspx

but this site claims it would cost 200-300K
http://education-portal.com/articles/How_Much_Does_a_Doctorate_Degree_Cost.html

Here's a blog that details things I think in a more honest manner
http://phdtips.blogspot.com/2009/03/how-much-does-it-cost-to-get-phd-degree.html
From what I thought was that you'd be working pretty much for the institution and that although it wouldn't technically come at a high cost you are basically working and being paid a low amount in exchange for not being charged.

DrPepper   befriend   ignore   Mon, 13 Feb 2012, 9:50am PST   Share   Quote   Like   Dislike (2)     Comment 30

I'd pay off the debt. When you pay off debt you basically know your gain ahead of time. Its guarenteed to save you X amount of money. Right now, I don't see the stock market really being a safe place for money. Even if it was, I'd lean towards debt reduction because debt is essentially a chain around your neck until its gone.

everything   befriend   ignore   Mon, 13 Feb 2012, 9:59am PST   Share   Quote   Like (1)   Dislike (1)     Comment 31

30% debasement by 2030?, don't worry about them to much, I waited the maximum time before interest started accruing, then paid them off one at a time, then again my total student loan debt back in 95 was only 10k, I was very careful about not borrowing any more than I needed.

AdamCarollaFan   befriend   ignore   Thu, 23 Feb 2012, 3:19am PST   Share   Quote   Like   Dislike (1)     Comment 32

at a 4.7% interest rate, you should look into consolidating to get a lower rate.

live frugally, max out the retirement accounts, and dump as much as you can to pay off that albatross of a debt. you'd "earn" 4.7% just by servicing the debt.

i think the majority of PhD programs are a scam. they're going to contribute to what some say will be the next bubble - the higher education bubble.

http://www.economist.com/blogs/schumpeter/2011/04/higher-education_bubble_0

Vicente   befriend   ignore   Thu, 23 Feb 2012, 6:05am PST   Share   Quote   Like   Dislike (1)     Comment 33

I return to a hoary old quote told to me, by a rich guy:

Poor people PAY interest
Rich people EARN interest

First focus for me out of college was eliminating debt. That said it all depends on the terms of the loans and what the tradeoffs are. You cannot bankrupt your way out of student loans so eliminating that obligation to me would come before all other debts which in worst case I could skate out of.

PockyClipsNow   befriend   ignore   Thu, 23 Feb 2012, 6:26am PST   Share   Quote   Like (2)   Dislike     Comment 34

Heres my advice:

1. keep paying bare minimum on all loans to keep credit good

2. buy as many properties as you can with mortgages (put as little down as possible). crappy, run down SFR in older gentrified area where every other home is a remodeled McMansion and the original homes are crappy rentals is perfect.
2. You might get 8 homes easily before the FHA says 'no more loans'.
3. A year after buying them all extract max HELOC money on all 8 homes. you only need to average 22k per property which should easily be doable- the key is you need to put a fresh paint job and cheap landscaping in to get them the highest appraisal. You might pull 50k out average and end up very well off!
4. Pay off student loans with HELOC cash.
5. Sell homes since they probably will not cash flow as rentals anymore with all that HELOC cash pulled out.
6. If real estate goes down in price you short sell all the homes and/or declare BK.

So in 2 years you got paid off loans, and fat stacks of cash in the bank! Remember your intent is NOT to default on the mortgages -(thats illegal) your intent is to make money in real estate to pay off your student loans (totally legal).

I tell people this and it blows they mind. Only a chump pays off student loans with hard earned cash IMO.

Remember 'if real estate prices go down' its not your fault that those loans are all dischargeable in BK but Student loans are not. Lucky for you, you paid off all student loans and the feds will be happy.

xlr8   befriend   ignore   Thu, 23 Feb 2012, 2:15pm PST   Share   Quote   Like   Dislike     Comment 35

PockyClipsNow,

This sounds just a tad bit fishy, but thanks for the advice! :)

New Renter   befriend   ignore   Thu, 23 Feb 2012, 3:27pm PST   Share   Quote   Like   Dislike     Comment 36

xlr8 says

2 professionals and neither of our parents had money to put us through doctoral level degrees.

What are your professions if you don't mind me asking?

theoakman   befriend   ignore   Fri, 24 Feb 2012, 12:16am PST   Share   Quote   Like   Dislike     Comment 37

Clara says

Another reason why I think PHD is so overrated. From a totally financial point of view, you can't afford the degree. Why spend a lifetime paying for it... "Y U No smart enough to figure that out to begin with??!"

Most PhD's in the sciences are fully paid for by grants. That being said, despite all my friends in Chemistry & Chemical Engineering the past 2 years have graduated with Doctorates debt free, it wasn't worth it. No one is willing to hire them because they don't want to pay them a measly $70K and they are forced to accept entry level jobs paying below what my colleagues who went straight into industry out of undergrad at age 21 made 7 years ago.

freak80   befriend   ignore   Fri, 24 Feb 2012, 1:55am PST   Share   Quote   Like   Dislike     Comment 38

RentingForHalfTheCost says

Funny how everyone thinks 180K is a huge amount to invest in someones education and the increase in life quality that comes with it, but look at a $1million dollar cottage in agreement. Good schools, short commute, safe neighborhood, etc. You are still buying a run down PIS people!

Who the f*** pays a million bucks for a cottage? That cottage better be constructed of pure gold...

My goodness, I'm in the wrong business. I should get into money lending.

AJ1201   befriend   ignore   Fri, 24 Feb 2012, 4:53am PST   Share   Quote   Like   Dislike     Comment 39

PockyClipsNow says

So in 2 years you got paid off loans, and fat stacks of cash in the bank! Remember your intent is NOT to default on the mortgages -(thats illegal) your intent is to make money in real estate to pay off your student loans (totally legal).
I tell people this and it blows they mind. Only a chump pays off student loans with hard earned cash IMO.
Remember 'if real estate prices go down' its not your fault that those loans are all dischargeable in BK but Student loans are not. Lucky for you, you paid off all student loans and the feds will be happy.

This is too good but if you have the instestinal fortitude....moving to Europe might be a better option after a few years........

PockyClipsNow   befriend   ignore   Fri, 24 Feb 2012, 7:24am PST   Share   Quote   Like   Dislike     Comment 40

I say my plan is PLAN A. If it fails you can ALWAYS move to europe, it will still be there.

New Renter   befriend   ignore   Fri, 24 Feb 2012, 3:27pm PST   Share   Quote   Like   Dislike     Comment 41

theoakman says

Clara says

Another reason why I think PHD is so overrated. From a totally financial point of view, you can't afford the degree. Why spend a lifetime paying for it... "Y U No smart enough to figure that out to begin with??!"

Most PhD's in the sciences are fully paid for by grants. That being said, despite all my friends in Chemistry & Chemical Engineering the past 2 years have graduated with Doctorates debt free, it wasn't worth it. No one is willing to hire them because they don't want to pay them a measly $70K and they are forced to accept entry level jobs paying below what my colleagues who went straight into industry out of undergrad at age 21 made 7 years ago.

Just curious - what did your friends make at 21 straight out of undergrad?

errc   befriend   ignore   Fri, 24 Feb 2012, 9:46pm PST   Share   Quote   Like   Dislike     Comment 42

Student loans ARE dischargeable in a chap 7, so long as you roll them into CC and personal loans six+ months prior to the BK

B.A.C.A.H.   befriend   ignore   Sat, 25 Feb 2012, 1:00am PST   Share   Quote   Like   Dislike     Comment 43

theoakman says

Most PhD's in the sciences are fully paid for by grants. That being said, despite all my friends in Chemistry & Chemical Engineering the past 2 years have graduated with Doctorates debt free, it wasn't worth it. No one is willing to hire them because they don't want to pay them a measly $70K and they are forced to accept entry level jobs paying below what my colleagues who went straight into industry out of undergrad at age 21 made 7 years ago.

I have had coworkers who deliberately omitted the PhD from the resume, so that they could get hired.

New Renter   befriend   ignore   Sat, 25 Feb 2012, 1:32am PST   Share   Quote   Like   Dislike     Comment 44

I have had coworkers who deliberately omitted the PhD from the resume, so that they could get hired.

So much for the value of higher education! How do they explain the gap in employment?

Vicente   befriend   ignore   Sat, 25 Feb 2012, 3:32am PST   Share   Quote   Like   Dislike     Comment 45

John Bailo says

I think if I had that much student loan debt, and a good credit rating, I'd try and sign up for $200,000 in credit cards, then, all at once, use them to pay off the student loan (which you cannot default on) and then default on the credit cards.
Can you do that? If so, why don't more people do so?

How do you propose to use credit cards to pay off student loan debt? Don't you think the CC companies would twig to this if you start running up huge credit lines?

B.A.C.A.H.   befriend   ignore   Sat, 25 Feb 2012, 6:11am PST   Share   Quote   Like   Dislike     Comment 46

New renter says

So much for the value of higher education! How do they explain the gap in employment?

both of them joined the outfits that I worked at, after they were well into their careers. One of them was laid off before joining the outfit I worked at. The other one quit a job to join where I worked.

And sometimes, the value of being a grad student in the USA is not the degree. It's getting the feet on the ground in the USA to try to get an H-1, or marry into a green card, etc.

schen95831   befriend   ignore   Sat, 25 Feb 2012, 7:49am PST   Share   Quote   Like (1)   Dislike     Comment 47

Pay off debt first. With a loan interest rate of 4.8%, every 1 dollar of debt paid off is equivalent to a stock investment return of 6.1% before taxes. Assuming you belong to the 28% tax bracket.

burritos   befriend   ignore   Mon, 27 Feb 2012, 5:03am PST   Share   Quote   Like (1)   Dislike     Comment 48

Was this a professional degree? Usually I thought PhD's got grants and worked under professor/advisors while obtaining that degree?

swebb   befriend   ignore   Mon, 27 Feb 2012, 11:23am PST   Share   Quote   Like   Dislike     Comment 49

xlr8 says

I have about $180 thousand in student loans that I am very slowly paying off.

Make sure to look into any sort of loan forgiveness options.

1. Will there be any amendments to the laws governing government backed student loans in the next 20 years? If you think so, maybe it's wise to not pay it all off too soon.
2. Are there any programs that reduce/eliminate the debt depending on your choice of profession. A friend suggested that her student loans would be forgiven after 10 years because she works in a "public service" field. I don't know anything about this, but if it's true, it's worth knowing about.
3. Is there a time limit to how long you have to pay? I have heard rumblings of some "X% of your salary for Y years and you are done"...this may be wishful thinking, but if there is any truth to it, it may shape your decision.
4. If you expect interest rates to increase significantly in the future, the "cheap money" might be good to have. This may not be enough justification to pay the minimum, but it may lean me towards paying it off slower than I could (of course, saving the extra...not spending it on prime rib dinners)
5. I think it's a good idea to be putting something into your retirement even as you pay down the loan. Putting extra money into an IRA protects it to a degree and a Roth IRA allows you to withdraw contributions penalty free at any time (as I understand it). You need some sort of emergency fund anyway, so why not use a Roth IRA to house it until you need it...and if not, it's in (whereas later you can't "make up" for missed contributions.)

bg   befriend   ignore   Mon, 27 Feb 2012, 10:10pm PST   Share   Quote   Like   Dislike     Comment 50

Clara says

Another reason why I think PHD is so overrated. From a totally financial point of view, you can't afford the degree. Why spend a lifetime paying for it... "Y U No smart enough to figure that out to begin with??!"

I got mine for cheap, but I totally agree with you. PhD is overrated. Just get your dang MD and move on. Intellectutalism, blah, blah, blah...

mdovell   befriend   ignore   Mon, 27 Feb 2012, 10:24pm PST   Share   Quote   Like   Dislike     Comment 51

errc says

Student loans ARE dischargeable in a chap 7, so long as you roll them into CC and personal loans six+ months prior to the BK

Not exactly.

http://njlawnet.com/njlawreview/bankruptcy-faq.html

"For example, 11 U.S.C.A. ยง523(a)(8) allows a student loan to be discharged if it is (1) not "insured or guaranteed by a governmental unit," and not "made under any program funded in whole or in part by a governmental unit or nonprofit institution." A student loan may also be discharged if repaying it will "impose an undue hardship on debtor and the debtor's dependents." But the "undue hardship" exception is difficult to establish. "

Since the Obama administration has pretty much reigned in student loans to be under the federal government this pretty much means that you cannot file bankruptcy. You also have to remember that via the bankruptcy reforms of 2005 you have to plead in front of a judge.

http://money.cnn.com/2005/04/20/pf/bankruptcy_bill/

The courts determine if you qualify for chapter 7...not the person.

"A qualifying test: Currently, it's up to the court to determine if your case qualifies for Chapter 7 bankruptcy.

Under the new law, your income will be subject to a two-part means test. First, it will be subject to a formula that exempts certain expenses (rent, food, etc.) to determine whether you can afford to pay 25 percent of your "nonpriority unsecured debt" such as your credit card bills. Second, your income would be compared to your state's median income.

You won't be allowed to file for Chapter 7 if your income is above your state's median and you can afford to pay 25 percent of your unsecured debt, said California-based bankruptcy attorney Stephen Elias, who is coauthor of the book "How to File for Chapter 7 Bankruptcy." But, he said, you may be allowed to file for Chapter 13.

If your income is below the state's median but you can pay 25 percent of your unsecured debt, you may be able to file Chapter 7, but the court can still require you to file Chapter 13 instead if it believes that you would be abusing the system by filing for Chapter 7, Elias said"

So if you play it out and just refuse to work and claim to be poor fully knowing every correlation shows that higher education generally leads to lower unemployment...but then having to convince a judge this is true for TWO people...

It just isn't going to work.

Quigley   befriend   ignore   Mon, 27 Feb 2012, 11:47pm PST   Share   Quote   Like   Dislike     Comment 52

College education should be obtained on the cheap if at all these days. A smarter option than going to an expensive university to get a degree of questionable applicability to the job market is to do trade school followed by an apprenticeship in a high paid blue cOllar field. There are about 600,000 less machinists in the US than there is work for, employers literally can't hire enough skilled labor to fit their needs.
I am one of these people who went this route. What led me this way was having to pay for an expensive education. I am now a crane mechanic and make nearly $150k/year. The best I could do with my science degree was maybe a third of that. I also have a pension and full benefits. Once I paid off my student loans I was just in time to watch the housing market zoom into the bubble.
Nothing was left to do but save and invest.
Often I think that my degree was a total waste of time and money. Just in opportunity costs I probably am down half a million dollars than if I'd just gone this blue collar route to begin with.
Also, in my profession there is zero percent unemployment. We have a devil of a hard time Finding even halfway qualified people to hire.
A full journeyman won't be between jobs for long.

mdovell   befriend   ignore   Tue, 28 Feb 2012, 4:30am PST   Share   Quote   Like   Dislike     Comment 53

But is there work for it? I'm not doubting the work in your region but much of construction has dramatically shifted from private to governmental work. If you cannot get a piece of that then it is harder to find. Let me ask you this though. If there