Your Questions About Save Loan

Susan asks…

Start saving or payoff student loans?

I graduated from college in may and was lucky enough to have a career track job lined up before I graduated. I can afford to save about 10% of my income after all of my expenses, including the minimum payments on my student loans. Should I use that money to start an IRA or should I make paying off my loans as quickly as possible my priority?

John answers:

Depends … I know … I always hate to read “depends.”

If your IRA can earn more than your student loans cost, open the IRA. However, keep in mind that the market right now is miserable with seasoned professionals losing money by the tons … If they can do it, why can’t you?

I’d take the “safer” road right now and start to get out from under that student loan debt. If you apply for any type of loan, the bank will consider your student loan (negative factor)more heavily than it will consider your IRA (positive factor).

Let’s face it, the market has returned something like -9% so far this year … Would you rather pay down a 6% loan or lose 9%?
I wish you the best!
Uppity Wench

Mary asks…

save or pay off school loans?

I just got married and my wife has some college loans. I have a small nest egg saved up. My question is, should I spend my savings to pay off most of her loans at once, or keep the nest egg and pay off the loans over time? (longevity of the relationship is not a concern, purely a finance question)

John answers:

Since your nest egg is small, you should keep it and pay off the student loans gradually. The reason is that you must have an emergency fund available to avoid accumulating credit card debt or other less advantageous debt in the event of an emergency.

Pay extra on the student loans if you are able to do so from discretionary funds (not savings). At least you have some tax advantages from the student loan debt and the interest rates are typically lower with student loans than they are for credit card debt.

If you used up all your savings and you needed money, you would in effect be trading low-cost, potentially tax-deductible debt for high-cost, non-deductible debt.

Chris asks…

Pay extra on student loans or save for house?

I’m currently renting and paying $450 a month. With the house price range and location I am looking, I would pay not too much more a month (say $100) for a house including mortgage, insurance, PMI, and taxes (The bank did the math, not me). I have found a program for the city I want to buy where they give you an $10,000 no payment interest free loan for as long as you live in the house you buy. That is used to cover the down payment. I’ve done all the leg work and I know I qualify, but now I have to save for closing costs and stuff.

Here’s my problem. I have about $30,000 in student loans. Most of them are around 6.5% interest (kinda averaging them) but I have two Private loans with 9%+ and 11%+ interest. Those two total to about 5 grand of my debt. I had been sending about $400-$500 a month EXTRA to the highest rate loan trying to pay off my loans asap.

My loans just went into repayment in August so I haven’t done this for too long. My goal was to pay off my loans in 5 years THEN start saving for a house (Thinking by the time I’m 30 I would buy a house). But now I’m feeling like renting for that long is not a wise option since I really am happy with my job and don’t plan to leave the area.

So I am thinking of saving that $400+ a month for buying a house. I know the interest rates on my private loans are high and I’m wondering if it would be unwise to stop paying that extra. I guess my thinking was the $450 a month I spend on rent over the years is much worse than the interest I would rack up saving for a house, even if it took a year or so. I’ve been renting for about 3.5 years now so I’ve lived on my own for some time and I feel ready for the next step.

What would you do or tell me if I were your daughter?
BTW, student loans are my ONLY debt. I don’t use my credit card (athough I charged $3 to it the other day because I heard they might close it for inactivity) and I bought my car with cash.

John answers:

Pay off the loans first. Your interest rates are fairly high. Those loans are costing you money every day they exist, and no savings account will pay enough interest to outweigh what you’re losing every month on interest.

I *know* that renting seems like a waste and homeownership sounds great… But I’ve been a two-time homeowner, and believe me, there is a hefty price to pay. With renting, you only have to worry about ONE monthly payment, and if something breaks someone else fixes it. With home ownership, you’ve got the mortgage, interest, taxes, insurance, ALL utilities, possibly HOA, and when stuff breaks you have to pay for it to be repaired yourself. So far, my husband and I have laid out $2400 in home repairs this year alone. We also really, really need to buy a new fridge, and possibly a new washer/dryer within the next year. Ugh. All of those unexpected expenses totally suck, even when you put aside money to pay for them.

Honestly, not all that many people buy homes before they’re 30 (and most that do are married so there are 2 incomes), so it’s not like you’re missing the boat here. If you were my daughter, I would tell you to be smart, and be patient, pay off your debts FIRST. Liberate yourself of all other debts before taking on the major responsibility of a mortgage. You won’t be sorry that you waited, but you very well WILL be sorry if you get in over your head.

Ken asks…

Pay off loan or save?

I have a personal loan that I owe around $8000 at 5.9% I have no ther debt whatsoever. I have no savings. Should I pay off the loan or start savings? a little of both? if so how much should i save before i pay off?

John answers:

Pay off! Then start saving the money that you would have been paying back on the loan!

Ruth asks…

saving and loan association bailout 1980’s?

US Gov. bailed out the savings & loan the mid 1980’s. More info please.

John answers:

The government changed the law concerning the amount of cash banks must have on hand when compared to the amount of loans they have made.

When the percent went up, many banks didn’t have the cash reserves required because they had loaned the money out to consumers. Other than not meeting the new cash reserve requirements, they were solvent, the loans were not bad loans made to unqualified borrowers.

FDIC declared them out of compliance and took over several of the banks before the government decided that not giving the banks time to build up cash reserves wasn’t fair and loaned them the money to meet the new cash reserve obligations.

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