- May 21, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Seeking Financial Advice for Student Loan Repayment Strategies
Hey everyone,
I could use some advice. I’ve got $25k left on my student loan and I’ve made the decision to move back home with my parents instead of staying in my apartment. I’m 26, single, make $70k a year, and I’m a bit overweight 🤣. My goal is to pay about $1k every two weeks toward my student loan so I can clear it in 8 months to a year.
The issue is, my student loan doesn’t have any interest, so I’m considering putting all my money into INVESTNOW and choosing a managed fund or signing up for AE Ethical. Once I hit $25k in investments, I plan to withdraw it all and put it toward my student loan. I’m not sure if it’s better to pay off my loan weekly to IRD or invest everything into my INVESTNOW account.
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I’m not financially literate and usually live week to week, wasting most of my money. My rent for a one-bedroom apartment in Christchurch was $400 exl power internet food etc….but I really need to get my finances in order. Since I’m nearly 30
What do you guys think? I should do… Im so lost
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Is there a reason you want to pay it off ASAP? As you said it’s interest free so you would benefit more in the long run by putting that money in some form of investment or a term deposit/ saving account (if you want to be low risk of loss) and pay the minimum
There is no financial reason to pay down your loan faster than the minimum payments. The money sitting in your investnow account can stay there, and appreciate in value, instead of being lost paying off the loan.
People do pay off loans faster for psychological reasons, being debt free etc.. but debt in itself is not necessarily a bad thing.
The reason you pay off other loans is to avoid the interest. There is no interest to be avoided with student loans.
You can simply leave your student loan where it is, let the compulsory SL deductions do its thing, and just build your investment portfolio.
More general advice, work out a budget.
At the minimum, put the surplus funds away into a Savings account, in the form of automatic payment on every pay day. This helps detecting leakage if you’re dipping into your savings.
Pay off interest-bearing debts, if any.
Maintain an emergency fund – bonus savers are good for this since you can withdraw money st any time, or earn interest by having a net balance of $20 more at month end. Most say 3-6 months, but your comfort level and risk exposure may vary.
Then, with your surplus funds, maybe consider investing them to an ETF or two via Investnow.
Your student loan is interest free. Unless you’re moving overseas DO NOT PAY IT OFF FASTER THAN THE MINIMUM 12% OF YOUR WAGE.
Since it’s interest free there’s no real point in paying it off asap. I’d recommend making the minimum payments and instead saving/ investing your money.
Your student loan repayments will be minimal anyway. May as well take full advantage of it.
Just my 2 cents ✌️
Why not just put it in the money market and pay down extra with the interest?
You are taxed as source for your student loan, so you have alternatives.
Just my 2 cents. I think it’s an incredible and wonderful goal, and a great way to spend a year. You’ll feel so good not having that hanging over your head.
However, I think this would be a positive time to sit down and ponder what you want from your life. Are you looking to buy a house? Or want to travel or Even buy a business?
I think you’d benefit from seeing a financial planner. https://sorted.org.nz/guides/planning-and-budgeting/getting-advice/
Look for a fee only as they don’t have any encouragement to sell you products you don’t need. I spent a couple of sessions this year with a planner who helped me clarify my goals and also gave me guidance on what kind of $$ & steps I needed to do to be to give myself a secure future.
Also I wouldn’t bother with an investment fund to hold the money – just drive it straight home to IRD. You’ll get a boost from seeing the balance decrease too!
I’m a bit older than you, but something I wish someone else had told me at my age:
Nothing is ever as bad as it seems.
Don’t pay it off early
Cool!
I’m assuming you want to pay it off ASAP because you plan to head overseas?
Generally shares are not recommend for a time horizon under five years. That might be old advice, back from the days when you had to go through a full service broker.
I don’t believe investnow charges any fees for investing, but I haven’t checked (and you should). It used to be that you’d pay 3% on the way in and 3% on the way out, so shares lost to term deposits on any duration less than about ten years.
The other funny thing about shares is they jump around randomly. You might have $24,200 one week and think you will be finished next week, only to have $22,000 the next day.
I realise it’s not entirely rational, but I prefer not to see myself going backwards. I don’t mind for something like retirement because I only look at the balance once or twice a year, but again…. 8 months.
In summary three things:
1. I’m assuming you’re moving overseas, because otherwise you’re better forgetting about your SL and letting it (very) slowly take care of itself.
2. I’m assuming your investment doesn’t have entry or exit fees
3. I’m assuming you’re ok with the random jumps.
The share market is a long term investment. The current term deposits are pretty good probably makes more sense (6% for 6 months/a year). Even a saving incentive fund like ANZ offers will offer 4.5% without the lock-in.
Unless you are planning to move overseas, I wouldn’t pay off an interest free loan, as it makes very little sense. I know there is a mental aspect to it, having “debt”, but just think of it like an extra bit of tax you pay, it will eventually disappear from your paycheck.
If you do decide you’d like to invest more long term, at least 3 years, probably more like 5+ then there are a number of options with different levels of difficulty and risk.
The lowest effort, with fairly low risk, with low to moderate returns would be a mutual find offered by banks, institutes like Fisher funds, etc. There will be a bit of research in choosing one that has a good record.
Something that takes more effort to setup, but has lower costs, meaning higher returns is investing in index funds. These are basically you believe the market will go up, with it’s a sector like the tech sector, the top x many companies in a country S&P 500 (USA safer), NZX50 (NZ less safe), etc. There’s more work in both research and setup for this, but you can get better returns.
Something that takes a lot of time to understand properly, and day to day effort is the last one where you could invest in individual stocks/companies. There’s obviously a lot of risk here if you choose wrong, but a lot of potential reward if you pick right. This means you need to do a lot more work to both understand how the investment platforms work, along with the short and long term strategies of the companies you invest in. Historically people who do this for a living do not normally do better than a dumb index fund, so unlikely worth it unless you want investing to be your new part time job.
Literally no reason to pay off an interest free loan any faster than you have to, alternatively there’s benefit if you could delay the process as long as possible
Inflation will eat into your principal.
The only thing I can think of paying early is if you’re going oversea or buying a house. Bank may request you to pay off the loan first. In that case, request your bank to value the loan approval based on your loan-deducted pay.
I’m in the pay it off club. Yes they’re interest free but they’re costing you 12.5% of your pay each week in loan repayments. I paid mine off like you want to chucking -as much cash as I could each pay in my goal to be debt free. It would have stopped me saving for the house I bought last year as quickly as I did and would have affected what I could have managed to borrow.
Now that $525 each fortnight is in my pocket not IRDs. Well technically it goes to the bank but here we are.
Student loans can feel like a massive set of chains. I was exceptionally happy to be rid of mine!
Realistically investing the amount you would put towards your student loan in a low cost index is the better FINANCIAL move. An index fund GENERALLY has lower costs and also outperforms managed funds in the long term, In saying this if you have any plans to work/ move overseas in the near future pay off your student loans.
If you were to invest your money it would also be better if you didn’t sell your investments to pay off your student loan. You really reap the benefits of investing in funds if you are investing for the long term as they tend to fluctuate.
In saying this if the debt is putting you at any form of psychological stress then the better move would be to pay off your student loan ASAP.
Reading what you have said it seems like consciously you would like to chip away at the student loan. In your shoes I would pay $100-200 bi-weekly to your student loans and invest the rest in two or three low cost index funds.
Word of advice if you want to use the money within the next 1-3 years I wouldn’t recommend investing in the market and instead go into a term deposit. Especially at rates rn at 5-6% interest. I would advice to just save up as much as you can and not pay off your student loan until it starts accruing interest (going overseas), and even then it would depend whether the term deposit interest is higher or lower the SL interest