- September 1, 2023
- Posted by: legaleseblogger
- Category: Related News
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The Importance of Deciding on the Best Course of Action
As a recent graduate, I find myself contemplating the best approach to handle my financial situation. While some may dismiss this as a trivial matter, I believe it is critical to make informed decisions that align with my long-term goals.
My Background and Financial Standing
I am a 26-year-old male who just completed my studies in 2022. Currently, I am earning approximately $120,000 per year, and it seems likely that my income will remain stable within my chosen field. Additionally, I have managed to accumulate around $80,000 in a High-Yield Savings Account, wherein I deposit my entire paycheck. Since I live with my parents (at least for now), I have minimal living expenses, further contributing to my savings. Furthermore, I have no outstanding car payments, and my Roth IRA is already maximized for the year. Moreover, I diligently allocate a significant portion of my earnings (18% per paycheck) towards my employer’s 401k plan.
Understanding the Loan Situation
A few months ago, I successfully cleared a private student loan amounting to approximately $10,000 as soon as I secured employment. However, upon checking my current financial standing, I discovered that I now owe around $70,000 in student loans. The existing repayment plan spans ten years, accumulating a total repayment amount of approximately $84,000 when accounting for interest.
An Internal Conundrum: Rapid Repayment or Gradual Settlement?
Given this information, I am faced with a crucial decision: should I completely deplete my bank account and make a lump-sum payment (whether it be one large sum or multiple substantial payments) to eradicate my student loans? Alternatively, would it be wiser to adopt a gradual repayment strategy? Although the notion of depleting my entire bank account induces apprehension, the idea of eliminating my student loans altogether and avoiding additional interest fees has considerable appeal.
Potential Support from AI Legalese Decoder
In such a perplexing situation, I have considered employing the assistance of AI Legalese Decoder. Through its advanced technologies, this innovative platform can analyze legal documents, including loan agreements, and provide comprehensive insights into the potential ramifications of different repayment approaches. By harnessing the power of AI Legalese Decoder, I could receive personalized advice catered to my specific circumstances, enabling me to make a more informed decision regarding my student loans.
Call for Personal Experiences and Guidance
Considering the weight of this financial matter, I would deeply appreciate hearing from individuals who have faced a similar dilemma or possess insights that could help me navigate this juncture in my life. Your experiences and advice would be invaluable in guiding me towards a resolution that aligns with my long-term financial objectives. Thank you in advance for your contributions.
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Lay out your 1-5-10 year goals. Can you achieve these goals if you do pay your student loans in a shorter time?
Keep ~20k for emergency funds, keep maxing your investments, and keep putting money aside towards your goals. Any extra change can go towards your student loans.
IMO, paying off debt is never a “dumb” idea, regardless of interest rate or other options you have for your money. It may be a “less good” use of your money, but getting that monthly bill out of your life has its own benefits.
The main thing people compare is the interest rate being paid on debt vs. expected return (adjusted for risk) of your money going to some other use. From your numbers, it seems like your overall interest is about 3.5%. That’s likely lower than what your money is getting in your HYSA. Though those rates do change, and may fall sometime in the next 10 years.
It’s also not a binary choice. You could make one big payment (maybe $40k) to drop the balance and future interest, then stick to required payment amount going forward from there. Could pay more if you’re comfortable draining your cash reserves, or less if you have some short-term plans for those dollars.
If you do choose to make a large payment, the earlier it’s done the more it benefits you in terms of reducing overall interest paid.
My loan interest is less than my HYSA interest, so I put the money I would have used to pay off the loan in there and use the interest to pay off the payment each month.
Depends on what your goals are though. Some people donÔÇÖt mind carrying manageable debt and some like to have 0 debt. Whatever makes you feel comfy.
Looking at what you’ve told us is paying off your student debt a bad idea. No not at all. One of the biggest debts people have to be honest is student debt. If you pay it off now you won’t have to worry about possible drama or is part of it going to be forgiven or not ( us) furthermore getting out of debt will help you substantially with both your credit score and possible future.
You’ll only be paying $14k in interest after 10 years? Sounds like you have a low interest rate. Personally, I’d keep 3-6 months of living expenses in a high yield savings account, and only pay minimums on your student loans. Any remaining funds can go to maxing out your 401k and you can also open up a regular brokerage with no tax advantages. Investing in index funds is a great option if you can let it sit until retirement. But if you’d like to buy a house in the next five years, then keep it in an HYSA. Paying off the loans early will save you less than you’d gain if you invested those savings in a long term account. But if the debt weighs heavily on you, it’s not a terrible choice to become debt free. My advice is purely based on the best way to increase your net worth and prepare for retirement.
Thanks for all the input everyone. The loans are federal and I believe the interest is about 4.7% on them so just slightly higher than what my HYSA is currently at (I believe 4.5%)