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Consolidating Saved Me Money - Now do I pay off or wait?

Started by stevefrisco, November 01, 2017, 09:48:06 pm

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I started with about $72,000 in student loan debt in 2013. My interest rate on the loans were 6.8 % (48,000) and 7.2% (24,000). After throwing basically all of my money at the loans, I got my debt down to about $24,000 this summer when I discovered SOFI through my employer. I had heard about it previously and had assumed it was a scam but did my due diligence along with several others in my office and decided it was for me. My interest rate lowered to 4.4%. (if anyone is interested in refinancing I'd be happy to tell you what I learned and can give you my referral code to save you some money/get me a bonus :) )

Like an idiot, I unfortunately did an adjustable rate instead of a fixed rate and the prime rate has gone up a couple times since the loan originated so now I'm around 4.75%. I had originally been planning to pay off my loan by December through savings and income but I have not been able to devote as much as I had planned and have about $15,500 left with around $7000 in savings and a monthly takehome around $3200 (though I'm about to start a pt job so this will increase). I also have a $20K bonus coming in January.

I think my job is pretty stable and this is my highest interest debt so I'm not worried about having a large emergency fund. However, I am growing concerned about whether I'll be able to contribute significantly to retirement if the 401(k) limits are reduced. Should I hold off throwing money at my loans and contribute extra money to my 401(k) in November and December or just stay the course and kill off my loans as quickly as possible?

Unfortunately, I'm 30 and only have about 20K in retirement savings. Grad school and low income my first few years after graduation caused me to miss out on this run up and savings in my 20s :(.

Would be very interested in input.



First off, adjustable rates are almost always the way to go because the upfront savings on interest makes up for any rate fluctuations except in the rare case where rates significantly rise in years 1-3 (and by significant, I mean 3-4%).

As for your question, contribute to 401k to your employer match, then back to your loans. Use your bonus, and be debt free in January! Then, you can basically put all that towards retirement.

Don't worry about 401k limits! Who cares...

Do this order:
1. 401k to employer match
2. Max out your IRA
3. Max out an HSA if you have one (and treat it like an IRA and never get reimbursed for health care expenses)
4. Back to 401k to the max (even if lower limits)
5. Taxable brokerage - remember, the current capital gains is still 50% of the top tax bracket! It's a good deal for long term investors.