Anyone ever pay off their loans in full? do you regret it...?

[Lucy199]

I'm a year into my first job out of school, in my mid 30's, and I've made 6 loan payments thus far. I started with about 196k and now down to about 184k.

My partner and I are fortunate to have made about 175k on the sale of the home we bought 7 years ago. 

We have just bought a new home and made a small down payment as . My question, is, would you have put the 175k towards the new house, save and invest it,  or pay off the loans and be debt free?  worth noting, new home interest rate is 3.0 and my loans are 4.5 through sofi

[airslant]

Definitely not the house. That rate is the cheapest loan you will ever get. I probably wouldn't the student loan either. I think you could do better buying rentals or in an index fund. I like the flexibility of either. You can sell the house or the stocks but you probably can't pull money back out at those rates ever again.

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[UGoLong]

You can figure out the money or do what makes you comfortable.

If your loan permits it, you might consider making extra payments if they go right to the principal, greatly cutting down on your interest payments and the time until you’re paid off. We did that with a mortgage and paid it off about 10 years early without putting ourselves at risk.

In a time of uncertain jobs and other things, having extra cash around can be a very good thing!


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[Joelseff]

Paying off debt is one of the greatest feelings in my adult life... Ok I'm kinda boring... [emoji23]

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[Boatswain2PA]

Large emergency savings (3-6 months of expenses), and then pay off your student loans.

Then increase your savings to 6-12 months of expenses....then pay off your house.

 

Just imagine for a minute how good life would be if you had no student loan payments AND no house payment.

Its sweet!!

[SedRate]

Put down a large chunk on a modest home and put down a large chunk on your student loans. Student loans are at a higher interest so pay that off first, or at least faster than your home!

Also, make sure you're maxing out free money via 401k match and anything else you can. The time value of money wins here, so the earlier you invest over the long-term, the better. 

Alternatively, like airslant suggested, you can consider buying a rental if you're buying in a good rental market where you can buy cheap, but be prepared to take on the burdens of owning a rental and the costs while also still paying off student loans and a new mortgage/rent on your own place. Buying a rental allows you to turn around and rent it out, thereby immediately accruing income which you can then put toward your student loan payoff or whatever else. 

[GetMeOuttaThisMess]

In your case?  First have six months of emergency funds.  Second, interest payments are to be looked at the same way as you would look at investment returns/costs.  If your investments aren't returning more than the costs of your loans then payoff the loans.  Once loans are paid off I would increase my monthly mortgage payments by 1/12th each month so that you're making 13 the equivalent of 13 payments/year and you'll end up knocking ~8 years off the life of your mortgage, which in my case was over a third of what I would have otherwise paid over 30 years.

Edited July 25, 2020 by GetMeOuttaThisMess

[dfw6er]

I took a rural health clinic gig several years back and applied/was awarded a NHSC loan repayment, allowing me to pay off my loans with one check. It felt amazing and helped bump my credit score as my debt:income ratio was improved.  It also opened more opportunities for me professionally as I was able to focus on paying off CC debt and save more so I could move to the west coast and take a lucrative job for really big $$.

[MediMike]

As everyone here has mentioned, looking at interest you'll pay in the loans versus possible returns on investing that money...as long as you've got your 6mo safety net I'd (personally) pay off a big chunk of the loans. The mental well being of not having that debt hanging over your head is pretty huge.

[Mayamom]

Get out of debt as soon as you can.  I was making 6 figures for a long time.  Then when I turned 50 was struck with a chronic medical problem.  Being debt free allowed me to leave my great paying job to a decent paying job and cut my work days from 5 to 4.  I had no choice.  But being debt free helped with this greatly.  If not I would have been looking at disability which I did not want to do.  You just don't know what the future holds.  

 

 

 

 

 

 

 

[Boatswain2PA]

16 hours ago, Mayamom said:

Get out of debt as soon as you can.  I was making 6 figures for a long time.  Then when I turned 50 was struck with a chronic medical problem.  Being debt free allowed me to leave my great paying job to a decent paying job and cut my work days from 5 to 4.  I had no choice.

THIS!!!

THIS is what happens in life.  Money isn't just about 4% loan versus 8% returns.  Money is security, and debt payments are a form of financial INsecurity.

Hope your condition is well managed Mayamom.

[GetMeOuttaThisMess]

I lived at home for a year and commuted to a neighboring suburb my first year out so that I could eradicate my $10K in loan debt (including mom's IOU).  Yes, $10K back in the stone-age.

[Pac30]

I started around 100k in debt, have it down to 15 after 8 years, but at this point I've stopped paying extra and am instead investing the double payment I was making. Have the money I could just plop down and be done at this point, but I'd rather have it available if I were to lose my job. Plus time value of money yadda yadda yadda. But it has been a huge weight off my shoulders once I got it to about 30. 

[mgriffiths]

A good resource is to follow the Prime Directive from the subreddit "Personal Finance."  Pretty much 99.99999% of everyone fits into this flowsheet.  Of course you can make decisions to do things differently, but it's a really good starting point.

Here is a link to it, but if you don't trust random links just google it.

(Edit: didn't know it would just pop up like that...cool)

Edited July 26, 2020 by mgriffiths
didn't know the image would auto embed...cool

[UGoLong]

1 minute ago, Pac30 said:

I started around 100k in debt, have it down to 15 after 8 years, but at this point I've stopped paying extra and am instead investing the double payment I was making. Have the money I could just plop down and be done at this point, but I'd rather have it available if I were to lose my job. Plus time value of money yadda yadda yadda. But it has been a huge weight off my shoulders once I got it to about 30. 

This!

Cash can be king, especially in uncertain times. Pay off your loan as quickly as you can but I recommend keeping some money around. If you pay off a loan, the loan is gone but so is your money. If you make extra payments instead, the extra money pays down your loan but without sacrificing keeping some money in reserve. Eventually the monster is small enough to pay it off without losing your nest egg.

Live more modestly than you would otherwise need to and pay things off. I'm at the other end of this game and the approach worked for us.

[Believe]

I disagree with ppl telling you to get a rental. This is the worst time to have money timed up in a non-liquid asset. Who knows, there may be reduced hours for you in the future. Cash is king, keep the majority, invest some of it and apply some to your loans now. 

[Boatswain2PA]

13 hours ago, Believe said:

I disagree with ppl telling you to get a rental. This is the worst time to have money timed up in a non-liquid asset.

Concur that this is a bad time to buy a rental.  I expect market prices will fall on rentals in the next 6-24 months.

It is a TERRIBLE time to buy a rental with credit as the federal government has established the precedence to disallow landlords with federally backed loans from evicting tenants.  This is just another example of the risks that a debtor (ie: a landlord with a Freddie/Fannie/FHA/VA guaranteed loan) takes on.  Can you imagine having a federally backed mortgage on a rental property and not being able to evict a tenant for non-payment since May, and hearing that this will likely be extended by congress?  Meanwhile your bank is forced to not foreclose on you, however as soon as this is over you will owe the past due...and the tenant bails on you without paying anything.

This is a recipe for disaster for many people.

BTW - I think it's fine to have money tied up in non-liquid assets as long as you have sufficient liquid assets to cover 6-12 months of living expenses.  

Edited July 27, 2020 by Boatswain2PA

[DogLovingPA]

I'm about to pay off my loans in full and can't wait.  I have the money now, but with interest at 0% until Sept I'm letting it sit in my money market until then.  I'm 7 years out of school.  I agree with some of the points above though - while I'm super stoked to pay off my loans I'll still have 5 months emergency cash in savings, another 4 months in a mutual fund I could access if needed plus fully funded Roth IRAs for both me and husband.  Don't fully deplete your savings to pay off the loans, but I'm all for paying them off as fast as possible!

[GetMeOuttaThisMess]

Post when you've done so.  It's fun to share the joy.

[SedRate]

On 7/24/2020 at 7:57 PM, Lucy199 said:

I'm a year into my first job out of school, in my mid 30's, and I've made 6 loan payments thus far. I started with about 196k and now down to about 184k.

My partner and I are fortunate to have made about 175k on the sale of the home we bought 7 years ago. 

We have just bought a new home and made a small down payment as . My question, is, would you have put the 175k towards the new house, save and invest it,  or pay off the loans and be debt free?  worth noting, new home interest rate is 3.0 and my loans are 4.5 through sofi

Congrats on making a decent chunk of change!

I don't regret paying mine off. 

I too sold a house, although didn't make anywhere close to $175k, so nice job. After making a down payment, we put $30k of that into paying off the rest of my loans. (PA student loans totalled over $125k, which were paid off in 4 years, all the while living comfortably, house buying and selling, redoing the backyard, paying for our wedding, buying and selling cars, going on vacations, etc. Imagine how much faster it could've been paid off by not doing any or some of those fun things! Lol.)

I barely had any emergency fund or savings throughout my 4 years, but I did have a working spouse, no kids, young age with good health, and some basic 401k contributions with match on my side. Some of the remainder of the house sale went toward a more robust emergency fund, and then I started making extra payments on my car loan and a little bit extra on the monthly mortgage. 

But then I learned there are options out there for emergencies that work better for me than money in a generic savings account sitting idly. So, I started putting my emergency fund to work again by paying off my car loan too.

Credit card bills aren't due for a month, so that gives me a month of breathing room before paying it off in full. And if I time it right, it can be two months! Haven't had to do a home equity loan but there's that too. We have savings accounts that earn more than 0.2 or 0.8%, so that's where we'd tap into if the above two options are exhausted. I have also doubled up on my 401k contributions. Oh, and did I mention life happened and I went without a paycheck for 3 months during the summer of covid? Thankfully, I didn't need to tap into anything thanks to debt payoff.

Our journey to financial independence has been a fun one thus far, and I have enjoyed reading other's takes on what they've done and what's worked for them. Enjoy the journey for yourself and good luck. 

[Cideous]

Took me 10 years to pay off mine.....it was a great day when we sent off that last payment.

[EMEDPA]

My wife and I paid off hers ASAP. I worked through school so didn't generate as much debt. 

I have friends who worked like a dog for a year or two and paid off all their loans. Now they live like kings. Paying off debt sooner than later is a great idea in my mind at least.