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Old 09-12-2017, 09:09 AM   #41
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Invest up to the match, and use everything else to clear the loan. 6-12 months later, invest more and have zero student loans.
Are you waffl'n?

I understand the emotional side of paying off a loan/ mortgage, my wife would probably pay ours off tomorrow, if I agreed.
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Old 09-12-2017, 09:18 AM   #42
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Are you waffl'n?

I understand the emotional side of paying off a loan/ mortgage, my wife would probably pay ours off tomorrow, if I agreed.
I go back and forth.



I hate missing out on free money, but I hate payments more. Investing only up to the match is a happy medium.

What I'm really saying is just doing that is NOT enough for retirement, BUT as you and others have said he'll never miss that money and it's important to start investing. Completely agree. I think clearing the loan is more important than investing above and beyond the match, and it should happen in less than a year if he doesn't misbehave with credit cards and 0% interest furniture and such.

Then he can start investing like crazy.
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Old 09-12-2017, 09:23 AM   #43
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He should do both.
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Old 09-12-2017, 10:04 AM   #44
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401k. It is a no brainer that saving early is key to future financial well being. He should try to do both. If he can stay frugal for 10-15 years he will be far better off. Also keep debt free or minimal aside from mortgage.
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Old 09-12-2017, 10:31 AM   #45
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401k. Get that compounding started early.
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Old 09-12-2017, 11:11 AM   #46
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Didn't someone (not you) say this each year for the past many years?
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Yes, this is why you NEED to change the batteries in the crystal balls..
It was not me.
I am just pointing out the obvious - the market has been on a bull run since its low in March 2009 (8.5 years). Those returns won't continue forever, and although the historical average return for the Dow is just a little over 10%, it is far from linear.
Most people's 401k money is more conservative than just playing the Dow, which is why their long term returns are closer to 5-6% (3-3.5% above inflation) so from a pure economics basis, after contributing to the 401k to get the full match, paying down a 6-7% student loan makes the most sense.
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Old 09-12-2017, 11:29 AM   #47
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Another vote for do both, based on his situation. Not sure what the rest of his financial world looks like (housing/vehicle needs, etc.), but I would do the following, in this order, if I were I in his shoes. I'm assuming that's not an issue, as it hasn't been mentioned by the OP so far. Most importantly for the below to be successful is to lay out the numbers on paper, and set an appropriate budge to accomplish. With his debt to income, should still be plenty of $ to have a fairly reasonable amount of fun.

1) Start 401K up to match amount, but for the time being no more than the amount that gets the maximum match.
2) Stack up 3-6 months of expenses, and set it aside in a hard to get to bank account.
3) Tackle the student debt hard, and avoid any lifestyle purchases (car, boat, etc.) during that time period.
4) Once # 3 is done, take that money and put into a combination of a Roth IRA, or additional contribution to 401K, so that the totals = ~ 20% of total income.
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Old 09-12-2017, 11:32 AM   #48
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Are you waffl'n?

I understand the emotional side of paying off a loan/ mortgage, my wife would probably pay ours off tomorrow, if I agreed.
Quote:
Originally Posted by NCSUboater View Post
I go back and forth.



I hate missing out on free money, but I hate payments more. Investing only up to the match is a happy medium.

What I'm really saying is just doing that is NOT enough for retirement, BUT as you and others have said he'll never miss that money and it's important to start investing. Completely agree. I think clearing the loan is more important than investing above and beyond the match, and it should happen in less than a year if he doesn't misbehave with credit cards and 0% interest furniture and such.

Then he can start investing like crazy.
Truth be told I didnít read all of the OPís initial post and agree that investing up to the match of his companies plan makes good sense. Followed by an aggressive repayment of the balance on the debt.
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Old 09-12-2017, 11:39 AM   #49
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I'm sure you're right with that - I was just using rough numbers to make the point, but single with no dependents or other tax-deductible costs, he'd have to be close to the rate table, right?


Avoided but not necessarily bad? If you had built a reserve in the 401-K and needed some cash, would it be better to borrow at market rate or on a credit card than take a short term loan from 401-K?? I did a loan from my 401-K 30 years ago (to buy my 1st boat) and thought it was the best thing I could have done, other than pay cash.


Absolutely agree... that's #3 priority


He's in Computer Science and good... I don't think he'll ever have to worry much about not finding work.


That's a real question, especially these days. Not sure what his vesting period is, but certainly something to consider.

Good numbers and that's exactly what I'm thinking. His loan is only 10K, so using that formula you'd delay it 4 years and he'd make back 10x what he'd pay in interest over those 4 years. There's also the 'time-value of money' to consider I guess.

Offhand I don't know what the interest on the loan is... but I was thinking as LI32 said... probably 4-6%. He's about 50K annual and the loan is about 10K. The company does match, but I'm not sure what %.




Not sure about this - it's been a while since I checked - however, I think some companies make a new employee wait a certain period of time before they can start participating in the 401(k) and/or be eligible for the company matching % . . .
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Old 09-12-2017, 12:06 PM   #50
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$10k... I would knock it out
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Old 09-12-2017, 02:00 PM   #51
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Only $10,000, in debt.

1) He should invest to the company match in his 401k.
2) Invest $5,500 in a Roth IRA
3) Build up enough savings to cover 6 moths expenses.

4) Then continue to save additional funds to pay off the student loan once he has enough saved to pay off the loan then pay it off. Don't send extra payments in on a $10,000 loan as I believe these loans don't "Reamortize or recast" sending in extra payments is giving them your money and still paying interest on it.

If he is in computer science he will eventually start to make some very good money and probably not be able to invest in the Roth in years to come. The more funds he gets in the Roth the better he will be as he will be in a high tax bracket in 3-5 years so the more future tax free funds he has the better he will be. A $10,000 loan balance is not the noose many people have around their neck.

One very important thing is that once your son pays off the loan what is his plan with his new found cash flow? If it's not additional savings than the point of paying off is pointless, he should immediately crank up his 401k contribution or some other savings.
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Old 09-12-2017, 05:00 PM   #52
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401k as long as he has a 50% employee match.

I am not a fan of student loans but I would live like a monk and stay away from wild women until they're paid in full.
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Old 09-12-2017, 08:47 PM   #53
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I was in this situation with 50k in student loan debt and did both. Student loan interest rates are closer to 8-9%. Gotta make paying off the debt a priority.
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Old 09-13-2017, 06:27 AM   #54
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I was in this situation with 50k in debt and did both. Student loan interest rates are closer to 8-9%. Gotta make paying off the debt a priority.
yikes

50 large @ 8 or 9%! No way no how I would be doing anything but go to hyperdrive paying that debt down.

my .02 though that's just me
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Old 09-13-2017, 06:35 AM   #55
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yikes

50 large @ 8 or 9%! No way no how I would be doing anything but go to hyperdrive paying that debt down.

my .02 though that's just me
The problem is only 1% of graduates see it that way. Our country's student loan debt should be enough to cause panic, but for some reason it's not. People keep them around until retirement because it's "just how it's done".

Kids continue to get bullshit majors that will never give them enough income to pay off 150k of student loans from some bullcrap liberal arts school for a useless major.

High Point University is a prime example of a bad school charging a ton for a nice campus. It is propped up by student loans. When the bubble hits, it will fail.

It's scary how much student loan debt people have. Some of my wife friends have 200k. Who's the doctor or lawyer? Neither. An English degree, a biology degree, and a few other useless degrees. They make 75k combined. They will be in debt forever because of stupid decisions.

Sorry for the rant...nothing to do with the OP or anyone here, just general observations on the matter.
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Old 09-13-2017, 06:35 AM   #56
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yikes

50 large @ 8 or 9%! No way no how I would be doing anything but go to hyperdrive paying that debt down.

my .02 though that's just me
It was student loan debt-- law school. Student debt is a real problem for this generation. Some people I know that went to private schools have 150+ in student debt and 50k year jobs. And the interest starts accuing while you are in school.

Back to the OP. Your son should be doing both because the risk of investing is the X factor, as well as other things that may happen in like over the next 20 years. How much he puts towards both is up to him and there is some good advice above as to how that should occur depending on employer match.
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Old 09-13-2017, 08:07 AM   #57
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You guys are all on the same track as what I was thinking (although some leaning more heavily towards paying it down).

He's definitely not the kind of kid that will rack up debt. He's the one pushing to forego the 401-K until the debt is paid, but I'm arguing that doesn't make sense. I am sure he will pay off the debt quickly, regardless how much he puts into the savings. Having the 3-6mo buffer is also high on the agenda.

He did learn about money early. When he started getting into video games on the Nintendo and X-Box platforms, we bought him a couple games upfront and he got a few from family as gifts. Then he started bugging us about each new "cool" game that came out and we made him a deal. We'd give him $200 each year and he could get whatever games he wanted with that ( would be about 4 each year)... over the next four years, he only bought TWO and pocketed the rest.

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Originally Posted by NCSUboater View Post
Our country's student loan debt should be enough to cause panic, but for some reason it's not.
I hear you on that!!! I wonder what would happen if their degree "vanished" if they didn't pay off the loan on the terms it was offered??

My gf worked at a cosmetology school for admissions. Virtually 100% of the admissions were aid-based (loan or grant), so they all left there with $10k-$15K in student loans and starting a $9/hr job. The school seemed to make out pretty good though!
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Old 09-13-2017, 08:32 AM   #58
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It was student loan debt-- law school. Student debt is a real problem for this generation. Some people I know that went to private schools have 150+ in student debt and 50k year jobs. And the interest starts accuing while you are in school.

Back to the OP. Your son should be doing both because the risk of investing is the X factor, as well as other things that may happen in like over the next 20 years. How much he puts towards both is up to him and there is some good advice above as to how that should occur depending on employer match.
Hahaha - $50k means you were way smarter than me!

Just around $180k for me....

I had not one iota of a clue of what I was signing up for. Any my parents are smart and fiscally responsible AND they co-signed. 22 year old me should have gotten a real taking to about taking on that kind of debt!!!
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Old 09-13-2017, 08:33 AM   #59
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You guys are all on the same track as what I was thinking (although some leaning more heavily towards paying it down).

He's definitely not the kind of kid that will rack up debt. He's the one pushing to forego the 401-K until the debt is paid, but I'm arguing that doesn't make sense. I am sure he will pay off the debt quickly, regardless how much he puts into the savings. Having the 3-6mo buffer is also high on the agenda.

He did learn about money early. When he started getting into video games on the Nintendo and X-Box platforms, we bought him a couple games upfront and he got a few from family as gifts. Then he started bugging us about each new "cool" game that came out and we made him a deal. We'd give him $200 each year and he could get whatever games he wanted with that ( would be about 4 each year)... over the next four years, he only bought TWO and pocketed the rest.


I hear you on that!!! I wonder what would happen if their degree "vanished" if they didn't pay off the loan on the terms it was offered??

My gf worked at a cosmetology school for admissions. Virtually 100% of the admissions were aid-based (loan or grant), so they all left there with $10k-$15K in student loans and starting a $9/hr job. The school seemed to make out pretty good though!
I still say it's hugely valuable to him to sit down and work through an actual budget.

Maximizing what he puts away now sets him up for life later.
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Old 09-13-2017, 08:40 AM   #60
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I still say it's hugely valuable to him to sit down and work through an actual budget.

Maximizing what he puts away now sets him up for life later.
I get the match part regarding putting away now as opposed to using his part of the match to pay off debt. However you cannot truly save anything when you are still paying interest and principle on debt.

So when the match is met annually pay the debt down.
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