basspro
Well-known member
I would say you did very well, smart decision!
BIG BOX decision
- Thread starter 92integra
- Start date
It's been mentioned twice in this thread, are your student loans private, federal unsubsidized or subsidized? If you aren't sure I would find out ASAP the decisions you make at this point will be crucial. Traditionally, student loans are going to be at roughly double mortgage rates, 1-2% higher than the best car loan rate for the best qualified person.
Federal subsidized loans work this way. After you leave school you have 6 months to either start paying, consolidate them then start paying, or going back into school. Let's assume you leave school with your degree/cert/whatever you're going for. Keep an eye on what's happening in the financial world, specifically the bond market and the FED. Those are going to affect the student loan rate, and what will typically happen is you get the offer from one or more bank to consolidate all your student loans (each semester you will have one or more, basically each check is a separate loan) into one loan. All Federal student loans are variable rate, so the interest rate can go up. This is going to be a big motivator for banks to get you to consolidate with them. This will also be the last time you can consider a bank doing you a favour. Let's say 6.75% is the rate of your loans now, and that it's been announced that it will be increasing to 6.90% in 3 months. Instead of you having to care, they consolidate as one big loan at 7.0% now, you know they're going to make something off it. But what they really want is the check you send them every month, they don't care about today's money. More about that later but banks treat money the opposite of individuals.
So that one loan will be at a fixed % instead of prime + whatever, we'll say prime + 1 just because it's simple. That's typically what the best mortgage rate they advertise will be, but it's usually an untouchable unattainable rate. Student loan is basically the same as credit card debt, unsecured, so it might be more like prime + 1.75% or something. Anyway this is an aside, but important to know.
So when you're a regular working joe and you pay your taxes once a year, you can deduct the interest paid on a student loan each year on your taxes. Student loans are going to be for 15 years from the date of the most recent change, ie the date of the consolidation. so that's 15 years that you pay the loan payment each month, including interest, then write off the interest (its a 1 for 1 deduction not an adjusted amount like a standard deduction type thing). The only hard part is remembering to do it, or your tax guy (get a tax guy seriously) knowing how to do it right so you get it all.
Now here's where it gets deeper than most people want it to get. Go take a break and come back.
You will pay no more than the amount of the loan amount on the day of the consolidation, spread out across 12 mos x 15 years, if you do it my way. Not only will you (in the end) not pay any interest on the loan, you will also come out ahead. Your dollar will never be stronger than it is today. Until someone can travel back in time, this student loan is a sure bet against inflation. You will pay less for your student loan in 2013 money than on the day you pay the last payment. It's like magic.
So before you pay off your student loans ASAP like you've been advised, put your money in a savings account. [Everything from here assumes you don't have a 401k at your work. If you do, put in the max that your company will match, it's basically free money. The exception to the next part is, if you have a 401k you would want a Roth IRA instead of a traditional one] Open an IRA and max it out. Shop around, not everyone who invests your money has your best interest first. Index funds, and specifically target date funds, that's the way to go. The less exciting it sounds the better. This is money you won't touch for your entire working life so literally forget about it after you set it up.
You will earn money in the market at a 7% year to year average, if you let it sit long term. Assuming we go through another cycle or two like recently and we have no real inflation for a sustained period, you will still see inflation at maybe 1% per 1-2 years on average over the long term. You're ahead of the loan by 5-6% making that much more money than you would have 'saved' if you pay off the loan ASAP. That's more than any savings account or CD you can open now for the same timeframe.
You CAN consolidate private loans, and 90% of the advice here will still apply. There might be specifics that aren't exactly the same.
Yes this is long. TL;DR it's not always best to pay the loan back ASAP. You owe it to yourself to figure it out based on your situation.
Federal subsidized loans work this way. After you leave school you have 6 months to either start paying, consolidate them then start paying, or going back into school. Let's assume you leave school with your degree/cert/whatever you're going for. Keep an eye on what's happening in the financial world, specifically the bond market and the FED. Those are going to affect the student loan rate, and what will typically happen is you get the offer from one or more bank to consolidate all your student loans (each semester you will have one or more, basically each check is a separate loan) into one loan. All Federal student loans are variable rate, so the interest rate can go up. This is going to be a big motivator for banks to get you to consolidate with them. This will also be the last time you can consider a bank doing you a favour. Let's say 6.75% is the rate of your loans now, and that it's been announced that it will be increasing to 6.90% in 3 months. Instead of you having to care, they consolidate as one big loan at 7.0% now, you know they're going to make something off it. But what they really want is the check you send them every month, they don't care about today's money. More about that later but banks treat money the opposite of individuals.
So that one loan will be at a fixed % instead of prime + whatever, we'll say prime + 1 just because it's simple. That's typically what the best mortgage rate they advertise will be, but it's usually an untouchable unattainable rate. Student loan is basically the same as credit card debt, unsecured, so it might be more like prime + 1.75% or something. Anyway this is an aside, but important to know.
So when you're a regular working joe and you pay your taxes once a year, you can deduct the interest paid on a student loan each year on your taxes. Student loans are going to be for 15 years from the date of the most recent change, ie the date of the consolidation. so that's 15 years that you pay the loan payment each month, including interest, then write off the interest (its a 1 for 1 deduction not an adjusted amount like a standard deduction type thing). The only hard part is remembering to do it, or your tax guy (get a tax guy seriously) knowing how to do it right so you get it all.
Now here's where it gets deeper than most people want it to get. Go take a break and come back.
You will pay no more than the amount of the loan amount on the day of the consolidation, spread out across 12 mos x 15 years, if you do it my way. Not only will you (in the end) not pay any interest on the loan, you will also come out ahead. Your dollar will never be stronger than it is today. Until someone can travel back in time, this student loan is a sure bet against inflation. You will pay less for your student loan in 2013 money than on the day you pay the last payment. It's like magic.
So before you pay off your student loans ASAP like you've been advised, put your money in a savings account. [Everything from here assumes you don't have a 401k at your work. If you do, put in the max that your company will match, it's basically free money. The exception to the next part is, if you have a 401k you would want a Roth IRA instead of a traditional one] Open an IRA and max it out. Shop around, not everyone who invests your money has your best interest first. Index funds, and specifically target date funds, that's the way to go. The less exciting it sounds the better. This is money you won't touch for your entire working life so literally forget about it after you set it up.
You will earn money in the market at a 7% year to year average, if you let it sit long term. Assuming we go through another cycle or two like recently and we have no real inflation for a sustained period, you will still see inflation at maybe 1% per 1-2 years on average over the long term. You're ahead of the loan by 5-6% making that much more money than you would have 'saved' if you pay off the loan ASAP. That's more than any savings account or CD you can open now for the same timeframe.
You CAN consolidate private loans, and 90% of the advice here will still apply. There might be specifics that aren't exactly the same.
Yes this is long. TL;DR it's not always best to pay the loan back ASAP. You owe it to yourself to figure it out based on your situation.
ckblum
Well-known member
That sounds pretty complicated just to buy a tool box.
Thanks cheechi I understood some of that I borrowed 5500 with 2 a loans 1 subsideds 1 not I am already saving to pay them back like how I pay the tool truck every week should be able to pay them off before school is over for me it was the easiest way to get a good chunk of change to buy tools now and pay off slowly if that makes sense. Thanks everyone for all the advice got lots of room for my tools now only like 3 full drawers in the box not counting snack drawer =) ill post up in this thread when I get her full or at least when I have spent the loan money spent on tools! Thanks again eveyone
oldldh
Well-known member
To coin a phrase...
Ya dun gud, Bubba...
Ya dun gud, Bubba...
Moose97
Well-known member
I see what you're getting at but you can't say it's bad advice to pay off a loan and be debt free. It may not be the only way to do it but it's not bad advice. Too many people will say that they will do as you prescribe but life gets in the way. Then you find that you aren't saving any money and still paying off the loans. I'm a firm believer in debt free living. The borrower is slave to the lender.
Mickey O
Well-known member
I'd avoid the HF box like the plaque. Get a decent 26"~27" box and a side long screwdriver/pry bar/ long extension holder. Then after school if you still want to work on cars get a nice box and you can always use the small box at home and they are easy and cheap to move around as opposed to the cost of moving a large box.