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Another pay off debt vs invest in taxable

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  •  Dilaudidopenia 
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    I have the cash on hand to pay off 140k student loan at 3.1%.  The loan is 5 year fixed with about 3.5 years left.

    I realize I might make out better financially to invest in a taxable account (i401k and bdIRA maxed), but psychologically I like the idea of killing the loan.

    Thoughts?

    #189769 Reply
     docnews 
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    People who do this increase their risk which is fine. But why don’t you just get rid of your bonds? I think you are already getting enough equity exposure in your i401k/HSA/bdRoth. Now it’s time to lower your risk in my humble opinion.

    #189771 Reply
    Liked by Seabass
     Peds 
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    mathmatically the answer is invest. but you are in cash, so you are losing.

    however, getting rid of the loans is a major accomplishment.

    no one said it had to be 100% one or the other.

    why not send half? or 25% or etc towards the loans and keep investing?

    #189773 Reply
    Liked by docnews
     G 
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    At the moment, it looks like you’d make more money by putting the pay-off cash in VBTLX and letting it ride.

    –says the completely debt-free guy (so you know my vote)

    #189787 Reply
    Liked by CordMcNally
    birddog birddog 
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    Personally, I was in the same situation recently. Paid off around $150k in debt last year (i.e. every penny of our non-mortgage debt).  It feels REALLY good to be debt free other than our conventional 15 y fixed mortgage now.  If you’re debt-averse (which it sounds like you are by the statement “psychologically I like the idea of killing the loan”), I’d be student loan debt free by noon tomorrow…

    #189788 Reply
     G 
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    It feels REALLY good to be debt free other than

    Click to expand…

    It feels even better to be actually debt free.

    Sorry, that “other than” is one of my many pet peeves.

    Carry on.

    ?

    BTW, welcome to the forum, I dig your username/picture.

    #189798 Reply
     hightower 
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    Status: Physician
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    You’ll save yourself around 8k in interest if you pay it off today.  Guaranteed.

    Can you make more than this if you invest that money?  Maybe, but it’s not guaranteed.  We have no idea what the stock/bond market will do over the next 3.5 years.  It could tank or it could remain stagnant or grow, who knows.

    If I had that much debt and had the money on hand to get rid of it, I would just get rid of it and move on with my life.  You’ll then be working to save money for yourself rather than working to pay off a loan.  That’s a nice way to live;)

    #189824 Reply
    Liked by docnews
    Zaphod Zaphod 
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    You’ll save yourself around 8k in interest if you pay it off today.  Guaranteed.

    Can you make more than this if you invest that money?  Maybe, but it’s not guaranteed.  We have no idea what the stock/bond market will do over the next 3.5 years.  It could tank or it could remain stagnant or grow, who knows.

    If I had that much debt and had the money on hand to get rid of it, I would just get rid of it and move on with my life.  You’ll then be working to save money for yourself rather than working to pay off a loan.  That’s a nice way to live;)

    Click to expand…

    I dont disagree with a decision to pay it off, thats reasonable.

    But what does the market behavior over next 3.5 y have to do with anything? The investments wont be available until retirement, even in bonds one can nearly guarantee it beats that.

    Last statement is just rationalization and over compartmentalizing money. Nothing changes much except where its located at the time, etc…

    #189841 Reply
    Liked by MaxPower
    CordMcNally CordMcNally 
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    I’d pay it off and be done with it. Notice the extra pep in your step when it happens.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #189844 Reply
    Liked by adventure
     jhwkr542 
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    Crush it and be done with it.  And then celebrate

    #189866 Reply
     treesrock 
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    Another vote to be boring and just pay off your student loans.  What were you planning to do with all that cash anyways?

    #189868 Reply
     hightower 
    Participant
    Status: Physician
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    Joined: 12/07/2016

    You’ll save yourself around 8k in interest if you pay it off today.  Guaranteed.

    Can you make more than this if you invest that money?  Maybe, but it’s not guaranteed.  We have no idea what the stock/bond market will do over the next 3.5 years.  It could tank or it could remain stagnant or grow, who knows.

    If I had that much debt and had the money on hand to get rid of it, I would just get rid of it and move on with my life.  You’ll then be working to save money for yourself rather than working to pay off a loan.  That’s a nice way to live;)

    Click to expand…

    I dont disagree with a decision to pay it off, thats reasonable.

    But what does the market behavior over next 3.5 y have to do with anything? The investments wont be available until retirement, even in bonds one can nearly guarantee it beats that.

    Last statement is just rationalization and over compartmentalizing money. Nothing changes much except where its located at the time, etc…

    Click to expand…

    I know I hit on one of your pet peeves:)  You’re right and I agree with you.  It doesn’t really matter what the markets do over the next 3.5 years (the time left on his loan).  If he invests those funds for 20, 30 years, they will 99.99% of the time beat paying off debt.  I was just trying to give him a shorter term picture of what might happen if he invests now rather than pay off the debt.  If he chooses to invest and next year we enter a 5 year long bear market in which is 140k turns into just 70k, he might regret it.  Again, not that it matters in the long term as long as he buys and holds, but still something to consider if you have 140k of debt that’s even mildly bothering you.  The short term matters too, if you’re someone that is bothered by debt like that.

    I think it can be painful to make the decision to pay off low interest debt and give up that liquidity so I like to point out that investing might not FEEL like the right decision if the market crashes in the short term, even though it will still likely be fine in the long term.  Personally, I’d rather have zero debt in the event of a bad bear market and be ready to buy in, then to have invested it all now, watch it suddenly decline, and still have the debt.

    #189909 Reply
    Liked by Zaphod
     Dilaudidopenia 
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    Wanted to have cash on hand for a down payment for a house as I thought my horizon was about 12-15 months.  However, I think its more like 18-24 months.  I can still pretty easily build back up the cash reserves for this purpose though after I kill the loan.

    #189962 Reply
    Liked by adventure
     bean1970 
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    “I can still pretty easily build back up the cash reserves for this purpose though after I kill the loan.”

    If you can quickly build up a reserve then definitely crush that loan.

    Disclaimer: I’m debt adverse and debt free

    #189970 Reply
     jhwkr542 
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    Status: Physician
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    Joined: 02/15/2016

    You’ll save yourself around 8k in interest if you pay it off today.  Guaranteed.

    Can you make more than this if you invest that money?  Maybe, but it’s not guaranteed.  We have no idea what the stock/bond market will do over the next 3.5 years.  It could tank or it could remain stagnant or grow, who knows.

    If I had that much debt and had the money on hand to get rid of it, I would just get rid of it and move on with my life.  You’ll then be working to save money for yourself rather than working to pay off a loan.  That’s a nice way to live;)

    Click to expand…

    But what does the market behavior over next 3.5 y have to do with anything? The investments wont be available until retirement, even in bonds one can nearly guarantee it beats that.

    I don’t follow this argument.  OP says the money would be invested in a taxable account, so it wouldn’t be tied up until retirement.  Additionally, if OP pays the loans now, the additional money saved by not paying the monthly payment could then go into taxable.  At the end of 3.5 years, if OP saves those payments, then they’ll have re-captured the original value of the loan plus the savings on the 3.1% in interest.  If the markets tank over that time frame, at the end of the 3.5 years, OP will not have lost any money in the markets and will have made money by not paying the interest on the loan.  If the markets go up over that time frame, then the opposite will have been true, and OP would’ve been better off investing at the beginning instead of crushing the loan.

    #189972 Reply

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