Hey everyone, just wanted to see everyone’s thoughts on best way to pay off our loans. Currently I have about 380k refinanced to 4.4%, paying $3000 monthly with about 13 years on the term. My wife has about 178k refinanced to 5.8% paying $2000 a month for another 9 years. I am out of training and she is has three more years to go. We are trying to put as much extra towards the loans and when she gets her attending job, planning on putting most of her salary (estimated 300k-400k) yearly to the loans.
My question is, would it be better to pay down with ang extra funds directly to the loans or to open a taxable account t and put everything there hoping for better returns. Thanks for the advice.July 2, 2019 at 3:17 pm MST #2272808arclayParticipantStatus: PhysicianPosts: 18Joined: 01/30/2019
Once she gets attending job, refinance to a lower rate. If you’re planning to get rid of them ASAP, get a short term variable rate. I did this last year and am at 2.7% currently. Then pour any extra money you have after expenditures/tax advantaged savings every month into the loans. They’ll be gone in no timehightowerParticipantStatus: PhysicianPosts: 1448Joined: 12/07/2016
I would definitely want that gone asap. That’s a LOT of debt!
I agree, it is a lot but question is, is it better to pay directly to the loan financer or or use a taxable account to accumulate the balance and pay it off at once .July 2, 2019 at 4:53 pm MST #227302LordosisParticipantStatus: PhysicianPosts: 1209Joined: 02/11/2019
The math usually works out to invest rather then pay down debt but if you do what you are proposing then you will have to yank out several hundred thousand during your peak earning years. You might have to pay 23.8% tax on the earnings.
I would just pay the loans as much as you can after maxing your tax advantaged space. Then when she is done use her salary to finish off the loans and catch up on retirement.
“Never let your sense of morals prevent you from doing what is right.”July 2, 2019 at 5:22 pm MST #227318AnneParticipantStatus: PhysicianPosts: 1051Joined: 11/07/2017
My vote is to pay it directly. It is the certain route to success. Paying towards taxable with the hope of making better returns also carries the risk of worse returns and coming out behind. I’ve had a taxable account for 15 years and it has bounced all over the place. I haven’t cared because I have nothing I’m planning on using it for anytime soon but you will likely be playing student loans vs taxable in your head on a regular basis if you use a taxable acct to accumulate the balance. You may be watching your student loans make minimal progress while your taxable goes on a roller coaster. That might be too much to handle, especially when you’re talking that amount of debt. You put it in taxable and when your taxable account balance starts to tank you have a greater chance of freaking out and making poor decisions. Add to that the capital gains and NIIT (thanks, G!) that you will pay when you eventually take the wad out of taxable makes the potential differential less than you think even if you do come out ahead. Just a random person’s on the internet’s advice, obviously the risk is yours to take if you want to.July 2, 2019 at 5:27 pm MST #227322jhwkr542ParticipantStatus: PhysicianPosts: 1210Joined: 02/15/2016
Loans win in this case and it’s not even close. Would you take out a personal loan at 5.8% to invest?DicastParticipantStatus: PhysicianPosts: 411Joined: 01/09/2016
When we had a similar option we took the path to payoff loans with all extra funds. I assume you are maxing out your retirement accounts while paying down the loans?
Paying down debt is essentially a way to protect assets. No one can take your paid off student loans but they can take your taxable account.
5.8% on the loan is a tough one to argue that you are guaranteed to do better by investing. What if the market tanks and healthcare reimbursement drops?
I’d pay off the 5.8% with any extra funds and then move to the 4.4% after that. When we hit full attending we were making about 10k a month payments and it took care of the debt pretty fast, sounds like you should be able to do that.
Get outside of your bubble.July 2, 2019 at 8:56 pm MST #227366uteomfsParticipantStatus: DentistPosts: 11Joined: 05/30/2019
I recently paid mine off in total. From a pure financial perspective it probably makes most sense to put all extra money toward the loan and get rid of them. No doubt they are a burden and you will be relieved and proud when they are gone. However, I established a sizable emergency fund first and contributed to a brokerage fund (Total Stock Index, no FI). Once I had reached a number in the brokerage account I was happy with, I started to consider FI for my portfolio and it made no sense buying this Asset Class with rates greater than 3.5 on my Student Loans. At that time I put all extra money toward debt and paid it off fast.
The question I would ask is do you think you will get an after tax/fees etc annualized return greater than your highest student loan interest rate? If no, pay off the debt. Another way to put it, if you could buy a AAA rated, triple tax free bond at 5.4 would you buy it. I know I would, and a lot of it. Good LuckJuly 2, 2019 at 9:48 pm MST #227373fatlittlepigParticipantStatus: PhysicianPosts: 874Joined: 01/26/2017PedsFIREParticipantStatus: PhysicianPosts: 4Joined: 06/11/2019
Pretty sure if there was a low risk, but guaranteed 5% return investment, alot of people would be pouring their money into it. That’s basically what you get for paying down your loans directly.
Keep it simple: max out tax-advantaged accounts, then keep chipping away at the loans.Faithful StewardParticipantStatus: Financial Advisor, Small Business OwnerPosts: 428Joined: 06/12/2017
By paying directly to the lender, you avoid two potential problems:
- There is no guarantee that, over such a short time horizon, you will earn a better return than the interest rate on your debt.
- If you do the side-fund and go to pay the loan off all at once, you might find yourself paying quite a bit in capital gains taxes.
Michael Peterson, CFP® | Faithful Steward Wealth Advisors
https://ProsperousPhysician.com | (717) 496-0900wawot1ParticipantStatus: PhysicianPosts: 53Joined: 10/05/2017
Another vote for refinancing your loans to the lowest rate you can get and paying them off without getting tangled up in the stock market. Especially if it’s a high priority for you to pay off those loans within a few years.
Stock market performance is very volatile in the short term, which you should only care about if you need to cash out in the short term. Between 9/21/2018-12/21/2018, S & P lost more than 15% of its value. What would you have done if you’d invested your short term loan payoff money in an S & P index fund and had planned to cash out and pay off your loans in fall of 2018?
I’d take a guaranteed 5% return (by just paying off your loans), rather than worrying about the day-to-day ups and downs on Wall Street.July 3, 2019 at 4:25 pm MST #227603