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I am writing this forum post in hopes of getting help with my financial question.
I am a recent graduate of dental school (30 years old) and have a total student loan debt of about $120,000.00 (US) at a fixed interest rate of 3.7% and have about 28 more years left to pay off the loan. I am making my monthly payments (about half of that is interest and half is principal at the moment, though as payments continue, there will be less interest needing to be paid).
As for my question: While I make money, should I look to put it away in a savings account, low risk mutual fund or stock, in a tax-free Bond or CD, etc? Or should I forget about saving money and focus 100% of my money to paying off more and more of the principal of my student loan?

Any financial information you could offer me would be a great help -- thank you in advance for anything you can offer!!


I am working now (self employed) as a dentist. I have just started working so my income isn't clear as of yet. I am assuming to earn about $30,000 over these next 6+ months of the 2012 year (before taxes and before any write-offs, but after business expenses). I have a car payment (buying my car) at an interest rate of 2.49% fixed and that is my only other loan outside of the student loan. My monthy expenses (apartment rent, utilities, student loans, gas, food, etc) are about $3,750 and if I earn $30,000 in 6 months, that would be about $5,000 per month. Savings account and stocks/bonds/etc total about $35,000 (most of that, nearly 85%, is actual cash in my bank account) -- I have put nothing into my retirement yet as I am just starting work on my own this year and have been in school until now with only small jobs before this one. My credit score, when I last checked in February is 803.

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Or if his commute is less than 5 miles each way then just about any car can get him home and back... 3K can prolly get ... (more)

trekwars2000 (May. 14, 2012 @ 9:54p) |

OP's student loans are fixed at 3.7% for the next 28 years, not high-rate credit card debt.

Glitch99 (May. 14, 2012 @ 10:04p) |

I don't know this to be true (though I can ask), if I have a payment (example) of $200 and I pay $1,000 -- then $200 goe... (more)

chasewoodland (May. 16, 2012 @ 2:18p) |

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You're going to get red for this, FYI. Because you didn't provide us with enough information. Standard information that you should have given us:

1. Do you have a job
1a. If so, how secure is it
1b. If so, what retirement plan options are available
2. What is your HHI (household income)
3. What are your monthly expenses
4. Do you have any other debt
5. Do you have any savings at all
5b. If yes, how much in cash and how much in retirement accounts
6. How is your credit

Probably some others. Anyway, answer those questions and we can give you an answer. In general my advice is to obviously pay your bills first, contribute to any matched retirement account to the extent of the match, put some aside for an e-fund (possibly in a Roth IRA if you qualify). After all of that, if you have leftover income you can pay off your student loans.

Also, you have a good interest rate on your student loans, so if you CC or other debt that is higher interest, pay that off first.

I'd do this -- pay double or tripple the normal amount -- it should advance your next payment due date by that number of months. Then if interest rates rise, stop making payments until your next bill is due. This also gives you flexibility if your expenses or income changes unexpectedly.

JTausTX said:   You're going to get red for this, FYI. Because you didn't provide us with enough information. Standard information that you should have given us:

1. Do you have a job
1a. If so, how secure is it
1b. If so, what retirement plan options are available
2. What is your HHI (household income)
3. What are your monthly expenses
4. Do you have any other debt
5. Do you have any savings at all
5b. If yes, how much in cash and how much in retirement accounts
6. How is your credit

Probably some others. Anyway, answer those questions and we can give you an answer. In general my advice is to obviously pay your bills first, contribute to any matched retirement account to the extent of the match, put some aside for an e-fund (possibly in a Roth IRA if you qualify). After all of that, if you have leftover income you can pay off your student loans.

Also, you have a good interest rate on your student loans, so if you CC or other debt that is higher interest, pay that off first.


Sorry for making this mistake -- I did "edit" my top post and answer these questions....I am new but also very interested in learning about finances and economics, so if I left anything out or didnt answer questions correctly, please just ask or explain and I would be happy to offer more info. Thank you!!!

lonestarguy said:   I'd do this -- pay double or tripple the normal amount -- it should advance your next payment due date by that number of months. Then if interest rates rise, stop making payments until your next bill is due. This also gives you flexibility if your expenses or income changes unexpectedly.

So I should pay off my student loan at a faster rate until the savings account interest rates that banks offer increases to above 3.7% (as I am paying with student loans)??? What about Bonds/CDs --- interest rates can be found over 3.7% on some of those, correct? Or should I only focus on the rise of bank interest rates?
Thanks!

If your income for the next 6 months ends up being $30k that works out to a $60k annual income... and it sounds like you are self employed meaning you will have to pay all of the social security tax. You are saying expenses are $3700 a month... and you are bringing in $5000 before taxes. My strong suspicion is taxes will make you cash flow negative.

So my answer would be you should be paying the minimums on everything to preserve your cash balance and work to find a new/better paying work.

LordB said:   If your income for the next 6 months ends up being $30k that works out to a $60k annual income... and it sounds like you are self employed meaning you will have to pay all of the social security tax. You are saying expenses are $3700 a month... and you are bringing in $5000 before taxes. My strong suspicion is taxes will make you cash flow negative.

So my answer would be you should be paying the minimums on everything to preserve your cash balance and work to find a new/better paying work.


Yes, there is a chance of that, though that is just the first 6 months of opening my own practice...I would assume in 2013 that my income will be higher than 60K. You make a fair point though, even though I may not pay much in taxes after all my business write-offs (which are high since I had to purchas many items for opening the new practice), I still need to pay other items such as S.S. tax -- something I didnt take into account.

chasewoodland said:   
I am working now (self employed) as a dentist. I have just started working so my income isn't clear as of yet. I am assuming to earn about $30,000 over these next 6+ months of the 2012 year (before taxes and before any write-offs, but after business expenses). I have a car payment (buying my car) at an interest rate of 2.49% fixed and that is my only other loan outside of the student loan. My monthy expenses (apartment rent, utilities, student loans, gas, food, etc) are about $3,750 and if I earn $30,000 in 6 months, that would be about $5,000 per month. Savings account and stocks/bonds/etc total about $35,000 (most of that, nearly 85%, is actual cash in my bank account) -- I have put nothing into my retirement yet as I am just starting work on my own this year and have been in school until now with only small jobs before this one. My credit score, when I last checked in February is 803.


Thanks for the update.

I think you are overestimating your income, first off. If you make $30,000 in 6 months, yes that's $5000/mth gross, but you will owe federal and possibly state income tax (depending on state obviously), Social Security (I believe that you must pay the full 10-12% or whatever as you are self-employed), and Medicare. I'm not a tax expert so I don't have any idea exactly what you'll need to put aside, but it will definitely be something. Consult a CPA and/or tax attorney in your state. Here's an online calculator that says you'll pay about $4200 in Medicare and Social Security and leave you with $27,000 or so as taxable income.

To the rest: You have something like $30,000 in cash. Good. Keep this in a very low-risk place, such as a standard savings account (see this thread for more information). Alliant Credit Union is a good option, but really wherever you feel comfortable. This is your emergency fund. You will be able to open a Roth IRA this year, and I would recommend doing it. Vanguard is a good option. You can pull money from your e-fund to do this only if you put the money in appropriately safe investments, like a money market account or very short-term bond fund. The idea here is that you can use the Roth as a fall-back emergency fund until you have enough net worth to not use it as such, and when that happens you won't have lost the tax-advantaged space.

Since your car loan is a lower interest rate, pay the student loans off before you throw any extra money at the loan, unless you just need the extra room in your cashflow and can afford it.

It sounds like your expenses are high relative to your income. Consider lowering expenses in any way you can. Are you married? If so, does your wife have any income?

How much do you owe on your car and what is it worth? Seems kinds silly to have a car loan when you are a house in debt (120K) and only taking home like $3500 per month. I'd address this issue before I decide what to do with the student loan.

JTausTX said:   chasewoodland said:   
I am working now (self employed) as a dentist. I have just started working so my income isn't clear as of yet. I am assuming to earn about $30,000 over these next 6+ months of the 2012 year (before taxes and before any write-offs, but after business expenses). I have a car payment (buying my car) at an interest rate of 2.49% fixed and that is my only other loan outside of the student loan. My monthy expenses (apartment rent, utilities, student loans, gas, food, etc) are about $3,750 and if I earn $30,000 in 6 months, that would be about $5,000 per month. Savings account and stocks/bonds/etc total about $35,000 (most of that, nearly 85%, is actual cash in my bank account) -- I have put nothing into my retirement yet as I am just starting work on my own this year and have been in school until now with only small jobs before this one. My credit score, when I last checked in February is 803.


Thanks for the update.

I think you are overestimating your income, first off. If you make $30,000 in 6 months, yes that's $5000/mth gross, but you will owe federal and possibly state income tax (depending on state obviously), Social Security (I believe that you must pay the full 10-12% or whatever as you are self-employed), and Medicare. I'm not a tax expert so I don't have any idea exactly what you'll need to put aside, but it will definitely be something. Consult a CPA and/or tax attorney in your state. Here's an online calculator that says you'll pay about $4200 in Medicare and Social Security and leave you with $27,000 or so as taxable income.

To the rest: You have something like $30,000 in cash. Good. Keep this in a very low-risk place, such as a standard savings account (see this thread for more information). Alliant Credit Union is a good option, but really wherever you feel comfortable. This is your emergency fund. You will be able to open a Roth IRA this year, and I would recommend doing it. Vanguard is a good option. You can pull money from your e-fund to do this only if you put the money in appropriately safe investments, like a money market account or very short-term bond fund. The idea here is that you can use the Roth as a fall-back emergency fund until you have enough net worth to not use it as such, and when that happens you won't have lost the tax-advantaged space.

Since your car loan is a lower interest rate, pay the student loans off before you throw any extra money at the loan, unless you just need the extra room in your cashflow and can afford it.

It sounds like your expenses are high relative to your income. Consider lowering expenses in any way you can. Are you married? If so, does your wife have any income?


Yes, a good point about paying S.S, Medicare, Etc -- I didn't factor that in and need to...though since this is my first year opening my own business -- I will have many expenses and should be able to write off a large chunk of other taxes -- clearly still paying some, so yes i need to lower my estimated monthly income. The expenses are high in relation to income because I am starting a business for the first time and the upfront costs plus advertizing are going to take a huge cut into the business itself, but as time passes, the income should increase while other expenses will stay the same. And lowering expenses is a good idea---something I will surely look into doing. Not married as of yet, but that will be happening in the next couple years -- yes she does have income and less expenses (though she has 0 in savings). Her income will help though as some expenses will be joined (ie: where we live, water bill, television, etc), but that isn't happening as of now.

trekwars2000 said:   How much do you owe on your car and what is it worth? Seems kinds silly to have a car loan when you are a house in debt (120K) and only taking home like $3500 per month. I'd address this issue before I decide what to do with the student loan.


Kelly Blue Book has the value of my car at about $3,000 higher than the purchase of the car (though, doubtful a dealer would pay the exact KBB value). And I wanted to buy the car so that in a couple years it will be paid off and I wont need to have montly lease paymetns -- was that a bad idea?

Your income is still too uncertain to "invest" alot into paying down your loans aggressively. An important factor for any new small business is cashflow, and you need enough cash on hand to cover any shortages month to month (or even week to week). Once you've paid extra towards your loan, you can never "redraw" that payment and get the money back should you need to. And the business's cashflow doesnt just have to be self-sufficient, it has to cover all your personal expenses as well.

On the bright side though, I'd assume that a bulk of your customers visit you regularly every six months? So after you get through this year, and start seeing the repeat visitors, you can start calculating a more reasonable ballpark of what your ongoing income is going to be. At that point, determine how much of your income you can afford to allocate towards extra loan payments. But as of now you are working purely off of speculation, so its hard to commit to anything.

Very simple question...... very simple answer.

Pay off the debt as fast as you can. Don't keep it around so long that you think it's a pet.

You will be very "well off" very easily if you do it without having any debt.

Wouldn't it be great if 100% of your paycheck goes to you and not those you owe money to? That's how I have always lived my life and let me say it has worked extremely well.

Earning $30K per year is a total waste. You have gone to school to get your degree. Do something with it, or at least get a 2nd job and make $60K year and pay off that loan in the next 4 years!

jimmywalt said:   Very simple question...... very simple answer.

Pay off the debt as fast as you can. Don't keep it around so long that you think it's a pet.

You will be very "well off" very easily if you do it without having any debt.

Wouldn't it be great if 100% of your paycheck goes to you and not those you owe money to? That's how I have always lived my life and let me say it has worked extremely well.

Earning $30K per year is a total waste. You have gone to school to get your degree. Do something with it, or at least get a 2nd job and make $60K year and pay off that loan in the next 4 years!


Did you read what he wrote?

Ahh I didn't realize you were starting a whole business... if you were making that money working for someone else that would be a big issue. Presumably if your business does well then this first year or 2 of income will be made up. Anyways as others said preserve your cash at least until the business is successful. Only reason for paying all savings into loans would be if business was failing and you needed to get rid of assets to declare bankruptcy and the student loans would be a good place to dump the money into giving they are non-dischargeable.

As a note even if you are fully successful and making enough to pay off the loans I would seriously consider keeping paying the minimum on those loans unless their interest rate goes up. You are not going to be able to borrow at those rates if you want to expand your business or do anything similar other than maybe buy a house.

jimmywalt said:   Very simple question...... very simple answer.

Pay off the debt as fast as you can. Don't keep it around so long that you think it's a pet.

You will be very "well off" very easily if you do it without having any debt.

Wouldn't it be great if 100% of your paycheck goes to you and not those you owe money to? That's how I have always lived my life and let me say it has worked extremely well.

Earning $30K per year is a total waste. You have gone to school to get your degree. Do something with it, or at least get a 2nd job and make $60K year and pay off that loan in the next 4 years!
He expects to earn $30k for the remainder of this year (roughly 6 months) from his brand new dental practice, not $30k per year from a job. And he wont be "very well off very easily" if he has no student loans but also doesnt have the cash to pay the business's bills.

LordB brings up another good point - it may seem like a waste right now, but having long-term debt locked in at 3.7% could be very advantageous in the near future.

chasewoodland said:   JTausTX said:   chasewoodland said:   
I am working now (self employed) as a dentist. I have just started working so my income isn't clear as of yet. I am assuming to earn about $30,000 over these next 6+ months of the 2012 year (before taxes and before any write-offs, but after business expenses). I have a car payment (buying my car) at an interest rate of 2.49% fixed and that is my only other loan outside of the student loan. My monthy expenses (apartment rent, utilities, student loans, gas, food, etc) are about $3,750 and if I earn $30,000 in 6 months, that would be about $5,000 per month. Savings account and stocks/bonds/etc total about $35,000 (most of that, nearly 85%, is actual cash in my bank account) -- I have put nothing into my retirement yet as I am just starting work on my own this year and have been in school until now with only small jobs before this one. My credit score, when I last checked in February is 803.


Thanks for the update.

I think you are overestimating your income, first off. If you make $30,000 in 6 months, yes that's $5000/mth gross, but you will owe federal and possibly state income tax (depending on state obviously), Social Security (I believe that you must pay the full 10-12% or whatever as you are self-employed), and Medicare. I'm not a tax expert so I don't have any idea exactly what you'll need to put aside, but it will definitely be something. Consult a CPA and/or tax attorney in your state. Here's an online calculator that says you'll pay about $4200 in Medicare and Social Security and leave you with $27,000 or so as taxable income.

To the rest: You have something like $30,000 in cash. Good. Keep this in a very low-risk place, such as a standard savings account (see this thread for more information). Alliant Credit Union is a good option, but really wherever you feel comfortable. This is your emergency fund. You will be able to open a Roth IRA this year, and I would recommend doing it. Vanguard is a good option. You can pull money from your e-fund to do this only if you put the money in appropriately safe investments, like a money market account or very short-term bond fund. The idea here is that you can use the Roth as a fall-back emergency fund until you have enough net worth to not use it as such, and when that happens you won't have lost the tax-advantaged space.

Since your car loan is a lower interest rate, pay the student loans off before you throw any extra money at the loan, unless you just need the extra room in your cashflow and can afford it.

It sounds like your expenses are high relative to your income. Consider lowering expenses in any way you can. Are you married? If so, does your wife have any income?


Yes, a good point about paying S.S, Medicare, Etc -- I didn't factor that in and need to...though since this is my first year opening my own business -- I will have many expenses and should be able to write off a large chunk of other taxes -- clearly still paying some, so yes i need to lower my estimated monthly income. The expenses are high in relation to income because I am starting a business for the first time and the upfront costs plus advertizing are going to take a huge cut into the business itself, but as time passes, the income should increase while other expenses will stay the same. And lowering expenses is a good idea---something I will surely look into doing. Not married as of yet, but that will be happening in the next couple years -- yes she does have income and less expenses (though she has 0 in savings). Her income will help though as some expenses will be joined (ie: where we live, water bill, television, etc), but that isn't happening as of now.


Unfortunately AFAIK you cannot deduct expenses from SS and Medicare - those taxes are owed regardless. On the other hand, you will very likely have $0 in income tax liabilities. Of course a CPA could tell you much better than I.

I would pay the minimums for now, save money, and go to bogleheads.org and read, read, read.

You have options as self-employed that need to be considered (SEP-IRA, etc) and 3.7% fixed is not a horrible rate for now.

3.7 Fix rate is better than current 30yr house loan. I would pay minimums and set money aside to expand your business.
I think there are 2 type people, first type people believes money in future value and second type people believe money in current value.
Depends on age, experience and events, people make different decision, but overall decision base depends on what type person. If you are a disciplined saver, you should pay as much as you can to lower the debt. If you disciplined investor believe there is future value for your business, you should invest either to your business or IRA. Unfortunately, future is always seems really far to any body. I have to say being a disciplined investor is much harder than saver.

Glitch99 said:   
LordB brings up another good point - it may seem like a waste right now, but having long-term debt locked in at 3.7% could be very advantageous in the near future.


You have to be kidding!! All the debt that I have (or ever will have) is locked in at ZERO percent. (I.E. We don't have any).

You largest weath building tool is your income. If it just goes out to pay your creditors then you will never have any wealth.

Pay the minimums. Hoard cash. Re evaluate in 6 months. Hook up nitrous in car, street race for extra cash.

Is your student loan private or federal? Any co-signers?

Remember, federal student loans are dischargable at death. That means that your federal student loan doubles as a life insurance policy for its face value. It's better to pass away with $120,000 in assets and $120,000 in federal student loans then a $0 balance on both.

Don't get too concerned about the taxation situation, many of the folks on here don't run their own businesses and so aren't as quick on what your CPA will do. You'll likely (or already have) setup an LLC or professional corp/partnership of some type, and you'll pay yourself a 'reasonable salary'; it will be much less than the actual revenue of your business. You'll only pay SE taxes on the salary, and you'll only pay taxes on your salary + profit. With all the equipment investments you'll be well off(i.e. little profit on the books). Remember that equipment leasing will allow you to write off quite a bit, if you choose to go that route.

As someone else mentioned, as soon as it is possible, you setup a SEP and start dumping money there as well. I can't over-state the need for a competent CPA. You don't need a CPA who only "works for doctors" or anything like that, that just means they over-charge. Just get someone qualified who keeps up with their continuing ed requirements.

jimmywalt said:   Glitch99 said:   
LordB brings up another good point - it may seem like a waste right now, but having long-term debt locked in at 3.7% could be very advantageous in the near future.


You have to be kidding!! All the debt that I have (or ever will have) is locked in at ZERO percent. (I.E. We don't have any).

You largest weath building tool is your income. If it just goes out to pay your creditors then you will never have any wealth.

This is the attitude of someone who habitually overspends on wasteful things and cant grasp the concept of investing. Here at Fatwallet, we like to use debt to increase our income - yes, with the increased income being (sometimes significantly) more than the additional cost of the debt.

chasewoodland said:   
Yes, there is a chance of that, though that is just the first 6 months of opening my own practice...I would assume in 2013 that my income will be higher than 60K. You make a fair point though, even though I may not pay much in taxes after all my business write-offs (which are high since I had to purchas many items for opening the new practice), I still need to pay other items such as S.S. tax -- something I didnt take into account.


If you expect to have a profit of $30k in 2012, you probably don't want to 179 anything. $30k AGI would put you in the 15% marginal tax bracket, and you'll almost certainly be 25%+ going forward.

chasewoodland said:   trekwars2000 said:   How much do you owe on your car and what is it worth? Seems kinds silly to have a car loan when you are a house in debt (120K) and only taking home like $3500 per month. I'd address this issue before I decide what to do with the student loan.


Kelly Blue Book has the value of my car at about $3,000 higher than the purchase of the car (though, doubtful a dealer would pay the exact KBB value). And I wanted to buy the car so that in a couple years it will be paid off and I wont need to have montly lease paymetns -- was that a bad idea?


I just think a $3K car now would be better with 120K in debt. If you had a $3k car now you wouldn't have any payments now or in the future... What kind of car is it?

Glitch99 said:   Your income is still too uncertain to "invest" alot into paying down your loans aggressively. An important factor for any new small business is cashflow, and you need enough cash on hand to cover any shortages month to month (or even week to week). Once you've paid extra towards your loan, you can never "redraw" that payment and get the money back should you need to. And the business's cashflow doesnt just have to be self-sufficient, it has to cover all your personal expenses as well.

On the bright side though, I'd assume that a bulk of your customers visit you regularly every six months? So after you get through this year, and start seeing the repeat visitors, you can start calculating a more reasonable ballpark of what your ongoing income is going to be. At that point, determine how much of your income you can afford to allocate towards extra loan payments. But as of now you are working purely off of speculation, so its hard to commit to anything.


I'd agree with Glitch99 here. The first year of a new business is tough, and you need to conserve cash. If your receivables dry up in 6 months, you'll be happy you did. Also, are you including late payments, collections, and bad debt when you are calculating income? The positive, as Glitch99 said, is that if your patients have a good experience, they'll be back every 6 months. Think of it as a semi-annuity.

As I mentioned in another thread, a dentist friend of mine, who is near retirement, calculated that he needed one big procedure a week to make his target income. It's likely you'll need more because your business is new, you have massive loans, and you just incurred a lot of capital costs. Just don't salivate at PPO patients and bill their insurance for fake procedures like a young dentist did to me.

Good luck and congrats on starting your new practice!

trekwars2000 said:   chasewoodland said:   trekwars2000 said:   How much do you owe on your car and what is it worth? Seems kinds silly to have a car loan when you are a house in debt (120K) and only taking home like $3500 per month. I'd address this issue before I decide what to do with the student loan.


Kelly Blue Book has the value of my car at about $3,000 higher than the purchase of the car (though, doubtful a dealer would pay the exact KBB value). And I wanted to buy the car so that in a couple years it will be paid off and I wont need to have montly lease paymetns -- was that a bad idea?


I just think a $3K car now would be better with 120K in debt. If you had a $3k car now you wouldn't have any payments now or in the future... What kind of car is it?



Some people can successfully buy a $3000 car with minimal problems. Most can't. For most people anything they can get for $3000 is going to cause more trouble than it's worth. He needs something reliable that gets him to work without issues. He didn't describe the details of his car, but I get the impression he did get got a fairly new used car. He can keep his current car for a long time and focus on his business.

or ...


He could sell his car and buy a Crown Vic.

What makes you sleep peacefully and get up in the morning with full confidence to face the day? A loan outstanding with bank balance or a loan cleared with a little but growing bank balance? Ask this question to yourself in silence, follow the answer you hear inside. I asked a similar question to myself, I got the answer to clear the loan but this is for me. You have to find your answer within your self.

koteswar said:   What makes you sleep peacefully and get up in the morning with full confidence to face the day? A loan outstanding with bank balance or a loan cleared with a little but growing bank balance? Ask this question to yourself in silence, follow the answer you hear inside. I asked a similar question to myself, I got the answer to clear the loan but this is for me. You have to find your answer within your self.A paid off student loan cant be used to pay his dental practice's electric bill. He needs to make sound decisions that ensure his new business remains solvant, it's a completely different than when you're merely trying to appropriate your paycheck.

chasewoodland said:   lonestarguy said:   I'd do this -- pay double or tripple the normal amount -- it should advance your next payment due date by that number of months. Then if interest rates rise, stop making payments until your next bill is due. This also gives you flexibility if your expenses or income changes unexpectedly.

So I should pay off my student loan at a faster rate until the savings account interest rates that banks offer increases to above 3.7% (as I am paying with student loans)??? What about Bonds/CDs --- interest rates can be found over 3.7% on some of those, correct? Or should I only focus on the rise of bank interest rates?
Thanks!


Yes, you can do that. The key is that most student loans are "simple interest" loans. If you pay 5 payments when you have a due date of 6/1/12, you won't owe a payment next until 11/1/2012 for example. You can also make one payment every 2 or 3 weeks instead of every month and get ahead gradually. This lowers the total interest you are paying, and acts as a buffer in case of job loss. Call your lender and see how they apply extra whole payments. I have a Home Equity Loan that I made so many extra payments on that I don't owe one until October of 2016 -- thats over 4 years where I don't have to make a HEL payment. Makes me worry less about job loss in this terrible economy. One downside to paying this loan off early is losing the tax deduction for it -- but that may phase out depending on your income. Even though I am far ahead on my loans, I still save at least 20% each month in 401K and other retirement accounts, plus am investing a little in brokerages -- balance is the key.

Having money in a savings account offers you security, but it's difficult to know whether it's better to have money in that account or to use it to pay off debts. With high interest rates on credit debt and low interest rates on savings accounts, the answer may seem like simple math -- paying off your debt is the smarter choice.

StartByServingOthers said:   trekwars2000 said:   chasewoodland said:   trekwars2000 said:   How much do you owe on your car and what is it worth? Seems kinds silly to have a car loan when you are a house in debt (120K) and only taking home like $3500 per month. I'd address this issue before I decide what to do with the student loan.


Kelly Blue Book has the value of my car at about $3,000 higher than the purchase of the car (though, doubtful a dealer would pay the exact KBB value). And I wanted to buy the car so that in a couple years it will be paid off and I wont need to have montly lease paymetns -- was that a bad idea?


I just think a $3K car now would be better with 120K in debt. If you had a $3k car now you wouldn't have any payments now or in the future... What kind of car is it?



Some people can successfully buy a $3000 car with minimal problems. Most can't. For most people anything they can get for $3000 is going to cause more trouble than it's worth. He needs something reliable that gets him to work without issues. He didn't describe the details of his car, but I get the impression he did get got a fairly new used car. He can keep his current car for a long time and focus on his business.

or ...


He could sell his car and buy a Crown Vic.


Or if his commute is less than 5 miles each way then just about any car can get him home and back... 3K can prolly get an 2004 Ford Taurus with around 100K miles. With a short commute it shouldn't be much of an issue.

But without knowing what car the O/P has I assume he is driving a doctors car without having a doctors paycheck. The O/P has debt the amount of a house mortgage... The OP said, his monthly bills are $3750 on apartment rent, utilities, student loans, gas, food, etc... Without knowing where the O/P lives I can only assume the car payment is a significant amount of that... The last thing the O/P needs to be doing is throwing money away on a luxury car.

SebastianBermudes said:   Having money in a savings account offers you security, but it's difficult to know whether it's better to have money in that account or to use it to pay off debts. With high interest rates on credit debt and low interest rates on savings accounts, the answer may seem like simple math -- paying off your debt is the smarter choice.OP's student loans are fixed at 3.7% for the next 28 years, not high-rate credit card debt.

lonestarguy said:   The key is that most student loans are "simple interest" loans. If you pay 5 payments when you have a due date of 6/1/12, you won't owe a payment next until 11/1/2012 for example.

I don't know this to be true (though I can ask), if I have a payment (example) of $200 and I pay $1,000 -- then $200 goes to my payment due May 1st and $800 goes to the principal.

does that change your suggestions if this is true?



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