Pay off student loans or save money?

Guest 0.10 Dollars($)

I've graduated in college last year December. And, started paying off my student loans in February. I didn't consolidate though. The interest rate on the $25000 loan is 7.5% . I'm paying about $165 a month. I'm currently making $40000 annually and have no credit card debts yet. There are no car payments too. But I have maxed out my IRA for 2007. I do have a 401k with employer contribution. I believe ein frugal living so don't spend much on dai;ly items.i know if I can continue to pay the student loans, I will be able to deduct interest from my taxes. But I need to save also. So should I pay off student loans asap and get out of it or pay the minimum while deducting taxes for the nest 10-12 years and save the rest?

larry · Joined: 27 Jun 2007 Posts: 2951 411.26 Dollars($)

Hi Dorian,

Welcome to the forum.

I think it is better to pay off the higher interest debt first. So as the interest rate of your student loan is higher you should better pay it off as soon as possible. If you want to save money without pay the loan you will ultimately pay more as interest of the loan.

Best of luck,
Larry

Niicss · Joined: 03 Oct 2005 Posts: 807 118.37 Dollars($)

Welcome Dorian,

Why don't you consolidate your student loan at a lower interest rate. I feel it is better to consolidate the loan and invest the money on something else that will give you more return.

At least you have done very good thing that you got a 401k plan.

laphillips

I consolidated my student loans so I got a much lower interest rate that way thus lowering the payments. Also, check into the many deferments available - you may be able to put off repayment until you've saved up some money and why not even doctors and lawyers use these as a financial planning tool.

chloejoanna · Joined: 20 May 2008 Posts: 35 15.06 Dollars($)

sounds to me like your better off getting the loan paid off while you can afford to do so then you can continue to put the equivalent of your payments to one side as savings as you will be used to this coming out of your budget.

jbarto65 · Joined: 04 Nov 2007 Posts: 592 5.03 Dollars($)

You would be much better off combining your student loans and getting rid of them, then you would have just the one payment to make and at a lower rate, you could pay the same amount of money and get a lot more taken off of your loan and get it paid off a lot faster. Just makes sense huh, I am getting the feeling that the group all feels about the same on this one.

erb1953 · Joined: 24 May 2008 Posts: 78 0.02 Dollars($)

I agree with everyone else here, I think that you should consolidate the student loans and get a better rate on them. By the way congrats on the job and staying credit card free. It is tough to live so frugally, I admire your discipline, it will pay off in the long run.

How much are you putting into your 401K? That is a very wise investment also. Seems like all in all you have it pretty well together, you just need to figure out what to do with these student loans. You seem like a smart cookie and you will make the right decision.

jbarto65 · Joined: 04 Nov 2007 Posts: 592 5.03 Dollars($)

good choice, get rid of the debt that you have now or borrow enough to pay them off too.

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