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Should I pay off loans or invest into 401k Plan?

Posted on: 13th Feb, 2008 04:53 am
I have student loans worth $35000 at 6.5% and $16000 in private loans with an interest rate of 9%. My wife will return to school and that will add around $30,000 to my school loans; she will be out of school in the next 2 years and she can expect a salary worth $35000. So, when I add up the debts, it comes to around $ 81000 which right now scares me a lot. I don't know if I have been making mistake that might cost me in the long run. But that's how things are right now. So, should I pay the minimum and invest somewhere or do I concentrate of the loans first and then when I'm over with them, will that be the time for investments? I don't know how much I can make in a 401k plan? Neither do I have to pay for the car nor do I have my own house.
Hi Albert,

Welcome to the forum.

You have taken the loans and it is your duty to pay off the loans. So I think you should first try to pay off the loans and then if possible think about taking another mortgage.

I think it will be better if you think about taking the loan when you will also be able to support you as you have mentioned above "she can expect a salary worth $35000."

Best of luck,
Larry
Posted on: 13th Feb, 2008 01:37 pm
My first advice would be to check into a better interest rate for the student loans. I think that 6.5% is extremely high for student loans. My wife's loans are around $9,000 and a fixed 3% rate.

If the company you work for has a 401k plan that matches your investments I would suggest at least putting some money into the account even if it's $10 per week. It's hard to pay catch-up in the retirement game. Make sure you understand 100% about what you are investing in before you spend the first dollar.

I agree with larry that it's your obligation to pay back the loans and it should be a priority, but I also think that your future is important as well. Concentrate on the debt obligation, but at least put a small amount toward your retirement.

If you could pay off all your debt in 12-18 months I would say concentrate completely on the debt, but it sounds like you will be a few years paying down the debt.

Good Luck!
Posted on: 18th Feb, 2008 07:48 pm
thanks larry and dcrum for your suggestions.

"My first advice would be to check into a better interest rate for the student loans"

So, decrum, do you suggest that i switch over to some other student loan? I don't quite understand your point here.

i can try for the 401k but what if i need to change the job at some level? can i transfer this account somewhere else?
Posted on: 19th Feb, 2008 03:31 am
yes, you can refinance your student loans to another company or maybe even negotiate with your current loan provider. i'm not sure about credit rating, etc. but that interest rate just seems very high for student loans.

yes, you can always roll your 401k earnings into another retirement account, such as an ira, if you change jobs. most 401k programs offer some type of match program and if that's the case you need to start putting a little into the account to take advantage of the match. it's basically free money.

hope that helps.
Posted on: 19th Feb, 2008 08:32 am
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