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Paying off your debt early also builds really good financial habits which will help in the future. You learn to live below your means, make a budget, etc

by tswartz 10y ago

ceejayoz 10y ago
If they're Federal loans with a often below-inflation interest rate, the actual good financial habit is often to not pay it off, and instead amass a) an emergency fund and b) sock the rest into retirement via an index fund or something similar.
- magicalist 10y ago
  As others point out, it's really unusual to have federal loans as low as 2.5% (as you mention below). Most are considerably more. Are you sure that's a federal loan? It's also worth noting that 2.5% is still higher than inflation in the last couple years.
- tswartz 10y ago
  That ignores risk and also financial burden. If you owe $2k every month to NelNet or another institution, it's much harder emotionally and financially to quit your job to travel the world or start your own company. We had Federal Loans and the interest rate was still 6.5%
  - ceejayoz 10y ago
    > That ignores risk and also financial burden. Not having an emergency fund is about the riskiest thing you can do. > If you owe $2k every month to NelNet or another institution, it's much harder emotionally and financially to quit your job to travel the world or start your own company. The emergency fund helps with that. When built up, it should cover 6-12 months of zero income. Amassing it first means losing a job doesn't mean deferring payments on the student loans and winding up with years more payments to make as a result. > We had Federal Loans and the interest rate was still 6.5% One of my wife's student loans is at 2.5%. At 6.5%, it's not below inflation and paying it off makes more sense.
    - tswartz 10y ago
      We took a slightly different approach. Have a 3 month emergency fund, then pay every extra dollar towards the student loan. Paid it off in 3.5 years instead of the 20year plan NelNet wanted. Now we are building out a 6-12month emergency fund and putting money into retirement. Maybe in the short term we are behind in retirement saving, but now we have a lot more cash every month to put into savings and investing. I would still recommend this approach because it emotionally feels wonderful to pay that last f*ing payment :) But sometime emotions get in the way of financial strategy.
  - douche 10y ago
    > it's much harder emotionally and financially to quit your job to travel the world or start your own company Sorry, I have to laugh. This is the most HN thing I've read today. It's a tremendous privilege to have the option of quitting your job to travel the world, rather than the fear of being arbitrarily laid off, and failing to put food on the table or lose your house. My redneck might be sticking out this morning, though.
    - talmand 10y ago
      I didn't have student loans, have always had decent paying steady work (except for that time around 9/11), and have never felt financially secured enough to quit a job to travel the world. I have moved around the country for work quite a bit, so I do feel fairly well-traveled. At least in the continental US.
      - eatbitseveryday 10y ago
        > well-traveled At least colloquially, this term signifies one has been to other countries (or better, other continents) and visited other cultures, immersed in other languages, other governments, other ways of eating, etc. One who stays within a country would not (in my opinion) be "well-traveled", despite the country being enormous. My 2cents.
        ceejayoz 10y ago
        The US is about the same geographic size as all of Europe and includes many cultures, languages, styles of government, and foods. Hell, just wandering around different parts of NYC ticks your boxes.
        talmand 10y ago
        I believe that definition has a bit of an elitist attitude about it. I don't know you, so I can't say it is your definition, but I have seen it before. I believe it is a totally unfair definition for most people. I define well-traveled as someone who has traveled a significant distance based on their circumstances in life. By your definition a large portion of the people living in the EU are well-traveled just living their normal lives. Which is a far easier thing to accomplish than someone in the US. I have driven from Orlando FL to Las Vegas NV, a distance of around 2300 miles or so, twice. How many countries does that cover for that range in the EU? I have visited many locations around both cities and in-between. I have lived in four states in different areas of the country, each with their varying cultures. I can tell you for a fact that the Southeast and Southwest US do have different cultures, even though they both sort of speak the same language. Walking through downtown Los Angeles after growing up in small town Alabama is visiting a different culture. Just my 2 cents.
- imsofuture 10y ago
  Most federal loans are at like 6.5% or something silly.
- r_smart 10y ago
  Below inflation interest rates are long gone. I'm sitting at around 6.5% for most of my debt. And that's after refinancing.
  - ceejayoz 10y ago
    https://studentaid.ed.gov/sa/types/loans/interest-rates https://studentaid.ed.gov/sa/types/loans/interest-rates indicates direct undergrad loans are currently at 3.76%. At that rate, you're best off paying as slowly as possible and putting the rest of the money into an index fund.
    - r_smart 10y ago
      Perhaps it shifted a lot in the last few years. I went back to school to get an EE degree, and it's mostly pretty high interest. Sadly I was pretty financially ignorant until maybe my senior year of my second degree. Plus since I was older, and already had a degree, the amount of money available goes down a lot. I don't know how much that effected my interest rates (though my private education loans were at 10% if you can believe it).
- r_smart 10y ago
  Below inflation interest rates are long gone. I'm sitting at around 6.5% for most of my debt. And that's after refinancing.

Paying off your debt early also builds really good financial habits which will help in the future. You learn to live below your means, make a budget, etc

by tswartz 10y ago

Paying off your debt early also builds really good financial habits which will help in the future. You learn to live below your means, make a budget, etc

ceejayoz 10y ago

If they're Federal loans with a often below-inflation interest rate, the actual good financial habit is often to not pay it off, and instead amass a) an emergency fund and b) sock the rest into retirement via an index fund or something similar.

magicalist 10y ago
As others point out, it's really unusual to have federal loans as low as 2.5% (as you mention below). Most are considerably more. Are you sure that's a federal loan? It's also worth noting that 2.5% is still higher than inflation in the last couple years.
tswartz 10y ago
That ignores risk and also financial burden. If you owe $2k every month to NelNet or another institution, it's much harder emotionally and financially to quit your job to travel the world or start your own company. We had Federal Loans and the interest rate was still 6.5%
- ceejayoz 10y ago
  > That ignores risk and also financial burden. Not having an emergency fund is about the riskiest thing you can do. > If you owe $2k every month to NelNet or another institution, it's much harder emotionally and financially to quit your job to travel the world or start your own company. The emergency fund helps with that. When built up, it should cover 6-12 months of zero income. Amassing it first means losing a job doesn't mean deferring payments on the student loans and winding up with years more payments to make as a result. > We had Federal Loans and the interest rate was still 6.5% One of my wife's student loans is at 2.5%. At 6.5%, it's not below inflation and paying it off makes more sense.
  - tswartz 10y ago
    We took a slightly different approach. Have a 3 month emergency fund, then pay every extra dollar towards the student loan. Paid it off in 3.5 years instead of the 20year plan NelNet wanted. Now we are building out a 6-12month emergency fund and putting money into retirement. Maybe in the short term we are behind in retirement saving, but now we have a lot more cash every month to put into savings and investing. I would still recommend this approach because it emotionally feels wonderful to pay that last f*ing payment :) But sometime emotions get in the way of financial strategy.
- douche 10y ago
  > it's much harder emotionally and financially to quit your job to travel the world or start your own company Sorry, I have to laugh. This is the most HN thing I've read today. It's a tremendous privilege to have the option of quitting your job to travel the world, rather than the fear of being arbitrarily laid off, and failing to put food on the table or lose your house. My redneck might be sticking out this morning, though.
  - talmand 10y ago
    I didn't have student loans, have always had decent paying steady work (except for that time around 9/11), and have never felt financially secured enough to quit a job to travel the world. I have moved around the country for work quite a bit, so I do feel fairly well-traveled. At least in the continental US.
    - eatbitseveryday 10y ago
      > well-traveled At least colloquially, this term signifies one has been to other countries (or better, other continents) and visited other cultures, immersed in other languages, other governments, other ways of eating, etc. One who stays within a country would not (in my opinion) be "well-traveled", despite the country being enormous. My 2cents.
      - ceejayoz 10y ago
        The US is about the same geographic size as all of Europe and includes many cultures, languages, styles of government, and foods. Hell, just wandering around different parts of NYC ticks your boxes.
      - talmand 10y ago
        I believe that definition has a bit of an elitist attitude about it. I don't know you, so I can't say it is your definition, but I have seen it before. I believe it is a totally unfair definition for most people. I define well-traveled as someone who has traveled a significant distance based on their circumstances in life. By your definition a large portion of the people living in the EU are well-traveled just living their normal lives. Which is a far easier thing to accomplish than someone in the US. I have driven from Orlando FL to Las Vegas NV, a distance of around 2300 miles or so, twice. How many countries does that cover for that range in the EU? I have visited many locations around both cities and in-between. I have lived in four states in different areas of the country, each with their varying cultures. I can tell you for a fact that the Southeast and Southwest US do have different cultures, even though they both sort of speak the same language. Walking through downtown Los Angeles after growing up in small town Alabama is visiting a different culture. Just my 2 cents.
imsofuture 10y ago
Most federal loans are at like 6.5% or something silly.
r_smart 10y ago
Below inflation interest rates are long gone. I'm sitting at around 6.5% for most of my debt. And that's after refinancing.
- ceejayoz 10y ago
  https://studentaid.ed.gov/sa/types/loans/interest-rates https://studentaid.ed.gov/sa/types/loans/interest-rates indicates direct undergrad loans are currently at 3.76%. At that rate, you're best off paying as slowly as possible and putting the rest of the money into an index fund.
  - r_smart 10y ago
    Perhaps it shifted a lot in the last few years. I went back to school to get an EE degree, and it's mostly pretty high interest. Sadly I was pretty financially ignorant until maybe my senior year of my second degree. Plus since I was older, and already had a degree, the amount of money available goes down a lot. I don't know how much that effected my interest rates (though my private education loans were at 10% if you can believe it).
r_smart 10y ago
Below inflation interest rates are long gone. I'm sitting at around 6.5% for most of my debt. And that's after refinancing.