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Unless he had crazy high rates on those loans even the most conservative investments would have put him in a better position over time. There is no real reason

by mcot2 14y ago

Unless he had crazy high rates on those loans even the most conservative investments would have put him in a better position over time. There is no real reason to be frantic about paying debts, especially if you have a Harvard degree and a six figure job. Also, I doubt this article is going to help anyone. The majority of people stressing about their 6 figure loans are not in his situation.

joelrunyon 14y ago
I'm pretty sure this was an emotional decision. I'm sure he had the tools to figure out that he coud cut back a little and save it over time, but he wanted nothing to do with it – what's wrong with being debt free anyways?
- mcot2 14y ago
  There's nothing wrong with wanting to be debt free and he's in a great position now. I just think that it's possible that he left some money on the table to do this quickly.
  - joelrunyon 14y ago
    Maybe, maybe not. Mathematically yes, but there's no guarantee that he could have done it over a longer period of time if he was exhausted mentally. This is the same logic behind Dave Ramsey's debt snowball where you pay your smallest amount off first. It's terrible mathematical advice, but it's a psychological trick that helps you focus on small wins after each other and build rewarding habits
pilom 14y ago
By crazy high rates do you mean the 6.8% that federal stafford loans were when he was in school? Or the 8.5% that Graduate plus loans were during that period? If not, what conservative investments to you have?
- mcot2 14y ago
  Those rates are on the high side but not too crazy. About half of my loans were direct loans with a variable rate which was about 1.9% at the time although they could have changed. Without knowing his exact situation I can't really make a judgement. With possible consolidation and accelerated payment plans there are even more options. Looking long term you want to get as much money as possible into retirement accounts and iras while you are young. I think the article even mentioned that he took a tax hit to deplete a retirement account and he also didn't contribute to a matching 401k. That's essentially just burning money...
  - pilom 14y ago
    I agree with you on the 401k business, that was silly. As for consolidation, just for your information, consolidating federal loans changed in 2006 when federal loans went to all fixed rates. It used to be, with variable rate student loans you could consolidate at a lower interest rate if rates changed. Since 2006 all Federal loans are a fixed rate and all consolidations will just set your consolidation rate at the weighted average of the smaller loans. Thus most students who plan to pay more than the minimum payments are better off not consolidating and paying off higher interest loans first. But that guy did make some poor financial decisions.
psc 14y ago
Exactly. Being frugal is can be great, but I think it's important to remember that it can sometimes cost more to be frugal. For example, walking for his trip to Michigan—if he had spent $100 on a bus, he could've shortened his trip by hours, during which he could've made money by working. I'm not saying it was a bad choice—maybe he wasn't going to be working during that time anyway. But there's always an opportunity cost, and it isn't all about getting the lowest price tag. It's better to aim for efficiency rather than frugality.

by mcot2 14y ago

joelrunyon 14y ago

I'm pretty sure this was an emotional decision. I'm sure he had the tools to figure out that he coud cut back a little and save it over time, but he wanted nothing to do with it – what's wrong with being debt free anyways?

mcot2 14y ago
There's nothing wrong with wanting to be debt free and he's in a great position now. I just think that it's possible that he left some money on the table to do this quickly.
- joelrunyon 14y ago
  Maybe, maybe not. Mathematically yes, but there's no guarantee that he could have done it over a longer period of time if he was exhausted mentally. This is the same logic behind Dave Ramsey's debt snowball where you pay your smallest amount off first. It's terrible mathematical advice, but it's a psychological trick that helps you focus on small wins after each other and build rewarding habits

pilom 14y ago

By crazy high rates do you mean the 6.8% that federal stafford loans were when he was in school? Or the 8.5% that Graduate plus loans were during that period? If not, what conservative investments to you have?

mcot2 14y ago
Those rates are on the high side but not too crazy. About half of my loans were direct loans with a variable rate which was about 1.9% at the time although they could have changed. Without knowing his exact situation I can't really make a judgement. With possible consolidation and accelerated payment plans there are even more options. Looking long term you want to get as much money as possible into retirement accounts and iras while you are young. I think the article even mentioned that he took a tax hit to deplete a retirement account and he also didn't contribute to a matching 401k. That's essentially just burning money...
- pilom 14y ago
  I agree with you on the 401k business, that was silly. As for consolidation, just for your information, consolidating federal loans changed in 2006 when federal loans went to all fixed rates. It used to be, with variable rate student loans you could consolidate at a lower interest rate if rates changed. Since 2006 all Federal loans are a fixed rate and all consolidations will just set your consolidation rate at the weighted average of the smaller loans. Thus most students who plan to pay more than the minimum payments are better off not consolidating and paying off higher interest loans first. But that guy did make some poor financial decisions.

psc 14y ago

Exactly. Being frugal is can be great, but I think it's important to remember that it can sometimes cost more to be frugal. For example, walking for his trip to Michigan—if he had spent $100 on a bus, he could've shortened his trip by hours, during which he could've made money by working. I'm not saying it was a bad choice—maybe he wasn't going to be working during that time anyway. But there's always an opportunity cost, and it isn't all about getting the lowest price tag. It's better to aim for efficiency rather than frugality.