Should I pay off student loans

[Jax1023]

Hi all-

Trying to decide if we should pay off student loans, or just keep paying them monthly. Between DH and I have have about 7500 in student loans, consolidated at 1.5% interest rate.

We are looking to buy a house. Not sure if it will be better to eliminate the extra 140 dollar a month payment, or to keep the extra 8k for down payment, furniture etc.

I am mostly leaning towards not paying off, as the interest rate and monthly payments are so low. We make about 120k a year combined, so its a tiny drop of our take home pay.

We also both have excellent credit.

Any suggestions?

 

[smokeyblue]

I would not pay these off. It is such a incredibly low interest rate and low payment. You are much better putting your money twards your home or furniture if you need it.

 

[neatokimmo]

You mortgage will be 5%+ - use the money for that.

 

[rchristiansen]

I agree - pay them off as slow as possible. At 1.5% interest calculated to what the banks savings rates are offering it's 0%.

 

[jgreco]

Definitely keep the small loans open and use the extra money to make your new home. At that interest rate, its not worth it.

You'll be surprised at all the little things that pop up when you buy a house.
All kinds of deposits for utilities, trips to Home Depot for window coverings, leaky faucets, change out door hardware, etc.

Congrats on your new home!

 

[tjs198]

you make 120k, you should be able to pay 7500 off in a few months - do it and get it over with.

I started with 30k in student loans only paying the minimum, 10 years later and the balance only went down to 22k, i came to realize it was ridiculous keeping this thing around even with the 4% interest rate. I've been aggressively paying over the past 1.5 years and as soon as my tax refund comes next week, I'll be done with it finally. it will be a relief to have no debt except a mortgage.

 

[Lisa loves Pooh]

At that income and renting and no kids? Pay them OFF.

 

[Bibbidi]

you make 120k, you should be able to pay 7500 off in a few months - do it and get it over with.

I started with 30k in student loans only paying the minimum, 10 years later and the balance only went down to 22k, i came to realize it was ridiculous keeping this thing around even with the 4% interest rate. I've been aggressively paying over the past 1.5 years and as soon as my tax refund comes next week, I'll be done with it finally. it will be a relief to have no debt except a mortgage.

I say pay it off. I'm almost 14 years out of college, finally paying mine off this spring. It's been such a nagging feeling having that payment around all these years. We have always paid off cars early--and any other loan that we've ever had, but just neglected the student loan because the "interest rate was low". With your salaries--just get it over with--you'll be glad you did.

 

[WDWisTheBest]

Hi all-

Trying to decide if we should pay off student loans, or just keep paying them monthly. Between DH and I have have about 7500 in student loans, consolidated at 1.5% interest rate.

We are looking to buy a house. Not sure if it will be better to eliminate the extra 140 dollar a month payment, or to keep the extra 8k for down payment, furniture etc.

I am mostly leaning towards not paying off, as the interest rate and monthly payments are so low. We make about 120k a year combined, so its a tiny drop of our take home pay. We also both have excellent credit. Any suggestions?

What if you took a compromise position from the pay it all now position versus keep paying the minimum payment per month position?

If possible, could you pay an extra payment each month during 2011? While you are looking at buying, you would be paying down more of the principal student loan. That way you would not take all of your savings at once. And, it would not stress any budget.

Now, my position is that housing prices have not hit bottom and probably won't during 2011. There are far too many foreclosures on the market in most communities. That is keeping a lid on housing prices. Why even consider buying now when there is so much uncertainty in the housing sector?

 

[StitchBuddy]

I say pay it off and save, save, save! Housing prices are predicted to drop more. So don't rush to buy a house.

 

[Jax1023]

Interesting that this is split basically in half on opinions. And it is also the two arguments I have with myself.

As far as those that said not to buy a house now, I live in Pittsburgh, which has been and is predicted to continue to be one of the most stable housing markets in the country. No real estate bubble, no burst. Its one of the few places most experts say to buy now.

 

[Kirby]

Pay off your loans and then save towards an emergency fund. Once that's in place, save towards a big down payment on a house. You make 120K now but what if you don't in six months?

 

[hannahdrewmom]

I say pay it off and budget so you can do both! If you guys are really making that much money and don't have a house payment it shouldn't be a problem. Live for 5 months on a TIGHT budget. Try to live off of 1 salary for those 5 months... make it a game for yourself. At the end you will have more money in savings to pay that off and more money toward a down payment.
You will be surprised at how much you can actually squirrel away if you had too. .

 

[Jax1023]

We have an emergency fund, we are saving for a 20-30% downpayment. We basically have it at this point and should have all money for closing costs saved by the time we actually find a house

We put the majority of our free income into retirement savings. Fully fund Roth IRAs and 403bs. Job loss is not a concern as my husbands salary is funded by a grant that is guaranteed for the next 5 years. I work in health care and am top in seniority in large department.

Its really just a matter of shifting money. I could write the check and pay them off right now, but at the same time, in 2 months I could put 8k more down on a house, which is 8 k less to pay 5% interest on vs 1.5%. we alreay pay double the minimum, and either way, mine will be payed of in 2 years and DH's will be payed off in 3 years.

I guess I'm leaning towards keeping the 8k for a larger downpayment.

 

[pxidst119]

I say put the money toward the house at the higher interest rate. If your income is under 120K you can still get the student loan interest deduction on your tax return.

 

[scribega]

I would do what you are planning and keep it for a larger down payment and for those move-in expenses that always pop up. After you have moved in and things have settled then attack the payments and get them paid off.

 

[digitalsiren]

Pay it off. No reason to acquire more debt when you have the ability to pay what is really two debts completely off. Even if it is just a small stress for you now it will feel soooooo much better having it completely out of your mind. Earning what you earn, you should have no problem saving for a solid down payment in half a year or less - just buckle down and be a bunch of cheapies for 6 months and you'll be good to go. All that money you would otherwise have been paying monthly on your student loans can then go towards improvements, decorating and plants for the outside once you are in your house.

 

[DaniB]

I side with paying it off as well! With that high a combined income, no kids, and no additional expenses (yet) that owning a house comes with - you really should be able to pay it off in a few months. It will feel so good to have that loan gone!

At the beginning of 2011, my husband & I have a $6,200 VISA. It's had that balance for a few years now. Technically we are a 1-income family, 2 kids, house, etc. I make a little extra money looking after children before/after school.

I made an Excel spreadsheet that shows if I put my entire daycare monies received toward the Visa each week, I can have that paid off completely (including out future plane tickets to Orlando) by June!

Hmm... wonder if I remembered to budget in those new tires for Spring...

Then by end of August, we pay my parents back $1,500. I know my Dad knows we owe him money, but probably not how much. He's the kind who won't say anything though. I'm sure my Mom doesn't even realize. It will be so nice surprising them with this!

Then I can happily take our adult only trip in September knowing we paid off $7,700 in debt!

 

[BlissfulMama09]

My husband and I had the same questions. We wanted to use our tax return to pay off student loans and the remainder of his car. Our mortgage broker said NOT to pay them off because student loans are installment loans, meaning once you pay them off the account will close and that can lower your credit score. This doesn't apply to revolving accounts though, such as credit cards.
Just something we learned as we are buying a house

 

[branv]

While it may feel emotionally better to get rid of a loan/debt all together, the numbers don't lie -- it's far better to pay more into your mortgage with the higher interest. Not to mention, in the worst case scenario that someone is unable to work or laid off, unless this is a private loan, it is far far FAR easier and more likely to get a temporary pay adjustment, deferment, etc on a student loan than a mortgage.

I would absolutely put that money towards a downpayment. And I would also run the numbers and see if adding that $8K to your downpayment might allow you to do a 15 or 20 yr loan. We had 24 years left on a 30 year mortgage, and just refi'd our house to a 15 year loan for an interest rate of 3.875% (a 20-yr was offered for 4.25%). The numbers showed that in the first year alone the new terms will pay $4K more to our principal than our old loan would have this year.

Best of luck to you!