Finance Qs

[somebabiesmom]

MH would rather invest than pay down debt. I would rather pay down debt than invest (think student loans). He says the rate of return for our money is higher and it's better to start early due to the exponential growth. I think that if a job loss, accident, or death occurs, we're up shitcreek. We'd have to pay penalties to liquify and we'd have to make the same or larger payments to avoid defaulting.

Thoughts?

[twinmomma]

I have zero qualifications to answer this question... But I'm with you. I'd want to pay down debt before doing any major investing. Right now we each have retirement accounts and I put just enough to get my company match. DH puts a bare minimum since it's not through work. We know we need to get that retirement savings ball rolling because of the exponential growth, but are definitely not doing anything beyond that until our student loans are paid off.

[mommyatty]

The answer probably lies in the middle, depending on what he means by "invest". If he means "play the stock market", then I would say no. If he means "sock money into our retirement accounts", then I'm in favor of using some money for that.

Paying off student loans feels incredible. So yes, do it. But if you still get to write that off for taxes, there's another reason to maybe not put all your money into paying them off as quickly as possible. Still pay them off quickly, but don't do it at the expense of retirement and emergency savings.

And don't forget to have an emergency fund. That's important too. That shields you from dipping into retirement if you have any of the disasters you mentioned.

[welly01]

I agree with you. I would put a small amount into retirement funds and the rest toward debt. DH and I started Dave Ramsey's Total Money Makeover at the beginning of the year and working towards being debt-free feels awesome. Also, tell him that student loan interest compounds exponentially as well. I also think that if we don't tackle my student loan debt now, we could possibly still be making student loan payments for me while also paying for the kids' college and that thought makes me sick.

[xctsclrx]

Your DH is not wrong, however I am with you. I would rather have no debt than invest, but I am 27 and I am putting what my company matches into retirement. DH is 35 and he puts more like 10 percent in to retirement. While the interest rates are low having debt is not as bad. They are rising right now though. So while your old debt will maintain any new debt will be worse.

I don't like that thought process. See if he would be willing to split the difference. Also look to see how much money you would be saving long term if you paid an extra 100 dollars a month on the loan vs putting that money into a low/med risk investment.

We are roughly 3 years from being debt free outside of our house so we have agreed to pay off all of that before we invest outside of retirement. We figure our house is what it is. We will make more than minimum payments, but we aren't terribly concerned about that one.

[Widget123]

For us it is definitely a balance. The same kind of logic applies to when we bought our cars in 2013 and 2015. It is about weighing how much debt is a manageable amount to have while still having a decent amount invested.

[sandandsea]

I tend to avoid risk so paying off debt would come first. However, I think planning for retirement is super important and I wouldn't wait to start that until the debt is gone. I would do the following
First set up an emergency fund (1 month expenses)
Second pay off debt while putting something into retirement. If you get a match definitely contribute up to the match.
Third pay off the debt
Fourth fully fund retirement.
Fifth invest outside of retirement.

[saraml13]

What interest rate are the loans?

Are you both getting your company retirement match?

How does he want to invest?

[Unknown]

Depends. We would pay down things like credit cards or car loans that have higher interest rates, but we don't pay down school loans. We are lucky to have very low interest rates and low monthly payment. We get a much higher return investing.

[liziz]

You should do which ever one nets you the most interest, or a balance of the two. If your interest rates on student loans are crazy high, pay them, but if they're lower than your anticipated return on retirement/other investments, then pay the payment, but no more.

[somebabiesmom]

We also have loan forgiveness programs that factor in. We're both trying to pay as little as possible on the debt because his govt loans will be forgiven. DH, however, is suddenly waffling on whether he wants to stay at his job long enough to reap that forgiveness in spite of it already costing us about $12k over the last 4 years to file separately. I've tried to get the mfer to divorce me so we can reap all the benefits of filing single, but he refuses. WHY did I marry an emotional decisionmaker!!!!?!!!!

I guess it makes sense to focus on investing until his govt loans are forgiven so long as he actually follows through on getting them forgiven. Otherwise, all bets are off.

I hate being an adult.

[somebabiesmom]

Mar 22, 2017 13:28:28 GMT -5 saraml13 said:

What interest rate are the loans?

Are you both getting your company retirement match?

How does he want to invest?

Interest rates for govt loans are around 4% (one is 6%), private loans are around 6%. MH is convinced that the rate of return would be higher than that, but I'm extremely skeptical.

My company matches up to 4% to a 401k. I contribute 10%.

He wants to put our money into a Vanguard fund on TDAmeritrade and also buy a longterm stock that we wouldn't touch for another 40 years. The Vanguard doesn't seem so risky, but trying to eyeball a good longterm stock feels the same as trying to win the lottery (kind of - maybe slightly better odds).

[saraml13]

Mar 22, 2017 13:52:24 GMT -5 somebabiesmom said:

Mar 22, 2017 13:28:28 GMT -5 saraml13 said:

What interest rate are the loans?

Are you both getting your company retirement match?

How does he want to invest?

Interest rates for govt loans are around 4% (one is 6%), private loans are around 6%. MH is convinced that the rate of return would be higher than that, but I'm extremely skeptical.

My company matches up to 4% to a 401k. I contribute 10%.

He wants to put our money into a Vanguard fund on TDAmeritrade and also buy a longterm stock that we wouldn't touch for another 40 years. The Vanguard doesn't seem so risky, but trying to eyeball a good longterm stock feels the same as trying to win the lottery (kind of - maybe slightly better odds).

The govt loans at 4% that are eligible for lain forgiveness, definitely don't pay off more than the requirement. The 6% loans are a bit of a push with investing in a low fee long term fund. I might split the difference, and put half of your extra money towards investing and half towards paying down debt more quickly. I agree with your thoughts on single stock investing. DH does invest a little bit in individual stocks in a non-retirement account, but that's somewhat recreational and only after we have maxed out our 401k contributions ($18k each).

[mae0111]

***I am not licensed. This is my personal opinion.***

I tend to be more aggressive on the investing side (but not crazy). I'd say it depends on the debt, the rates, etc.

DH had some student loan debt in the 9% range that made me sick every time I'd see it. So we poured every spare dime we had into paying that off as quickly as possible. After that, we approached debt on a case by case basis.

With your information, I'd avoid paying much on the loans that will be forgiven until DH's plan solidifies. Instead, focus on other high interest debt - credit card or car loans. Max out your company sponsored retirement plans, especially if there is a match. Then consider opening another investment account - do you qualify for a ROTH IRA? Or, if you want to invest for shorter term access (would you potentially dip into this to pay off the student loans if DH leaves his job?) just open a brokerage account and invest in low cost index funds.

Good luck!

[mae0111]

Again, my personal opinion, but I would NOT by one long-term stock. Very risky, even if it's blue chip - no diversification. Buy an equity mutual fund. If I really wanted to trade on an exchange, I'd consider ETFs.

[sandandsea]

Mar 22, 2017 13:40:59 GMT -5 somebabiesmom said:

We also have loan forgiveness programs that factor in. We're both trying to pay as little as possible on the debt because his govt loans will be forgiven. DH, however, is suddenly waffling on whether he wants to stay at his job long enough to reap that forgiveness in spite of it already costing us about $12k over the last 4 years to file separately.

This is why I'd treat all the student loans as debt to get rid of asap. You don't want to have to stay at a job just because of the loans if you're miserable. Paying off debt really is soooo freeing, both emotionally and in the freedom of how to spend your income.

[mama2a]

My H and I prioritized paying off school loans before going into investing. This is what Dave Ramsey taught us and it makes sense. Paying off debt and getting out of debt is very liberating. You don't want to be stuck in a situation where one loses a job or you have a major medical expense and wind up putting yourself into a bigger financial hole where you're taking out loans with higher interest rates because so much of your monthly expenses is going towards loan payments.

Once that debt is paid off he prioritizes building up a savings and then focusing on investing. Obviously it's a personal decision but my own personal experience is that once we had our debt paid off, savings built up I felt like we were at much more of a financial liberty to start making bigger payments towards investments. I feel much more secure about our finances now.

[akafred]

Ask yourself this: If you had fully funded your IRA's and had your house paid off and a nice college fund for the kiddos, would you cash out your IRA or take a mortgage on your house or cash out the college fund to buy stocks? NO. Then you don't need to buy stocks now when you are working toward those things either.

[enigmaticdrscully]

This is a big discussion point on a physician mothers group I'm part of. So many things factor in that I don't think there's a one-size-fits-all answer. The usual contributing factors are interest rate, whether you get a tax deduction on student loan payments, whether you are in your forever house, how much you value being financially independent (of student loans or mortgage), the psychological factor of paying off student loans, where you'd be investing and whether there is employer matching, and whether your loans are forgiven with your death.

Personally, we started aggressively paying off my (substantial) med school loans immediately after I finished med school, just kept living like I was a low-paid trainee. We contributed the max to my employer-sponsored retirement (once I was eligible) and put everything else into the loans.

[somebabiesmom]

I've changed my mind. We should not be investing, we should paying down our private loans.

Has anyone ever looked into consolidating private loans at a lower interest rate?