[quote]blackhand wrote:
Unless you can invest the money in something that will have a guaranteed rate of return more than the interest on your loans (don’t forget any taxes on the investment income) and you have emergency funds available, I’d say pay off a good portion of the debt and move the rest into an emergency fund. Like say 10k to debt and 6k into something that pays some interest with little/no taxes. Then setup some sort of automatic contribution to an investment so you’re paying the debt down, but also starting to build something up.[/quote]
I would rather pay taxes and make a bigger percentage, than make interest below inflation and no taxes.
[quote]arkan wrote:
If you don’t have to make mandatory payments on the loan in the UK, the benefit of being free of the debt is pretty low. If you lose your job, interest might accrue, but you wouldn’t have to make immediate payments.
As to investing it: What’s the interest rate? Grad School debt in the U.S. can run about 8.5% currently. There is no way to get a low-risk return that high,[/quote]
Not true.
[quote]
so it makes since to pay off the loan. My brother for example though, has Med School debt at 2.5%. He wanted to pay it off, but I advised him that there is absolutely no reason to pay that debt off faster than necessary because he can definitely invest for a better return elsewhere, not to mention let inflation help over a few decades. The interest rate will be the biggest factor in deciding what to do.
And don’t forget, you’re going to have to pay taxes on the profits from any investment you make. Depending on UK tax laws, that could be pretty high. So interest - taxes > loan interest, and that doesn’t even account for the risk of your investment. [/quote]
[quote]Blaze_108 wrote:
So the money that is taken out of your paycheck goes to reducing the loan amount? or just paying interest?
I would pay whatever you can while remaining financially stable.
If it’s just paying the interest, then those loans are costing you x amount of dollars each year. Unless you can invest the money in a way that you will make more money than it costs you, reduce it however much you can.
You’re going to have to pay it back anyway, so if you can’t use that money to make money, you might as well limit the amount they’re taking out of your paycheck.
[quote]arkan wrote:
Ha. Blackhand beat me to it by a few seconds. Another thought on the taxes: Student Loan interest is tax deductible (in the U.S. at least) so the tax deduction will offset or even eliminate the taxes from the investment.[/quote]
Not necessarily… That is a blanket statement that can lead people down the wrong path. You don’t understand the rules enough to be giving advice.
Wow, there are a ton of people on here that don’t have the first clue about rate floats.[/quote]
I thought bout your situation and what I would do.
Here is my general rule for anyone that asks me what my opinion on what to do with money.
My first rule, don’t use debt to buy an asset if you can help it. And my second rule, don’t go deeper than 25% on an asset, ever. Third rule, be objective about what you spend money on: even though people will tell you an education is an asset, you can’t put it on a balance sheet. Pay it off.
Second suggestion, buy a few books on value investing. Save money, work overtime, stop spending, and don’t lose money.
After you (read that subject again, please) find a stock at discount, buy it. Plan on holding it forever; however, have a win limit, 85 cents on the dollar is good. Buy some land (remember rule one and two), rent it out. Buy some houses/apartments, rent it out. Start up a business and put the proceeds into your real estate portfolio. Write all your assets into your will to go to charity.
Third suggestion, in bull markets save money. In bear markets invest. Remember that cycle, and you’ll keep yourself from going full retard with your money.
[quote]arkan wrote:
Ha. Blackhand beat me to it by a few seconds. Another thought on the taxes: Student Loan interest is tax deductible (in the U.S. at least) so the tax deduction will offset or even eliminate the taxes from the investment.[/quote]
Not necessarily… That is a blanket statement that can lead people down the wrong path. You don’t understand the rules enough to be giving advice.
Wow, there are a ton of people on here that don’t have the first clue about rate floats.[/quote]
Wantz to be my accountant? Iz listenedz!
Explain, what you talk about.[/quote]
Your aversion to debt makes any ideas I would have difficult to achieve. But tax wise, SLI is one of the first things phased out.
Invest the money in a good ISA or similar tax-free savings. There is no point repaying your student loan, it is probably the cheapest loan you will ever get. You can earn more from investments than the loan costs. And if you don’t pay it off after 25 years, it’s wiped out.
have you taken into account that the interest you pay on loans are tied to inflation and the current interest rate? the bank of england has been keep them low lately so maybe you should work out what would happen if you are going to invest the money and if suddenly your monthly payments will only cover the interest or less maybe. i am currently in university, but i have savings and I intend to get rid of as much of my loans as possible before interest rates go up.
To clarify, I saved up this money over 2 and half years. I have a good package working overseas, but I’m tired of this country and I’ve hit the glass ceiling as far as where i can go with my current qualifications. I have a job here for as long as I like, really. But I just dont think i can do it any longer than the remainder of my current contract, which ends next september.
So from September next year i have the following options:
A: Go back to school and do a masters, which should get me a better job in the future. That’s probably gonna take half of my savings at least.
B: Get a job in another country. This will look good on my resume and i also love travel. Plus it will give me time to figure out where exactly i wanna go long term. But it will certainly be a shittier deal, pay versus cost of living. I’ll probably be able to save half as much money at best. I’ll probably break even by the end.
C: Go on a 3 month road trip with my brother around the US. Then get another job until I do a masters. The trip will probably cost me about 3K plus a bit more depending on how long i wait for a new job.
[quote]Rational Gaze wrote:
Invest the money in a good ISA or similar tax-free savings. There is no point repaying your student loan, it is probably the cheapest loan you will ever get. You can earn more from investments than the loan costs. And if you don’t pay it off after 25 years, it’s wiped out.
[quote]Brother Chris wrote:
Third suggestion, in bull markets save money. In bear markets invest. Remember that cycle, and you’ll keep yourself from going full retard with your money.[/quote]
“You make most of your money in a bear market. You just don’t realize it at the time.” -Shelby Cullom Davis
[quote]arkan wrote:
Ha. Blackhand beat me to it by a few seconds. Another thought on the taxes: Student Loan interest is tax deductible (in the U.S. at least) so the tax deduction will offset or even eliminate the taxes from the investment.[/quote]
Not necessarily… That is a blanket statement that can lead people down the wrong path. You don’t understand the rules enough to be giving advice.
Wow, there are a ton of people on here that don’t have the first clue about rate floats.[/quote]
Way to be arrogant and completely useless at the same time Countingbeans. It is not meant to be a blanket statement, just a method (that I used personally quite successfully) to give the OP further room for thought and research.
Instead of making random and pointless criticisms, why not help the guy out with some quick advice.
[quote]arkan wrote:
If you don’t have to make mandatory payments on the loan in the UK, the benefit of being free of the debt is pretty low. If you lose your job, interest might accrue, but you wouldn’t have to make immediate payments.
As to investing it: What’s the interest rate? Grad School debt in the U.S. can run about 8.5% currently. There is no way to get a low-risk return that high,[/quote]
Not true.
How descriptive. What magical low risk investment are you referring to? I notice you mention value investing down below. Great stuff, but it is not “low risk” by any means.
[quote]
so it makes since to pay off the loan. My brother for example though, has Med School debt at 2.5%. He wanted to pay it off, but I advised him that there is absolutely no reason to pay that debt off faster than necessary because he can definitely invest for a better return elsewhere, not to mention let inflation help over a few decades. The interest rate will be the biggest factor in deciding what to do.
And don’t forget, you’re going to have to pay taxes on the profits from any investment you make. Depending on UK tax laws, that could be pretty high. So interest - taxes > loan interest, and that doesn’t even account for the risk of your investment. [/quote]
Risk is not knowing what you’re doing.[/quote]
I’m sure many of the hedge funds and other financial institutions that collapsed recently thought the same. Anyone remember Long Term Capital Management back in the 90s? They thought they had risk figured out as well. You can not control for all risk, no matter what. It is always going to be a factor in your financial decisions.
Read some of Nassim Taleb’s work. It’s eye opening.
To the US posters: although you’re trying to help, you don’t understand how UK student loans work. They are not like commercial loans. The link I posted explains it all if you’re interested. The point is that you can easily beat the interest payments with a good ISA. I put most of my student loan in an ISA, and I could pay most of it off now if I wanted, but it doesn’t make sense to do that.
[quote]Rational Gaze wrote:
To the US posters: although you’re trying to help, you don’t understand how UK student loans work. They are not like commercial loans. The link I posted explains it all if you’re interested. The point is that you can easily beat the interest payments with a good ISA. I put most of my student loan in an ISA, and I could pay most of it off now if I wanted, but it doesn’t make sense to do that.[/quote]
Now this is good advice. God I wish our student loan rates were that low…
[quote]arkan wrote:
Ha. Blackhand beat me to it by a few seconds. Another thought on the taxes: Student Loan interest is tax deductible (in the U.S. at least) so the tax deduction will offset or even eliminate the taxes from the investment.[/quote]
Not necessarily… That is a blanket statement that can lead people down the wrong path. You don’t understand the rules enough to be giving advice.
Wow, there are a ton of people on here that don’t have the first clue about rate floats.[/quote]
Way to be arrogant and completely useless at the same time Countingbeans. It is not meant to be a blanket statement, just a method (that I used personally quite successfully) to give the OP further room for thought and research.
Instead of making random and pointless criticisms, why not help the guy out with some quick advice. [/quote]
How is me pointing out you don’t understand the tax code well enough to be giving people advice about it pointless and unhelpful? You need thicker skin if you are going to get offended by that statement. I wasn’t criticizing you, I was stating fact. You don’t understand the IRC enough to be giving advice on it.
[quote]arkan wrote:
God I wish our student loan rates were that low…[/quote]
My loans are less than 2%, and I make more than that in my money market account. My liquid rainy day fund makes more than it would save me.
[quote]arkan wrote:
If you don’t have to make mandatory payments on the loan in the UK, the benefit of being free of the debt is pretty low. If you lose your job, interest might accrue, but you wouldn’t have to make immediate payments.
As to investing it: What’s the interest rate? Grad School debt in the U.S. can run about 8.5% currently. There is no way to get a low-risk return that high,[/quote]
Not true.
How descriptive. What magical low risk investment are you referring to? I notice you mention value investing down below. Great stuff, but it is not “low risk” by any means.
I know who Nassim Taleb, and I have read his works. He’s a day trader, going for the fast nickle. While I am telling the kid to go for the slow dime.
The risk is big when you are day trading. And the hedge funds and financial institutions where taken down by sub-prime mortgages and junk bonds. The only risk is not knowing what you’re doing. That is fact. If you buy a company’s cash for 40 cents, that means you profit. Period.