Author Topic: Paying off Student loan vs Car loan vs investment?  (Read 958 times)

diane.jsmith

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Paying off Student loan vs Car loan vs investment?
« on: Dec 10, 2010, 10:11:14 PM »
  • Hello All,

    Thank you in advance for providing feedback on the following situation...

    I have 25k in student loans (4.5% interest), a car loan 25k (5% 6 year loan),and I have about 25k in savings.

    I am wondering if it makes sense to pay off one over the other (yes I know acar depreciates, but I pay 500 a month for a car payment, where I'd then beable to save 500 a month moving forward and pay towards other things whilestill having some equity)..

    My student loan payment is 200 a month and I feel like everyone has studentloans (my credit is 700+), would it make sense to pay off this or try andnegotiate with my student loan lender and see if they'll take 20k or maybe even15k??

    Lastly, as opposed to paying off either because I can handle my bills just fineat the moment, would it make more sense to invest the 25k and continue to payfor a couple years my bills and tackle paying them off down the road (say ayear or two for now)

    Thanks for feedback!

  • James Falla

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    Re: Paying off Student loan vs Car loan vs investment?
    « Reply #1 on: Dec 13, 2010, 05:35:52 PM »
    Hi there Diane
     
    I do not think you will be able to negotiate much of discount from the student loans company. As such,  if you have a lump sum available then my suggestion is get a settlement from the car loan company and pay that loan off in full. Then with the money you save each month, increase your payments to the student loan company so that you pay that loan off faster.
     
    Given you are a tax payer and will have to pay tax on any interest you earn on your lump sum, I asume you are not earning more than 5% on your money. As such,  by not paying off your debts you are going to be out of pocket ever month. Therefore it makes sense to pay off your loans asap.
     
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