Comments on: Your Debt-Free ROI: Why Interest Rates Don’t Matter

By: Arthur

Arthur — Thu, 02 Aug 2012 20:50:02 +0000

Great post! I am somewhat in the same situation and like you I have decided that socking away money to invest is a better use of my money at this time. I wanted to point out two more things that support my decision:

-Unless you make a lot of money (over $75k for a single person), the student loan interest is tax deductible up to $2,500. So, with the balances you have, all of it will be deductible. At your income level, the 6.8% and 3.5% become 5.8% and 3.0% after tax! Even better, if you bump up to the 25% bracket (making over $35,350 in 2012), those rates become 5.1% and 2.6%. And don’t worry, it’s an “above the line” deduction, so you don’t need to itemize to reap the benefit.

-As long as you keep your investments relatively liquid (i.e. not in an IRA or 401(k)), you can always draw them down to pay off debt if need be. However, as Mr. Pop pointed out above, the reverse is not true. You can’t call up the loan company and say “Hey, I could use some extra cash for investing/living expenses/vacation/etc. Can I have some of those payments back?” (although that would be awesome).

By: Stephanie @ Empowered Dollar

Stephanie @ Empowered Dollar — Tue, 24 Jul 2012 19:56:43 +0000

My pleasure! See you around town :)

By: J. Money

J. Money — Tue, 24 Jul 2012 19:45:32 +0000

Thanks again for helping me out while I was away, Stephanie! Glad to see your post start some good discussions! See you around another blogging event at the bars for sure :)

By: Austex

Austex — Sun, 22 Jul 2012 14:12:30 +0000

I agree that there is not necessarily one right way and that everyone should find and do what works for them, but with one big caveat: do your homework and collect all the relevant information before making any decisions. You obviously did that, which is commendable. So you knew exactly what trade-offs you were making to go the route you did. But I think it can be very dangerous to adopt a “do what feels right for you” strategy without first thoroughly educating yourself about the true costs and benefits of all the available options. For example, many people feel really uncomfortable keeping their money invested in equities during times of great market volatility. But if they never invest in equities or get into and out of the stock market according to their gut feelings, they are likely to come up short and often significantly. With some research and education, however, one can learn to choose an asset allocation they will be able to stick with and when things get bumpy in the markets, they can remind themselves that despite their temporary discomfort, they really are doing what’s best for them. So I agree with you but only for those who have done their homework and are aware of the true costs and benefits of their choices.

By: Kris

Kris — Fri, 20 Jul 2012 15:58:43 +0000

Good post! For me, the defining moment was making a commitment to getting out of debt. Then the rest fell into place. It still wasn’t easy, but at least it was a strategy and decision that was meaningful to me, so I stuck with it.

By: Matt

Matt — Thu, 19 Jul 2012 20:44:11 +0000

Great post. Keep up the good work!

By: K.C.

K.C. — Sun, 15 Jul 2012 00:17:04 +0000

There is no magic to getting out of debt. Make regular and timely payments on existing debt and do not take on any new debt. Eventually, the debt is paid off. How does one avoid taking on new debt? Cash is the answer. In other words, liquid savings. Cash precludes the need for new debt. For me, it is more important to avoid new debt than to accelerate repayment of existing debt. If I avoid new debt by having sufficient savings, I guarantee that I will become debt-free and remain that way. Romeo has the right idea. I’d rather have savings and a lot of debt, than less debt and no savings. That goes against conventional personal finance advice, ROI and such, but it works for me. Being broke is definitely worse than being in debt.

By: amanda

amanda — Sat, 14 Jul 2012 14:01:46 +0000

Great post! I completely agree. If you look long enough your sure to find 100 *right* ways to do it and there are cool-aid drinkers from every camp convinced that it always has to be done one way. My husband and I are paying off our house this year, which depending on who you ask is really great or really stupid.

By: RichUncle EL

RichUncle EL — Thu, 12 Jul 2012 13:11:12 +0000

Lately my school loans have been making me anxious as well, I rushed to get my MBA thinking that I will get a better job and higher paying opportunites. So just like you I have to pay down this annoying direct loans that is just dragging me down to the tune of 6.8%.

By: Mr. Pop @ Planting Our Pennies

Mr. Pop @ Planting Our Pennies — Thu, 12 Jul 2012 00:08:42 +0000

Ditto Romeo-way better to have a cash cushion while you’re paying the debt down. A co-worker recently had their income cut by 25% for the next 6 months; because they were putting everything they had to paying down their house debt its going to be a struggle for them.