pay off loan or?
 

Hi, I just had a pretty simple question and just wanted some takes on it. THe question is: Should I pay off my student loans of $2600 or should I put that money into a Roth IRA. I almost am certain its pay off the loan since its an unsubsidized stafford loan, but jsut want to hear some opinions. Thanks. and sorry if this question seems stupid :rolleyes:

What is the rate you are paying on your student loan?

Absolutely, undoubtedly, pay off the loan first. You can not build wealth if you have debt.

It depends alot on what the rate is. If you have already consolidated the loan when the rates were lower, I'd say put it in the Roth. However with rates going up and since it is an unsubsidized loan, it may be better to pay that off now. I have personally been putting more money to a Roth since you cannot "make up" for years that you have skipped.

I'd disagree with the statement above. There are numerous times where you'd want to save money as opposed to throw it into your current debt. I think most would agree that it is very situation specific as to where the money should go.

Just looked at Stafford rates. They are based on the 91-day T-Bill plus 1.7% in school and 2.3% out of school.

Stafford
In school 4.70%
Out of school 5.30%

I'd pay off the loan.
The sooner you pay it off, the better your credit looks, which will help you when you want to buy a house or a car.

Save the IRA for when you're done that step.

I don't think the answer is that simple.

Do you think you can make a return of 5.3% in the Roth? If you can, and your income is within a range that allows deductions for student loan interest, then you should put the money in a Roth.
So long as you stay current on monthly payments, having a loan of $2600 is not in any way going to hurt a mortgage app. As an aside, the creditworthiness of new borrowers has never been lower. Lenders are going out of their way to loan money.
So do a little analysis before jumping to a quick conclusion.

Uhhhhhh.....maybe you should look into a finance class or two?

well thx for all the posts, ive decided on paying $50 every week from my paycheck to pay the loan and use about a 100 for the roth and 50 for spelunking. I am making only $200 a week, also dont have much expenses since its summer. Any thoughts on this schedule?

Lwang9276 - The simple way of stating what's being repeated ad nauseum here is go where the money is. We don't know the interest rates gained on the roth IRA, nor do we know what you're paying on the loan. So what you need to do is bust out the calculator. Sit down and figure out how much the loan is, what the interest is going to be annually and when it's compounded and what the interest on the IRA will be based on the payments you'll be making. If the value of the IRA exceeds the cumulative value of the loan, your cash should go there. If it doesn't, it should go into paying off the loan, since that will be taking more out of your pocket than you'll be gaining.

Without any more information, I'd be inclined to say that you ought to pay off the loan first. I don't know how it is there, but in Canada there are no RRSP's (our equivalent of roth IRA's), mutual funds or GIC's that will pay out interest greater than what you'd be losing on the loan without a very high investment.

It all depends on the rates involved!! My wifes student loan is at 1.75% interest, and ing direct is 3.3% for savings. I put the money into the savings, I make more money in the long way this way, and it is a 'secure' return!

Xazy, don't forget taxes.

You can't deduct the cost of the student loan's interest, but you pay income tax on the ING direct income.

If your marginal tax rate is over 47%, paying off that loan is still worth it.

Yakk, But do not forget the tax deduction from the student loan either! :)

You get income tax deductions on student loan interest?

I thought that only worked on loans taken out for investment income. . .

http://www.cra-arc.gc.ca/eservices/tips/menu-e.html
Darn, looks like you are right.

I guess it makes sense: you borrowed money to buy an investment (education), so the interest on that loan can be put off against income gained from the investment (job).

<-- used non-student loans to pay for his edumication.

:rolleyes: Not quite.

At $200 a week it sounds like you aren't finished with school. On break for the summer?

If this is the case I say spend the money - go on dates, road trips and the like. You are young and should be having fun during the summer not debating on how to invest your money.

P.S.: Yeah, I know I'm gonna get hell for this... for all of you who are going to reply to this post with "adult logic" of "Start investing now... blah, blah blah." - I know how all this works, I've taken my fair share of finance classes.

I think that youth should be enjoyed.