Should I Save Up To Pay Off My Student Loan First Or Start Saving For A Mortgage Instead?
Posted by StudentLoan on January 5th, 2010 | 9 comments
I wish to save up for a debt though not certain if i should save up as well as compensate off my tyro loan first?…then sick have no debt…but it equates to loitering saving for a mortage for about 2 or 3 years. though a seductiveness upon a tyro loans is straight away 4.4%!!!! that is high. Is any one in identical situations?
Comments
pay of the loan, then when you commit to buying your own place you just have the det of that over your head not the loan as well
just me thoughts
regards x kitti x
4.4% isn’t high! If you can get a better rate on a savings account then you’ll be better of saving than paying off, its just basic maths.
Ive just finished my degree….
Personally I’m leaving the student loan and just having them take out what is necessary… until I’m in a better position, the monthly payment are pretty minimum and the interest rate is one of the best you will get (other than those introductory 0% credit cards)
Getting a mortgage is much higher on my priority at the moment, so we are saving for a deposit on that first.
I’d waste more money paying rent if i was priced out of the market because i waited 3years!!
You could consider a 100% mortgage that way your on the market ladder, and can still pay off your student loan.
Its completely up to you and your priporities xx
mortgage first DEFO
by the time you pay the loan off house will have gone up at least another 10%..so youll save thousands in the long run!! mortgage every time
I would keep paying the loan as scheduled while saving for the mortgage in a high interest account. 4.4% is so much lower than my student loans.
How sad to read that a young person with their whole life ahead of them has been brainwashed into worrying about buying a house!All this media hype is destined to give today’s youth a nervous breakdown. There is a whole world out there,get out there and explore it,take chances,be adventurous and live! There is time enough to worry about tying yourself down for 30 years of debt,pay of your student loan asap and go for it with a terrific job somewhere fascinating.Oh that I was your age again and someone giving me this advice.
Even if you have run up a balance on a high-rate credit card, you may hear a nagging voice in your head urging you to keep plowing money into savings for retirement, college for the kids or a new home.
The simplistic solution — to invest if you can earn a higher interest rate than you’re paying on your loans — can be downright perilous. That became clear when, in the late ’90s, a wave of questionable advice suggested that homeowners really make more debt to invest in the booming stock market — by pulling out some equity via a cash-out refinancing or home-equity loan. Then came the bear market.
The best answer lies in separating excellent debt from terrible debt. It’s nearly always a excellent thought to get rid of credit card and other high-interest loans before you start setting aside cash. But, you probably don’t want to accelerate mortgage or student loans at the expense of saving for retirement.
Start by making a list of all your debt and the interest rates on those debts to prioritize which ones you should pay first.
Then look at your alternatives for saving and investing and, if necessary, reset your priorities.
Step 1: Pay off the high-interest debt
If you have high-interest credit card debt, tackle that first. It doesn’t make sense to start saving or investing until you’ve paid off this debt. You’d have to make more than 20% after-tax return on stocks, bonds or mutual funds to make them a better investment than paying off a credit card with an interest rate above 15%.
There is one exception to that rule of thumb: If your employer offers a 401(k) plot and will match your contributions up to a certain level, fund it up to that level — even if you have credit card debt — because you’re getting a 100% return on your investment.
Contribute more than the match level once you’ve paid off your consumer debt.
If you’re drowning in debt, liquidate assets such as stocks and use your savings — but not a 401(k) or IRA — to pay off your credit cards. If you’re in dire straits, you can borrow up to 50% (no more than $50,000) from a 401(k). Although you pay yourself back with interest, you give up tax-free compounding, and you will have to pay back the loan immediately if you leave your employer.
Step 2: Identify the excellent debt
For the most part, it’s usually not a excellent thought to pay off your home mortgage unless you have a lot of extra cash. After all, Uncle Sam refunds part of your interest payment if you itemize your deductions on your tax return.
Use your money instead to invest in liquid assets. paying off your mortgage (and any other debt you might have) by the time you retire so you can get by on less money.
Don’t be in a rush to pay off student loans, either. The ancient rule that allows a tax deduction only for interest paid during the first five years of repayment is ending. Qualifying interest on student loans can be written off no matter how long it takes to pay off your loans.
But, you can ease the burden of repaying your loans. Thanks to recent legislation, you can now shop around for the best terms. For example, lenders may offer a rate reduction if you elect to have your loan payments automatically deducted from your bank account. And some lenders will knock more off your rate after 24 or 36 months of on-time payments. Compare deals at ConsolidationComparison.com.
Step 3: Save and invest
Once you’ve eliminated high-interest consumer debt, start saving as much as you can. The best place to start is a 401(k). The next best option is an IRA (see Open Your First IRA).
In addition to putting money into a retirement account, you need cash that’s readily available in an emergency so you don’t have to rely on credit cards.
Set aside enough money to tide you over for three months if your paycheck suddenly stopped. If you have less-than-steady income, such as from a commissioned sales position, or a job that has more exposure to economic fluctuations, consider setting aside six months’ income. (Use our calculator to see how much you should save.)
Sock it away in a high-yield savings account or money market fund on a monthly basis until you reach your desired amount.
The most vital thing is to get yourself on the property ladder, house prices are still increasing far quicker than any other investment, the benefits of getting your first house far out way the disadvantages of your student loan, the shortage of housing across the whole of the country will keep house prices high for another 10 years, even with the odd up and down in prices we will still see house prices doubling with in 10 years, if you dont act now you will lose the oppurtunity
Nothing gives you a greater sense of pride than owning your own home for the first time. But, I do not know your age, traveling around the world or at least the country is what I would do if I were young again. Once you have a house and a family you will no longer be able to explore your world at your leisure. Maybe you will find a new place that you want to call home or maybe you will meet someone you never would have met. Delight in your life for a small while, even if it is only for a few months or years. Pay the minimum on your school loans (4.4% is a fantastic rate by the way) while your are persuing your goals whatever they may turn out to be. You will only live once, I reckon, so make the most of it!