Interest rates on student loans: when things get fishy
Interest rates can change when consolidating private and subsidized loans. Be sure to have the consolidation and the interest rates documented. See question No.3 of the Reader Mailbag.
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I anticipate that this will take about a year to accomplish. My question for you is what the best plan of attack afterwards? Because of some frugal maneuvering (including some moves inspired by your column) we have a substantial amount of wiggle room in our monthly budget after we’ve paid all our minimums. Is it worth investing our gap in retirement savings while making the minimum payments on our loans? I have seen you recommend investing when you don’t have consumer debt with interest rates greater than 10%. Where did you get that number from?Skip to next paragraph
The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds – we just want simple ways to manage our finances and save a little money.
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Alternatively, we could tackle more of our debt. We have minimal retirement savings (about $10,000) and we’re not spring chickens; I am 32 and my wife is 29. I will experience a significant jump in salary in the next 3-6 years. We would appreciate any advice you can provide.
The 10% number is a good rule of thumb to use, simply because you’re not going to find any sort of reliable investment out there that returns at a rate of 10% or greater over a long period of time. Your best use of your money if you have debts with an interest rate of 10% or greater is to pay them off first.
Honestly, I’d probably put that percentage even lower, somewhere around the 8% mark. You’re just not going to find reliable investments that return more than 8% per year consistently. Extra debt payments offer that kind of return (in the form of lower interest payments) as compared to just making minimum payments on that debt.
In your situation, I’d tackle those high-interest student loans first. The longer you let them sit around accumulating more than 8% interest per year, the longer it’ll take to ever pay them off. 8% interest on $150,000 is $12,000 per year that’s just gone in the form of interest payments to the bank. That’s just not good over the long term.
I could certainly write to promote a value set that’s different than my own, but what would be the point of that? The only purpose I could see would be solely to earn money.
Now, if I were to write solely to earn money, I certainly wouldn’t be writing about frugality and ways for people to keep their money in their pocket. I’d be telling people to spend spend spend. Why? Advertiser dollars. Companies that make consumer goods are much more likely to put their ads on sites where the writers are whipping readers into a consumerist frenzy than on a site that encourages people to save their money for the important things.
I suppose I could also do things like try to run seminars and the like, but that would (in my eyes) run completely contrary to what I talk about on here. “You should spend less money… except for the $400 I want you to give me for my seminar!” That seems hypocritical to me.
The only possible reason I’d choose to write a site like this one – and eschew things like seminars and such – is because I believe what I’m writing. If I believe in what I’m writing, it’s naturally going to reflect my values.
If you don’t like those values, that’s great. I don’t think you’ll get a lot of use out of The Simple Dollar, though.
Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.
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