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      04-09-2020, 10:35 AM   #1
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Loan Question

So I'm still chipping away at my student loans, work has agreed to pay them off over time. Anyways I got a chunk of cash from work to put towards them. My question is to a pay off a private loan with a high interest rate (6.7%) or throw the entire chunk at my Fedloans that are being dropped to 0% until Sep? Normal interest rate on my Fedloans is quite a bit lower at 3.5%, and I don't have enough in pocket to pay the entire amount off.

A buddy of mine had another question that I'm pondering myself. Taking out a private loan to pay off their federal loans while the interest rate is 0%. I see the benefit in this, but it would also depend on the interest he would get on the private loan.

Private loan amount - 13k, have enough to pay the in full
Fed loan about ~ 30k, would only be able to take that to near half. Hence if I wanted to pay the entire amount a private loan would be necessary going off my buddies idea.

Anyways appreciate any guidance. I'm sure a couple will comment "asking bmw forum for financial advice, smh", but idgaf lol.
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      04-09-2020, 10:47 AM   #2
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I would put it towards paying off the one with the higher interest rate, which would also leave you with one less loan to worry about.**




**This also depends on how closely your work tracks where the money goes that they give you towards loans. IE: would there be any issues using it for something other than the loans they specify?
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      04-09-2020, 10:51 AM   #3
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Quote:
Originally Posted by CTinline-six View Post
I would put it towards paying off the one with the higher interest rate, which would also leave you with one less loan to worry about.**




**This also depends on how closely your work tracks where the money goes that they give you towards loans. IE: would there be any issues using it for something other than the loans they specify?
I'm kind of thinking the same, but with that said I would also like them not to pay more then needed. So if I would throw the entire amount at the premium of the federal loan then it would be less money out of their pocket in the long run. Since the interest of the private loan will not change much.

I do not think they intend of tracking the amount that goes towards which loan, but I intend to provide them the amounts that I pay off. Especially if I need to pay a grand or two out of my pocket in regards to future reimbursement.
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      04-09-2020, 11:03 AM   #4
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It's good the federal loans are now temporarily at 0%, but I doubt any personal loans you would use to pay those off would be.
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      04-09-2020, 01:20 PM   #5
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Don't divert student loan repayments towards a private debt unless it is explicitly permitted (like, part of the signed statement). Potentially this is federal fraud, depending on what program the repayment money is coming from; at the least, it can put you in an unfriendly position with your workplace. Any company that is funding s/t like this should also have free legal advice you can get (like thru EAP office) and I'd run it by them at least.
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      04-09-2020, 01:24 PM   #6
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100% keep the fed loans. The fed offers more options if you’re down on your luck one day.

Pay off the higher rate loans. Chip away at the fed loans over time. You can make targeted payments and pay off specific loans. Don’t refi because the rate is low enough and a refi would increase your monthly payment.
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      04-09-2020, 01:45 PM   #7
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Quote:
Originally Posted by Maynard View Post
Don't divert student loan repayments towards a private debt unless it is explicitly permitted (like, part of the signed statement). Potentially this is federal fraud, depending on what program the repayment money is coming from; at the least, it can put you in an unfriendly position with your workplace. Any company that is funding s/t like this should also have free legal advice you can get (like thru EAP office) and I'd run it by them at least.
The private loan I was talking about is a private student loan that they are aware of. We do not have a student loan pay-off program within the company (yet, currently something I'm pushing for to bring in young talent), rather it was something that I negotiated and was agreed upon.

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Originally Posted by rcracin View Post
100% keep the fed loans. The fed offers more options if youíre down on your luck one day.

Pay off the higher rate loans. Chip away at the fed loans over time. You can make targeted payments and pay off specific loans. Donít refi because the rate is low enough and a refi would increase your monthly payment.
Leaning towards this because of the low rate, still debating my options, but this was my initial thought as well.

Appreciate all of the opinions, just trying to make the best financial decision.
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      04-09-2020, 02:42 PM   #8
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Pay off the high interest loan, then start adding the amount you were paying monthly on this to the other loan.

You are already used to not having the money, so you won't miss it and will pay off the other one that much faster.
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      04-09-2020, 02:47 PM   #9
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Although my bias is to pay off higher interest rate loans first, I would also consider the cash flow (principal plus interest) of the two scenarios you mention.

If you can reduce cash flow requirements more by paying the lower interest loans first, then that cash flow is freed up to pay down the other loans faster, too (in sequence). With student loans this is unlikely because they all are probably on similar amortization schedules, but still worth taking a look.
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      04-09-2020, 03:11 PM   #10
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You are asking if you should:

Put your money into a loan with 3.5% interest rate (or 0% for now) that is tax deductible.

Or

Put your money into a loan with 6.5% interest rate


How is this a question? Are you guys doing mental gymnastics to make this into a hard dilemma or am I missing something?
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      04-09-2020, 04:04 PM   #11
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Quote:
Originally Posted by ImolaMoop View Post
You are asking if you should:

Put your money into a loan with 3.5% interest rate (or 0% for now) that is tax deductible.

Or

Put your money into a loan with 6.5% interest rate


How is this a question? Are you guys doing mental gymnastics to make this into a hard dilemma or am I missing something?
Each of them are tax deductible? Both are a student loan interest deduction. So in reality I'd get a better tax deduction based on the 6.7% interest rate. Since If I paid towards the premium on the fedloan none of that would go towards the interest.

Scratch that, not eligible for the deduction based on my income.. sigh

Last edited by JP10; 04-09-2020 at 04:14 PM..
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      04-09-2020, 04:14 PM   #12
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Quote:
Originally Posted by JP10 View Post
Each of them are tax deductible? Both are a student loan interest deduction. So in reality I'd get a better tax deduction based on the 6.7% interest rate. Since If I paid towards the premium on the fedloan none of that would go towards the interest.
Ok didn't know that, but still doesn't change the answer. Don't spend more money on interest just for the sake of getting some of it back at tax time.
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      08-30-2021, 11:11 AM   #13
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I think it is better to pay off a private loan with a high interest rate. And taking out a private loan to pay off their federal loans while the interest rate is 0% will anyways be profitable I guess. By the way, if you want to take a loan or mortgage but you donít know where to do this, I can recommend you a maple mortgage. Theyíll demystify mortgages, provide better transparency, and give you the best tools so you can make the mortgage decision that's right for you. You can start by checking out today's best mortgage rates, see how much you can afford using our home affordability calculator, learn about the mortgage stress test, etc.
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      08-30-2021, 11:23 AM   #14
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I know this is an old thread, but somebody posted today and it popped back up.

So far there have been 13 posts and not a single person told the OP to sell his M3 and pay off the loans. This must be a car forum!
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      08-30-2021, 12:45 PM   #15
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This thread should be blown up
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      08-30-2021, 01:36 PM   #16
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JP10 Did you ask the wife?
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      08-30-2021, 01:44 PM   #17
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Lol forgot I posted this, and in hindsight the question wasn't really thought out but that is what it is. Private loan was paid off - federals are still in process. They would've been taken care of if life didn't get in the way. The wife went super over budget on the wedding so that was a kick in the nuts, then just a few weeks ago we were offered first right of refusal to buy our house. So needless to say I have spent a shload of money this year. Next year I'll start tackling the federal loans more aggressively... I say that but the wife wants to start trying for kids - definitely going to be getting some grey hairs at this rate!
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      08-30-2021, 01:46 PM   #18
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Quote:
Originally Posted by sygazelle View Post
I know this is an old thread, but somebody posted today and it popped back up.

So far there have been 13 posts and not a single person told the OP to sell his M3 and pay off the loans. This must be a car forum!
Shhhhh, no one wants to know the blatantly obvious truth. If I sold the M3 I could pay it all off though because the car is paid off, but what is the fun in that! Now once I get a company vehicle I'm sure the wife will start to connect the dots, but I am avoiding that conversation like the plague!
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      08-30-2021, 02:05 PM   #19
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Quote:
Originally Posted by JP10 View Post
Shhhhh, no one wants to know the blatantly obvious truth. If I sold the M3 I could pay it all off though because the car is paid off, but what is the fun in that! Now once I get a company vehicle I'm sure the wife will start to connect the dots, but I am avoiding that conversation like the plague!
Well sure, and we could also sell our internal organs to pay off some debt but come on, you gotta be sensible here. Keeping the M3 is definitely the right move. Now if your original post was "Recommendations for sleeping comfortably in an M3" because you were so financially strapped that you were about to be homeless, then OK, that MIGHT warrant CONSIDERING selling the M3...
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      08-30-2021, 02:22 PM   #20
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Quote:
Originally Posted by DETRoadster View Post
Well sure, and we could also sell our internal organs to pay off some debt but come on, you gotta be sensible here. Keeping the M3 is definitely the right move. Now if your original post was "Recommendations for sleeping comfortably in an M3" because you were so financially strapped that you were about to be homeless, then OK, that MIGHT warrant CONSIDERING selling the M3...
You must not be up to date, he recently got married. The M3 will soon become his bedroom . . .
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      08-30-2021, 02:28 PM   #21
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Quote:
Originally Posted by UncleWede View Post
You must not be up to date, he recently got married. The M3 will soon become his bedroom . . .
Not if he picked the right wife.
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      08-30-2021, 02:58 PM   #22
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Quote:
Originally Posted by UncleWede View Post
You must not be up to date, he recently got married. The M3 will soon become his bedroom . . .
Quote:
Originally Posted by DETRoadster View Post
Not if he picked the right wife.
Haha she isn't too bad, pretty much have free rein to do what I like, and that is mutual on her end as well. We keep each other in check, while it's most definitely a relationship it often feels more like a friendship which is a great thing in my opinion. I have to keep an eye on her in regards to certain financial decisions, but luckily we are quite fortunate considering our age.
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