Comments on: My Lender Wants Me to Pay $10,000 Extra http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/ A premiere personal finance blog, established 2003. Within, Flexo discusses his own experiences with money, and he and other authors comment on a wide range of personal finance topics. Sat, 21 Nov 2009 16:42:00 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Nicole http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-121417 Nicole Thu, 25 Oct 2007 14:33:21 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-121417 One thing that is missing from the calculation is taxes you would have to pay on the gain from your investments. I am struggling with the same question. My student loan is only 3% but i get no deduction because of my income. My income is taxed at the highest rate, so that cuts my gains from my CD and savings acount almost by more than 1/3. Although I do come out slightly ahead, I wonder if the emotional satisfaction from paying off my student loan early would be worth it. One thing that is missing from the calculation is taxes you would have to pay on the gain from your investments. I am struggling with the same question. My student loan is only 3% but i get no deduction because of my income. My income is taxed at the highest rate, so that cuts my gains from my CD and savings acount almost by more than 1/3. Although I do come out slightly ahead, I wonder if the emotional satisfaction from paying off my student loan early would be worth it.

]]> By: Binary Dollar http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-68222 Binary Dollar Sun, 05 Nov 2006 15:14:37 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-68222 BD’s Favorite Personal Finance Posts This Week (11/5/06)... Happy Sunday, Sucka MCs. Personal finance bloggers were tapping on their keyboards to give you the very best advice and stories in personal finance. Rock and roll. Here are 5 posts around the horn this week: Building Wealth on $1.67 Per Day! @ All Fin... BD’s Favorite Personal Finance Posts This Week (11/5/06)…

Happy Sunday, Sucka MCs. Personal finance bloggers were tapping on their keyboards to give you the very best advice and stories in personal finance.
Rock and roll.
Here are 5 posts around the horn this week:
Building Wealth on $1.67 Per Day! @ All Fin…

]]> By: Free Money Finance http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67816 Free Money Finance Fri, 03 Nov 2006 11:21:01 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67816 Star Money Articles for the Week of Oct. 30... Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: MightyBargainHunter details a slick ATM trick. Five Cent Nickel did an economic analysis of Halloween. Blueprint for Financial Prosperity suggests you always ti... Star Money Articles for the Week of Oct. 30…

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: MightyBargainHunter details a slick ATM trick. Five Cent Nickel did an economic analysis of Halloween. Blueprint for Financial Prosperity suggests you always ti…

]]> By: Russell Bailyn http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67650 Russell Bailyn Wed, 01 Nov 2006 20:55:32 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67650 Let us not forget that student loan interest is tax-deductible. The deduction can be found on line 26 of form 1040. Depending on the amortization schedule, you could be paying predominately interest in the first few years of the loan. This provides another reason not to rush and pay down principal. Considering that traditional IRAs offer a tax deduction as well, I'd focus on maxing out that IRA (if you are within the income limits) before paying extra principal to the student loans. Let us not forget that student loan interest is tax-deductible. The deduction can be found on line 26 of form 1040. Depending on the amortization schedule, you could be paying predominately interest in the first few years of the loan. This provides another reason not to rush and pay down principal. Considering that traditional IRAs offer a tax deduction as well, I’d focus on maxing out that IRA (if you are within the income limits) before paying extra principal to the student loans.

]]> By: Lazy Man and Money http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67591 Lazy Man and Money Tue, 31 Oct 2006 20:24:21 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67591 I think Steve is right. Just take the money that you would have spent and put it in an investment over the next ten years. If it's a diversified portfolio you should be able to make about 8% or more on the money over the ten years. Maybe you'll want to do some creative bookkeeping so that it doesn't appear as if you have this debt hanging over your head. I think Steve is right. Just take the money that you would have spent and put it in an investment over the next ten years. If it’s a diversified portfolio you should be able to make about 8% or more on the money over the ten years.

Maybe you’ll want to do some creative bookkeeping so that it doesn’t appear as if you have this debt hanging over your head.

]]> By: Flexo http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67590 Flexo Tue, 31 Oct 2006 20:23:01 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67590 Thanks for all these great comments so far. There's a lot to respond to... Thanks for all these great comments so far. There’s a lot to respond to…

]]> By: Pete http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67587 Pete Tue, 31 Oct 2006 19:45:27 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67587 As you know Jim at Financial Blueprint did a similar article a few months back. I guess I am wondering why people have two different frame of mind, 1) How much money am I losing to interest 2) How much money am I gaining with compound interest Yet, few relate the two in the same article. Yes, you are paying someone $10,000 in interest. And by paying $87 more, you would pay the loan off in 1/2 the time (10 years) and cut what you pay in interest paid down to a little over $5,000 (in half - Wow one would say). Yet, if that same $87 was invested at 8% return, you would have $16,000 in just 10 years. Your loan would be $12,000 left. Thus, even if you do pay it off in full then, you are still ahead by $4,000. Now, many have said, but 4.25% is a guarunteed return and stock market is not. So, where are you invested? All CDs (due to the guarunteed return) or in stocks because you invest for long haul? It is a preference in risk. Yet, many say they are risk adverse (give me guaruntee return by paying off early) when paying off debt yet say they are risk takers when investing for long haul in stocks. Yet, they never really look at the two and say what is my overall strategy. As you know Jim at Financial Blueprint did a similar article a few months back. I guess I am wondering why people have two different frame of mind,

1) How much money am I losing to interest

2) How much money am I gaining with compound interest

Yet, few relate the two in the same article.

Yes, you are paying someone $10,000 in interest. And by paying $87 more, you would pay the loan off in 1/2 the time (10 years) and cut what you pay in interest paid down to a little over $5,000 (in half – Wow one would say).

Yet, if that same $87 was invested at 8% return, you would have $16,000 in just 10 years. Your loan would be $12,000 left. Thus, even if you do pay it off in full then, you are still ahead by $4,000.

Now, many have said, but 4.25% is a guarunteed return and stock market is not. So, where are you invested? All CDs (due to the guarunteed return) or in stocks because you invest for long haul?

It is a preference in risk. Yet, many say they are risk adverse (give me guaruntee return by paying off early) when paying off debt yet say they are risk takers when investing for long haul in stocks. Yet, they never really look at the two and say what is my overall strategy.

]]> By: Steve http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67586 Steve Tue, 31 Oct 2006 19:40:22 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67586 My lender also reduces my interest rate by .25% for paying automatically and if I pay on time for 36 months, they reduce it another 1%. You should check if they offer that as well. $9,973.84 may sound like a lot of money, but you need to consider if it's in your best interest to pay it off early. For example, if you can get a further 1% reduction after 2-3 years, you're down to 3% interest rate. Also, if your student loan interest is tax deductible, your effective interest rate at that point would probably be around 2%. You can certainly earn a higher rate of return by putting that money to work elsewhere. Yes, $10K may seem like a lot of interest, but you need to consider that it could actually be costing you MORE money by neglecting to invest any extra money you have because you decided to pay off the loan. The reason people say it's okay to carry debt with low interest rates isn't because the money isn't real; it's because it could actually cost you money to pay it off early. My lender also reduces my interest rate by .25% for paying automatically and if I pay on time for 36 months, they reduce it another 1%. You should check if they offer that as well.

$9,973.84 may sound like a lot of money, but you need to consider if it’s in your best interest to pay it off early.

For example, if you can get a further 1% reduction after 2-3 years, you’re down to 3% interest rate. Also, if your student loan interest is tax deductible, your effective interest rate at that point would probably be around 2%. You can certainly earn a higher rate of return by putting that money to work elsewhere.

Yes, $10K may seem like a lot of interest, but you need to consider that it could actually be costing you MORE money by neglecting to invest any extra money you have because you decided to pay off the loan.

The reason people say it’s okay to carry debt with low interest rates isn’t because the money isn’t real; it’s because it could actually cost you money to pay it off early.

]]> By: Keith http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67583 Keith Tue, 31 Oct 2006 18:52:44 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67583 The 10 or 20 year amortization period is great for a recent graduate just starting their career, but that is far too long for me. I had a 10 year amortization period and paid my loans off in about 6 years. (my lender allowed me to make extra principal payments with automatic payment.) Now that I am married I am working my wife's balances down. As for prioritizing my acceleration payments I would pay them off in this order: 1. Credit Cards 2. Auto loans 3. Student loans 4. 2nd mortgage / Line of Credit 5. Mortgage The 10 or 20 year amortization period is great for a recent graduate just starting their career, but that is far too long for me. I had a 10 year amortization period and paid my loans off in about 6 years. (my lender allowed me to make extra principal payments with automatic payment.) Now that I am married I am working my wife’s balances down.

As for prioritizing my acceleration payments I would pay them off in this order:

1. Credit Cards
2. Auto loans
3. Student loans
4. 2nd mortgage / Line of Credit
5. Mortgage

]]> By: Golbguru http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67578 Golbguru Tue, 31 Oct 2006 17:59:15 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67578 If you have enough reserves I don't see any reason not to just pay the damn thing off. In fact your balance statement for sept says you have $22K in cash :)...if I were you, I won't have second thoughts about paying the entire loan off right now. Some reasons why you wouldn't want to do that: 1. You are expecting a big purchase soon and require quite a bit of reserve cash. 2. You get tax benefits/other benefits on the loan. 3. Any other reason that will earn you more than 10K in 20 years. If you have enough reserves I don’t see any reason not to just pay the damn thing off. In fact your balance statement for sept says you have $22K in cash :)…if I were you, I won’t have second thoughts about paying the entire loan off right now.

Some reasons why you wouldn’t want to do that:
1. You are expecting a big purchase soon and require quite a bit of reserve cash.
2. You get tax benefits/other benefits on the loan.
3. Any other reason that will earn you more than 10K in 20 years.

]]> By: Steve http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67576 Steve Tue, 31 Oct 2006 17:35:58 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67576 I don't see much point in making extra payments to student loans. The only time you should do this is if you have enough to pay off the loan. Unlike credit cards, making extra payments isn't going to reduce your next monthly payment. If you want to pay off a loan early, take the extra money you want to pay and put it into a savings account. Then, when you have the money to pay off the remaining principle, go for it. But if you make payments along the way, you're preventing your money from working for you. I don’t see much point in making extra payments to student loans. The only time you should do this is if you have enough to pay off the loan.

Unlike credit cards, making extra payments isn’t going to reduce your next monthly payment. If you want to pay off a loan early, take the extra money you want to pay and put it into a savings account. Then, when you have the money to pay off the remaining principle, go for it. But if you make payments along the way, you’re preventing your money from working for you.

]]> By: JR http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67575 JR Tue, 31 Oct 2006 17:10:53 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67575 I struggle with this question, too. I've got a vehicle loan at 4.75%, a student loan at 5.375% and a mortgage at 6.25%. Unfortunately, the balances are lowest on the lowest interest rate and highest on the highest rate. Should I keep paying just above the minimum on the vehicle and student loans and put extra toward the mortgage (my current strategy)? It's probably the best purely logical choice since I'm paying down the high interest, high balance loan. But I know that accelerating payment of the small loans and paying them off would free up lots of extra money that could then go to the mortgage. Doing that would feel better, too, since I'd have only one loan within two years. Decisions decisions... I struggle with this question, too.

I’ve got a vehicle loan at 4.75%, a student loan at 5.375% and a mortgage at 6.25%. Unfortunately, the balances are lowest on the lowest interest rate and highest on the highest rate.

Should I keep paying just above the minimum on the vehicle and student loans and put extra toward the mortgage (my current strategy)? It’s probably the best purely logical choice since I’m paying down the high interest, high balance loan.

But I know that accelerating payment of the small loans and paying them off would free up lots of extra money that could then go to the mortgage. Doing that would feel better, too, since I’d have only one loan within two years.

Decisions decisions…

]]> By: HC http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67574 HC Tue, 31 Oct 2006 16:48:02 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67574 That's my question too. Automatic payment doesn't exclude pre-payment. You might not be able to get them to reamortize the loan, but you should be able to send in an extra payment once or twice a year. A lot of sites even let you do that online. That’s my question too.

Automatic payment doesn’t exclude pre-payment. You might not be able to get them to reamortize the loan, but you should be able to send in an extra payment once or twice a year.

A lot of sites even let you do that online.

]]> By: kurt http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67573 kurt Tue, 31 Oct 2006 16:37:54 +0000 http://www.consumerismcommentary.com/2006/10/31/my-lender-wants-me-to-pay-10000-extra/#comment-67573 Can you not pre-pay? Can you not pre-pay?

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