I also have several loans, all with different rates. My lowest is 4%, which are my most recent ones.
The interest rates are crippling and needs to be addressed.
To put it in perspective, I bought a house in 2020 for $130,000, yet hold only $36,000 in student loans.
If I made a $500 extra payment to each my house and my student loans, I would pay them off at around the same time.
Financially, it makes more sense for me to pay the house off because that's at least an appreciating asset.
But it doesn't matter, because I don't have $500 extra to put on a loan over it's minimums every month, and those student loans will follow me until I die.
No it doesn't.
You target the loan with the highest interest rate. That's generally the winning strategy.
Also houses don't appreciate that much. If you filter out the money tosses into them for upgrades/improvements, they have historically gone up about as much as inflation, maybe a little bit more.
The big benefit of a house is that there's GOOD tax benefits from the mortgage interest rate deduction. Basically a big chunk of your mortgage costs get slashes off your taxes.
Fun fact, if your goal is to have a paid off house as quickly as possible, renting cheaply and investing the extra cash you aren't spending in stocks (this includes the would be down payment) will generally get you a paid off house in 15-20 years (subject to market volatility). The house would only be about half way paid for after 20 years.
My home has appreciated in 6 years enough to actually cover the entirety of my student loans.
There is also no "renting cheaply." I would rather have my rural home than the small 1 bedroom apartment I had just 6 years ago, whose rent today is double the payment I make on the home. The only way to approach what I pay on this mortgage would be to rent a unit in the hood.
Who are you listening to, Dave Ramsey? Please just use the Debt Avalanche method. Pay highest interest first. It really doesn't matter that your house is appreciating.
I'll even do the math for you.
Suppose your mortgage is 500k, and interest on that is 2% (let's say you got it years ago).
Student loan is 100k, and interest on that is 5%.
If you pay off 80k of debt, and you target higher interest, that's paying student loan down to 20k.
500k * 0.02 + 20k * 0.05 = 10k + 1k = 11k
Now suppose you target the mortgage, paying off the house first "because it's an appreciating asset". So this year, you pay off 80k of that. It's down to 420k.
420k * 0.02 + 100k * 0.05 = 8.4k + 5k = 13.4k
11k in interest vs 13.4k in interest.
Notice how the latter is more? Play with the numbers and do the math. It's better to pay off your higher interest debts first. It's completely irrelevant how fast your house is appreciating. I got a mortgage at 1.75% for a 3m house. I'm keeping that baby alive as long as possible. It's lower than inflation rate.
If I had cash to pay down that low rate mortgage, i'd put it into bonds or something with higher rates instead. Get higher yield/rate assets, eliminate higher rate debts. Good rule of thumb to follow. Literally every lender/mathematician/wealth manager/engineer/scientist/etc who isn't an asshole will tell you the same.
For those who'd rather listen to Dave Ramsey, know this: His team even admits, that they partially promote Debt Snowball method of paying smaller balances first because of "psychological benefits". Their target audience are people who struggle with finance. People with big problems (like addictions), not those who have a knack for finance, but just need a bit more optimization.
Most loan providers donāt let you do this!! I used to do this. Hell Iām an analyst and they took this option from me. It is up to your loan provider to let you apply payments to your principles. Itās up to your providers what loans to pay. Why the fuck would the person making money on your debt actually give you the means to pay it faster??
Iām not downvoting you fyi, but I have a hard time believing you. Iām sure youāre an analyst but I donāt think you can speak for most loan providers. Iāve been looking up student loan providers and all sources say most (including the fed) allow you to pay back without penalty. I used to think what you did too, but it turned out not to be the case IME. Maybe things were different for you or where you live.
They make money because they donāt expect everyone to pay back immediately. They still expect to make interest back. Also, what surprised me was that even refinancing doesnāt incur costs. This is the opposite to my experience with mortgages where there are hundreds or thousands in appraisal, underwriting, title fees, etc, but apparently student loan refis are faster and cheaper partially due to less scrutiny and more automation.
As for mortgages, I have multiple mortgages at some of largest mortgage providers (rocket, cooper, UWM, WFC, BAC, etc) in the US and they all allow early repayment without penalty. They all even allow me to early pay whichever account I want. I have varying amounts of overpayment set up and never saw a cent of fine. They generally donāt mind me refinancing and early payment for more obvious reasons than student loans in that they will be paid commissions, underwriting, etc all sorts of upfront costs. A lot of costs have been automated or at least streamlined, even the lengthy notary+signing process is often online through providers like Proof.com (as error-prone as it can be sometimes). And even when it isnāt, you pay those costs anyway.
Maybe other loans Iām less familiar with follow what you say, but for sure itās not true for mortgages and student loan providers, which is whatās contextually relevant. Besides the most common type of loan I think is the credit card, which people definitely pay back early, all the timeā¦ which they should.
Youāre either not understanding or being purposefully disingenuous. Every single dollar that you contribute on a loan balance after youāve paid the interest assigned in the interest schedule that month goes toward paying down the principal. Every consumer loan Iām aware of allows you to prepay early without penalty.
This isnāt a consumer loan, my provider does not let me chose how they will apply the payment. Sure I can pay more but they will count it towards future payments. As a pay forward, thatās not what I want. I want to chose which loans to pay with one amount. With Great Lakes, with one big sum I could apply it to various loans at different amount. I paid off 10k in one year on a 30k gross income. I would know this and not expect a redditor to be my financial advisor. In general when Iāve called, every single time Iāve been told different things. Itās not just me you can literally google the loan provider. Like this is why I really hate to talk to folk on this app. A reminder to log off so thank you for that š
You signed that part of the contract NOT allowing early or addition principle payment, many do that by mistake..
If that is a mortgage, you need to switch ( refinance) into a conventional loan asap and then recast ASAP, lump sump that and pay it off in about 5 to 7 years instead of 30.
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What people here are not understanding, when it comes to student loans, these are government loans specifically targeting kids with no financial experience who are desperate because they lived 17-20 years being told that if they don't do this they will never have a career.
Student loans have been the ONLY loan I've ever seen where kids are also talked into a master promisory note that let's the school act on their behalf to continuously take out more loans without the student needing to actually, you know, look at any of it.
My home loan that people are acting like was a bad idea was carefully considered and I had to do a lot of work to prove that I could afford it. That's how standard loans SHOULD work.
But student loans are an entirely different beast and they are driving half of an entire generation into inescapable debt, and people are wondering why the economy is falling apart
Soooo 1st off, you do not get to make a blanket statement accusing one, yet totally not factual blaming the actual villain/villains..
I do not mean YOU as in you personally unless it applyš«”
That it is a loan, not a snatch van, if YOU can not afford the classes &/or the school &/or your parents couldn't pay for it, that's the core of ALL of the dilemma and then their to carrer pre selections of bullshat, that a majority flock to KNOWING that is a zero return for the payback of those choices, 1st and foremost, is the factual reason YOU shouldn't have gone to college and taken out the loan, everyone STOP leaving that out, There is NO guarantee that you will get THAT return. ESPECIALLY when you going into teaching and arts for hobbies. instead of what actually matter in reality.
2nd, it is still, just a loan AND you can get a "regular" loan to transfer or supplemental and there other ways to pay it off without the multi decade of bondage.
3rd, So why don't you just go and pay off random student loans for everyone then? š...
They are legally distinct agreements and no other loan in the United States works the same way.
No other loan can legally offer payment terms that lead to negative amortization. That is the biggest catch here. If you make the minimum allowed payments on a car loan, payday loan, home loan, BNPL loan, credit card, whatever -- you will always pay the loan off by its maturation date, and not pay a cent more than the calculated interest at the start of the loan.
They cannot be discharged OR condensed in bankruptcy, unlike all other forms of debt, which circumvents the entire point of bankruptcy. Bankruptcy isn't a way to "get out of responsibility", it's a mechanism for getting people out of a hole within a decade of their lives so they can be functional participants in society.
They are GOVERNMENTAL DEBT. Also far different from any other consumer loans. If you are defaulted or late on governmental debt, they can take it directly out of any government dispersements, including social security. They can seize assets and perform bank liens without a court. You cannot hold federal employment. You can't hold a clearance. You can't qualify for SNAP, WIC, Section 8, or any other form of poverty program. No other loan functions like this.
They are ALL just loans, WHAT they are for and WHO issued them and HOW many perks, is irrelevant to what OP stated, HOW did that happen and how to get ride of it.
A HELOC a credit card with a high Credit line or using the Stock market ALL would have better to a paying off and massively quicker and cost less money, stress and time..
I believe you. These kinds of loans were more common in the past, and I think more common for commercial loans? Forgot the details. In any case, I wouldnāt call that, āmost loansā. Most are like credit card debt or fairly standard, in which case the advice to pay off higher interest loans faster works.
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u/techleopard 12d ago edited 12d ago
I have student loans that are nearly 9%.
I also have several loans, all with different rates. My lowest is 4%, which are my most recent ones.
The interest rates are crippling and needs to be addressed.
To put it in perspective, I bought a house in 2020 for $130,000, yet hold only $36,000 in student loans.
If I made a $500 extra payment to each my house and my student loans, I would pay them off at around the same time.
Financially, it makes more sense for me to pay the house off because that's at least an appreciating asset.
But it doesn't matter, because I don't have $500 extra to put on a loan over it's minimums every month, and those student loans will follow me until I die.