The only loans (besides the mammoth of a mortgage) we have is a car loan at 2% and a student loan at 2.13%(some of which is tax-deductible, which effectively makes it even less).
We could even pay them off if we used our savings, but we did not. Though I occassionally make an extra payment on my SL (irrational? emotional? I don't know).
But when I think of it, 2% is much less than the rate of the official inflation, let along the real one (for me, inflation should include gas and food, since we buy those a lot). So that money looses value every year. Does it make any financial sense to pay extra on such low interest loans? Am I missing something important?
Is it stupid to pay extra on some loans?
September 26th, 2011 at 10:42 pm
September 26th, 2011 at 11:12 pm 1317075174
P.S. Are you sure that your student interest is deductible? High income phases out the deduction. It's not a deduction I see many people in California taking, so leaves me skeptical since you are in NYC.
September 27th, 2011 at 12:14 am 1317078893
September 27th, 2011 at 01:46 am 1317084373
September 27th, 2011 at 03:18 am 1317089889
September 27th, 2011 at 10:21 am 1317115311
September 27th, 2011 at 04:37 pm 1317137827
I don't think you have to be in any hurry to pay off loans with 2% interest rate, though. That's a pretty good rate!
September 27th, 2011 at 05:26 pm 1317140790
Anyone wants to address the inflation argument? That's the one that troubles me here, mathematically.
I am trying to think about it from purely financial point of view, and "slave to the lender" sounds like a Dave Ramsey slogan.
I don't feel I am a slave -- these loans are not a hardship. And if I had to move overseas for a job or something like that, I could just pay off the car and sell it (we put like 50% down so we were never up side down).
Should I be paying these loans off or should we keep the money? Should we be investing what little extras we have in some mutual fund or straight S&P500 fund, since times are turbulent?
Or save in case some opportunity comes along? Like keeping an "opportunity fund". You can't borrow at 2% for anything except a car right now.
Now that we have child care expenses (that are crazy in NYC) we can't save like we used to -- new savings will be a struggle, and few extra hundred here and there may be better off sitting in accounts. We do have a fully funded EF and are now dabbling a little in non-retirement investments.
So being aggressive about paying down these loans, does it make mathematical sense?
September 28th, 2011 at 09:42 pm 1317242549
September 28th, 2011 at 09:50 pm 1317243008
October 6th, 2011 at 06:56 am 1317880602