Pay off House or Student loans in next 2 years or take longer & save for retirement?
House mortgage is 67,000 at 6.5% interest
Student loans is 65,000 @ 8.0% interest
Current retirement savings is 40,000
You can take the interest on student loans as a tax deduction on your taxes without itemizing which is a plus
I am age 36.
Depends on age. I am 30 and I woul say house, retirement, then student loans. If you are much older than that, you may want to switch the first two
I would pay the student loans
Student loans, retirement, then house.
Even if you can deduct that interest, that’s still a lot of money you could use for other things.
And it’s never too early to save for retirement.
I’d get the house paid off as quickly as possible. After all, it’s the roof over your head and a large asset. I know the math; and what the the financial advisors usually say (because they are taught that way). But there are many good reasons, like unforeseen circumstances, that can crop up. It’s safer, less risk to pay off the house. I would have to know more to advise you further. Like your age; how much risk are you comfortable with; what your financial goals are; how conservative or aggressive you want your financial plan to be. (former financial advisor with one of the biggest wall street firms)
This is the second question I’ve answered today about paying off a house early. Read through the following and decide for yourself.
First thing you have to ask yourself is how long do I have to pay the house off, and how much is it gonna cost me.
Since you’re talking about paying off one 60K debt or another in the next two year, we have to assume you have those resources at your disposal.
So, let’s say you have 30K at your disposal. You probably have 20+ years on your house (if you still have student loans, it’s a pretty safe assumption that you’re not in your 60s….).
Well, at 10% a year, in 20 years that 30K would grow to over 200K.
So, that 60+K it would take to pay off either afforementioned debt would grow to over 400K.
Meanwhile the % on your mortgage is only running about $4355 a year and going down. So that would be a total of $4355 X 20 = 87,100 or less(before you took the tax deductions you already mentioned)
So, 40K in % versus 400K in gains. Which seems like a better long-term strategy?
And that 400K would be liquid and not dependant upon finding a buyer for your house.
Put that money to work and it will make paying off those two things a lot easier. Pay yourself first! Accumulate wealth, then worry about that 120K in outstanding obligations when your portfolio is cranking out 100+K a year. …and maybe not even then.
Pay the student loans first. As long as you have that debt, you can’t afford retirement regardless of your savings. Worst case you can SELL the house to pay at least most of the mortgage. No such option exists for the student loans. Once that is gone, I recommend saving around 15% for retirement and attacking your mortgage with any additional money available. The fewer, or smaller, your payments, the less you need to have for retirement.
The tax deduction is a MYTH. assuming you are in the 35% tax bracket, currently the highest in the US, you PAY $1000 in interest for every $350 you save in taxes. That means you are still out $750.