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cassembler
Posts: 470
Registered: ‎02-07-2011
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Re: A General 401k/Loan Repayment Finances Question


neverrain wrote:

I'm sure it is 100% of 4%.  At the moment, the 8% I am putting in works to a little over $400/month, and I can see the $200ish they put in.  Yea, I know it's a pretty sweet deal.

 

As for the emergency fund, I was figuring enough to cover all our bills (I live with my gf) in full for 3-6 month.  I would rather stay away from credit cards unless absolutely necessary.  Between the 2 of us we probably have close to 20k in available credit, but rent and utilities can't be paid with that, so liquid cash is more preferable to me for an emergency fund.  I guess YMMV applies here.


Point absolutely taken, and that's a wise decision. I'm only suggesting that 20k in available credit will definitely come in handy should one of you lose employment, and may affect how much you're comfortable with saving for a nest egg - especially if you're also saving for something specifc (house, car, etc).

 

Side note, I pay utilities all the time with a card and PIF:smileyhappy: Rewards, baby!

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neverrain
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Registered: ‎02-02-2011
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Re: A General 401k/Loan Repayment Finances Question

I wish I could too.  My Utilities (SoCalGas) and the LADWP dont allow it.  Only checking transfers. (That I'm aware of)


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SanFranMatt
Posts: 347
Registered: ‎09-16-2007
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Re: A General 401k/Loan Repayment Finances Question

Student Loans are generally tax deductible, so your effective rate is under 2%.  I'd pay the absolute minimum and stretch out the payments as long as possible, because you can't take out a loan that cheap.  Even if you have an extra $10K laying around so that you can pay it off immediately, I'd still recommend paying the minimum.  If something bad happens and you lose your job or have an emergency, you'd really regret overpaying the student loans. 

 

I'm a year older than you and I have about $6K left in loans, at about the same interest rate as you.  I paid off about $5K of my loans when I first left school.  Now I wish I didn't.  I'm looking to buy a house soon, and I'd much rather have that extra $5K for a down payment or emergency fund.

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oracles
Posts: 1,699
Registered: ‎08-18-2007
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Re: A General 401k/Loan Repayment Finances Question


Revelate wrote:

No, paying off an installment loan isn't a huge factor except for DTI calculations on a mortgage or auto loan.

 

Keep contributing to that 401K, that annual rate of return is compounded, so money you put in now, counts for quite a bit more than money you put in 10 years from now.  Never give up a long-term benefit for short-term satisfaction financially, and arguably you may be doing yourself more harm even from a FICO perspective within the next decade by paying that student loan off early.  I'm not seeing really any short-term upside other than pride/emotional benefit of getting it paid off.  So you'll be there in 1.5 or 2 years instead of 1, it doesn't matter rationally.

 


+100000000000000000000000 this is great advice, agree 1000% percent

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Crashem
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Registered: ‎01-26-2012
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Re: A General 401k/Loan Repayment Finances Question

Every 401k loan program works differently so yours may be different. But I know how fidelity works and they are one of the biggest. So going to use them as example. 1) 401k loans don't usually report to credit bureaus unless defaulted but usually enough in 401k to cover even default so nothing ever gets reported. So credit concerns are ilrelevant 2) usually there is a small fee for servicing loan or on initial setup. The interest you pay is essentially being paid to yourself and essentially becomes your rate of return. 3) you use after tax dollars to pay back loan which is double whammy. However you borrowed pre tax dollars and basically no other loan allows you to use pretax dollars to pay so essentially a wash in my opinion 4) if you leave the company for any reason (fired or changed jobs), there is usually an acceleration clause that will cause your payments to get much bigger. In some cases, it has to be paid back in 60 days or less. Failure to do so is really bad. Forget the credit concerns as I think in most cases there isn't any. Instead you will owe tax on it and a stiff penalty on top of it. So assuming most of what I am saying is true in your 401k. I would recommend you reduce your contribution to 4% and use the remaining to pay down the 401k loan faster. In some cases you can't even adjust the payments but only lump sum remaining balance. Why? Here is how I am looking at it. Your 401k money is only earning you 2.5% on after tax dollars. Your 401k is doing 5% (might want to check what options on funds you can invest in). Basically you want to stop earning half the interest rate as soon as possible. Also if there are acceleration clauses or quick payback in your 401k, that is an un intended expense when you can least afford it.
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GrowingCredit
Posts: 315
Registered: ‎05-28-2011
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Re: A General 401k/Loan Repayment Finances Question


oracles wrote:

Revelate wrote:

No, paying off an installment loan isn't a huge factor except for DTI calculations on a mortgage or auto loan.

 

Keep contributing to that 401K, that annual rate of return is compounded, so money you put in now, counts for quite a bit more than money you put in 10 years from now.  Never give up a long-term benefit for short-term satisfaction financially, and arguably you may be doing yourself more harm even from a FICO perspective within the next decade by paying that student loan off early.  I'm not seeing really any short-term upside other than pride/emotional benefit of getting it paid off.  So you'll be there in 1.5 or 2 years instead of 1, it doesn't matter rationally.

 


+100000000000000000000000 this is great advice, agree 1000% percent


+1. I have about $20000 in student loan and I pay monthly min what is required. At the end of the year I get the interest back so it is almost an interest free loan. I would rather have that extra money in my 401k or my savings toward my housing DP.

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AndySoCal
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Re: A General 401k/Loan Repayment Finances Question

Keep in mind with 401k Loans you are lender and the borrower. IE you are borrowing form your self.

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js0319
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Registered: ‎02-27-2012
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Re: A General 401k/Loan Repayment Finances Question

There are two ways to get money out of your 401k, depending on the types of 401k accounts you have. Those are generally traditional and Roth 401k's. In a traditional, you would have to pay taxes and penalties on whatever you borrowed, and typically you get about 60% after the taxes and penalties. In a Roth, you have a vested amount within that account, and you pay taxes on it before it goes into the account. Generally, with a Roth 401k loan you can borrow against your vested balance and pay back over a period of time, with the minimum typically being 1 year. You cannot pay it off early, but you do pay it back with interest. The interest, however, goes directly back into your Roth 401k. There is also usually a small fee associated with the loan.

 

I did a Roth 401k loan about a year ago, and just finished paying it off. I borrowed $1800 against my Roth 401k balance, and paid back a total of $1907 (4% interest and a $35 fee). I essentially had to pay myself $72 in interest. My weekly payment (deducted from my paycheck) was about $37.

 

Generally, you would only want to borrow against your 401k if it's a Roth 401k. You can't put back in what you've taken out in a traditional.


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