Student loan repayment... sell the car? grind it out? your advice is appreciated.

[vudooca]

I am currently researching for the best way to do this: To pay off my student loan debt. I haven't been able to meet with a financial advisor up in fort st john as the banks close when I am free and/or they are way too booked up. Plus I don't want them selling me products to get there sales records up. In addition, I would ask of my few accountant friends but they seem to be too busy. I know that there are some very knowledgeable people in here so I am hoping that they may be able to give me some advice

My student loan is at ~55000 and has a floating 5.25% annual interest rate which roughly ends up equating to $250 a month or $8.25 a day of interest based on the total amount. I have been on repayment assistance since Jan 1 which ends June 30th. This status allowed me to have the government pay for all the interest that would have accumulated up until June 30th. My first scheduled payment is at the end of July. In case your wondering, I was legitimately in need of it; however, I have been lucky in the past few months to secure a full time job and help paying moving forward when i need to.

Income:
I don't work in the oil and gas industry up here in fort st john so I dont make over 100k, but I am happy with my secure job here. At the end of the month my take home is $3700 a month (which includes taxes deducted)

Expenses
basement suite rent, cell, car insurance, food, heat, electricity, everything...
i am able to get it down to $800 a month on average.

Assets
Now I've accumulated in about 22000 just sitting from working and saving.
I also own a highly modified 300zx twinturbo which i honestly value at 17000
I also own a 97 pathfinder which is probably worth 2000

Thoughts
I really do not want to sell my child hood dream car if i dont have to. I heard student loan interest rates were considered a good rate. My experience in this bar none so I am not sure if it is... is it? I also have heard that some people buy a house... get a mortgage and lump their student loan in the mortgage which i hear is possible too. This is apparently called consolidating. Clarification on this approach would be appreciated. Any other ideas would be also appreciated as well. Especially ones that are low risk investments that would beat the interest rate of my student loan.

Current Plan (rough)
Here is the rough payment plan table i made if i just decided to grind it out:

Month / $inject / Student loan /floating 5.35 per year /thus by month /thus by daily
Current 0 56393.66 3017.06081 251.4217342 8.267188418
May-15 22000 34393.66 1840.06081 153.3384008 5.042036066
Jun-15 4000 30393.66 1626.06081 135.5050675 4.455644729
Jul-15 2500 27893.66 1492.31081 124.3592342 4.089150144
Aug-15 2500 25393.66 1358.56081 113.2134008 3.722655558
Sep-15 2500 22893.66 1224.81081 102.0675675 3.356160973
Oct-15 4000 18893.66 1010.81081 84.23423417 2.769769636
Nov-15 2500 16393.66 877.06081 73.08840083 2.40327505
Dec-15 2500 13893.66 743.31081 61.9425675 2.036780465
Jan-16 2500 11393.66 609.56081 50.79673417 1.670285879
Feb-16 4000 7393.66 395.56081 32.96340083 1.083894543
Mar-16 2500 4893.66 261.81081 21.8175675 0.717399957
Apr-16 2500 2393.66 128.06081 10.67173417 0.350905372
May-16 2393 0 0 0 0

Thank you for taking your time in reading at least. I hope someone can chime in soon.

[BrownBear]

sell it to me on the low

[mb_]

Personally, I'd grind it out and keep the car since you love it so much . You're making a decent amount of money as well imo.

[vudooca]

yeah... just the thought of dumping 22k out of my chequing account into a student loan repayment is like a stab in the heart...

[!Yaminashi]

Sell the car as your last resort. I'm sure you've invested alot of your time, energy and money into it. You will hate yourself forever if you let it go.

[Mr.HappySilp]

When I grind to pay my student loan I was working 12hours day for 6 days a week. But hey when you work this much you won't even want to go out so you end up putting more in paying.

Not sure if I can give you any advice but the way how I pay mine was pay the monthly fee every month. Every 6 months I would throw all my savings into one lumsum. The first year or two you won't feel you pay much off but after that you start to see the number decrease a lot each time.

[yray]

Keep doing rap... Better to save up until they decline rap and then dump a lump sum.

[nabs]

I would rather pay off student loan.. but that's just me.

[v_tec]

Sorry, I don't know the details of student loans.

But do they not have the option for you to repay a portion (say...$15k from your chequeing), so you only owe ~40k, and thus reducing the amount of interest you have to pay each month?

[lowside67]

The car part I'll leave to your own decision, it's your business.

But the $22k in the bank is a VERY simple decision. If you have any way you can make more than 5.25% on that money - ie investing it at 8%, it'd be better to do that as you will earn 8% and then pay 5.25% which leaves you 2.75% profit (for simple math). However, if you are just sitting it in a bank account earning 0% interest, or anything less than 5.25%, you are literally paying interest to borrow money you already have.

TLDR: If your $22k is in a savings account doing nothing, pay the loan off with every bit of that.

Mark

[tiger_handheld]

5.25% rate is pretty awesome. You will not be able to get an unsecured LOC for that or even less than that.

I would not dump 22k into paying it down. Keep that as rainy day fund or whatever and invest it wisely (look into canadian couch potato or Tangerine mutual funds).

Make regular payments of $2000 if you can afford to - leaves you with $1200 to "live".

Instead of rushing to pay it off in 1 year - have a 3 year goal. This will help you save some extra cash on the side as well. If rates go up in the future, you can use some of the savings to pay it off + still have some left.

Thats what I would do - you gotta balance life + savings + obligations. Money is cheap these days make it work for you!

[Jmac]

I wouldn't be in a huge rush to pay off your student loan.

First, it's likely the most forgiving loan you'll ever have. If you lose your job, get laid off, get injured in an accident, get seriously ill, etc. you have a number of options available to you to have your payments reduced, deferred, or even forgiven.
Repayment Assistance - CanLearn

Second, the interest you pay on your student loan is tax deductible.
Line 319 - Interest paid on your student loans

Third, what lowside said, you can use that money to invest and potentially accrue a higher return than your interest rate. Max out your tax-free savings account. Max out your RRSP tax deduction.
Tax Free Savings Account (TFSA)
How much can I contribute and deduct?

[Euro7r]

Sounds like you are young and just finished school, starting your career. With no family commitments etc, I would personally take the $22k and pay it down as soon as possible. Unless you are able to use that $22k and generate some good return elsewhere. Say you want to buy a place down the road and this student loan can affect your ability to norrow, even more stressful. That's my personal opinion, everyone will see it differently.

On a side note, don't sell the car unless you have to haha. YOLO! Well this is a car-forum LOL.

[Spoon]

Look at your life situation and put it in an worst possible situation. When shit hits the fan and you lose your job, do you have family around to keep you afloat? If you do, I'd put most of your 22k into repaying the loan. But it's really whatever you're comfortable with, and everybody's "safety" zone is different.

If you're all on your own, I'd keep a minimum 12 x $800/month = $9600 away as your rainy day fund and use most of the remaining funds towards the loan. Even if you lose your job, you still know that you can live within your means for a year.

[kluk]

We are in a low interest rate environment so why rush to pay off student loans at 5.25% especially if you have a good stable job. If this low interest rate environment ever changes then that is when you need to reconsider.

A low risk mutual fund (80%Bonds/20%equity) has averaged over the past 5 years roughly 4-5%/year after fees(MER). When you factor in inflation this will not beat the student loan interest rate either.

If you do not need the $22k for any immediate expenses you may consider putting half in a high interest savings account to earn your ~1% return and the other half in a low risk mutual fund/etf. If you do not have a tax free savings account (TFSA) set up please do so together with the suggestion above.

To answer your question about consolidating, that is certainly a possibility and many people do this as well. If you do it this way your student loan basically just gets amalgamated into your mortgage and you pay @ mortgage interest rates (last time I checked it was 2.69% for a 5 year fixed rate). However, mortgages tend to also have 25year amortizations so the interest you save may very well be negated.

What I suggest is if you are considering a mortgage and consolidating your student loan with it to take advantage of the 2.69% over 5 years, you should do prepayments to your mortgage. These prepayments go directly to the principle portion of your mortgage. This options gives you a little more flexibility and the advantages of a lower interest rate. Depending on where you get your mortgage, different banks have different prepayment amounts you can do per year (anywhere between 10%-20%).

[6793026]

I was in your shoes. What HIT me the most was this: For each month you don't pay it off, the MORE interest you are paying in the future.

I MADE sure I paid it off asap.

Also, the longer I don't pay it off, the tougher it was for me to buy a place or finance a new car... that's why i paid it off.

[vudooca]

Thank you everyone for the advice. A lot of it makes sense. I think I got it driven down to me when I was growing up that debt is bad so I thought getting rid of it at all costs was top priority. Which is half right now that i think about. There seems to be no need to suffer through it and have it heavily affect your quality of life (especially if you have no family support -hence why i needed this damn thing in the first place) if you can manage it properly. I think I might be coming to my senses...

I have a hard time explaining my ideas since I am not an accountant but im just using common sense and basic math and excel to help me here.

So this is a basic framework of my plan... Not sure the best way to optimize it... each year there is gonna be a slight raise so i just added $100 to the take home for a rough estimate.

Untitled.jpg

The only issue is to find ways to invest which I think i'd really enjoy figuring out and then beat the floating interest rate. I will try to extend the RAP but i doubt it would work now since I have a 'good' income. I wonder if there is a way to negotiate a lower floating interest rate if I tell them that I will put in 2k a month instead of the minimum?

Hopefully there isn't any major holes in this basic framework. Again thank you for your thoughts.

[6793026]

Even I'm "too young" to figure out a way to beat the interest rate.

Pure and simple. Interest gain > load interest.

Yes it does mean you get to pro-long not paying back, but bottom line, you still have to pay. When I did the math, I would "earn" close to nothing... which I said fuck it.

For sake of math and at best case:

$20,000, you earn 10% interest per yr at best
cost of student loan is 2.69%
Difference is still 8%.
that's $1600 per year or 133.33 per month.

I said fuck it; lesson learned, don't want to deal with all the debt BS and paid it off.

[vudooca]

Originally Posted by 6793026

I was in your shoes. What HIT me the most was this: For each month you don't pay it off, the MORE interest you are paying in the future.

I MADE sure I paid it off asap.

Also, the longer I don't pay it off, the tougher it was for me to buy a place or finance a new car... that's why i paid it off.

True, but if you focus too much on the loan payback you may also miss some investment opportunities too right?

[subordinate]

got denied RAP?

If not, try again.

Like Spoon said, that's top notch advice. Don't be chucking all that 22,000 into your student loan.

Always have a rainy day fund, you never know in life.

I wouldn't invest the rest personally, I would just keep it in a decent savings account and everytime it exceeds the rainy day fund bracket amount, I would pay the remaining right away to student loans.

That's what I'd do personally & keep the car, since it's your baby.

[Nlkko]

You guys really advising him to "invest" first before paying off his debt? There is NO guaranteed investment outside of GIC and a Savings Account. You can and may very well lose money investing.

Pay off your debt, invest when you're balance sheet is clean. Ditch the $17,000 car, which by the way, is a depreciating asset.

You are sitting on 55k debt AND paying interest monthly with the power to instantly pay off 70% and enough income to pay off your debt within a year easy. You don't need a 3 year plan.

Be debt-free first and invest only after.

[subordinate]

Originally Posted by Nlkko

You guys really advising him to "invest" first before paying off his debt? There is NO guaranteed investment outside of GIC and a Savings Account. You can and may very well lose money investing.

Pay off your debt, invest when you're balance sheet is clean. Ditch the $17,000 car, which by the way, is a depreciating asset.

You are sitting on 55k debt AND paying interest monthly with the power to instantly pay off 70% and enough income to pay off your debt within a year easy. You don't need a 3 year plan.

Be debt-free first and invest only after.

Selling his car and placing everything on his student loan isn't a wise move either.

What happens if he loses his job? has no savings? Food? Rent?

And I think everyone knows his car is a depreciating asset. But it's not just a car for him, it's pretty sentimental. He's not in dire straits from a loan shark to pay his loan.

[rJZx]

Should also consider that you may not get 17gs and that you are most likely gonna have to wait a long time to find a buyer.

I'm voting for keeping your dream car as money comes and goes whereas there's only one 300zx that's your "baby".

[Noir]

Keep the car, even if just for the sake of your sanity. Sometimes being too responsible is not a good thing. Need to live a little and as long as that's under control, it's actually quite healthy.

I also am along the camp with banking that $22k. Emergency Fund > Debt Free. The way I look at it, I'd rather fuck up my credit than, than not have that safety net in life.

Plus, as long as you have that $22k, there's nothing stopping you from reversing your decision later in your 3 yr plan, and dumping that $22k in your SL. However, drop that $22K now and there's nothing you can do to reverse that decision or get that money back.

At least that's how I'm managing my own Student Loan repayment.

[4444]

personally i'd do the following:

1) keep a $5K emergency fund, use rest of $22K ($17K) to pay down a portion of loan
2) if your car is that worth it to you, personally, keep it - you only live once. for me, i'd sell it, but i'm not you and do not appreciate it as much.
3) set up a budget, track it weekly (fill it in) and review it quarterly. as part of that budget, minimize your expenses and maximize your free cash - budget to use every penny of that free cash to pay off your loan.
4) based on 3) have a date set to pay off your loan, and meet it.
5) that $5K emergency fund is just that, emergencies only.

the great thing about doing the above is that once you have paid off your debt, you can continue to budget and save the excess, instead of using it to pay off loan, put it in an investment account every month, buy a diversified portfolio of stock and be a millionaire when you're old. just remember that when you get a pay raise, a disproportionate amount of that extra income goes towards investments.