If you have read my previous post, Life After an Auto Loan, you’ll notice that I was undecided on what I wanted to do after my auto loan was paid off. Over the past month I made a decision to split it up. I am allocating 75% of the $400 to my student loans and the remainder to my Roth IRA.
By making this move, my student loans repayment schedule fell to 4 years from their original 10 years! This is a huge drop in time and interest. Based on my calculations, I should be keeping about $3,000 in my pocket that would otherwise go to the loan company. If I allocated 100% to the loan, that would cut the time down to about 3.5 years.
Depending on your income level, you may be able to claim student loan interest paid on your taxes. Unfortunately for me, I am unable to claim this. So, for me, it makes no financial sense to carry this “good” debt. Depending on how you look at things, some say that no debt is “good” debt.
What exactly is “good” debt? “Good” debt is any debt that’s taken out for the prospect of growth, such as a student or home loan; it may also be tax-deductible. When you take out a student loan, you are investing in education that will, hopefully, increase the earning potential over your lifetime.
As much as I want to pay down my student loan quickly, I still need to save for retirement. I currently match my employer’s 403b at 1% and contribute to my Roth IRA. Before I bought the house, my Roth IRA was maxed out every year at $5,000. This past year, I only contributed a $1,000 to it – after my tax return! This year I am trying to set aside for my Roth IRA every month, while still saving a portion from my tax return. If my calculations are correct, this will place me at roughly $2,000 saved for the 2010 year.
Once you finished with a debt, what did you do with the extra money?