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To: rwfromkansas

DO NOT pay off your student loans. That is one of the most common and costly financial mistakes young people make. That is the cheapest debt you'll ever get in your life -- low interest rates to start with and tax deductible to boot. Until you are contributing the legal maximum to tax-deferred retirement plans (i.e. IRA and/or 401k), and have made a 20% down payment on a home of a size and value that you could be comfortable with for the rest of your life, don't even think about making more than the minimum monthly payment on your student loans, and be sure to sign up for the longest available repayment option.

You can always pay it all off in a lump sum, if your reach the above objectives before the scheduled completion of repayment. You CANNOT EVER get back the lost years of tax-free investment growth in retirement plans, and the lost years of equity growth in a home (financed primarily with other people's money, and with tax deductible interest), that will slip away while you're making bigger than necessary payments on your student loans.

Even if you have credit cards with interest rates in the high teens, do the math before deciding whether to pay them of before contributing to whatever retirement plans are available to you. If you've got a total income tax rate of 25%, and your employer will match 50% of your contributions to a 401k, then making the maximum allowable 401k contribution needs to come before paying off the 18% interest credit cards. Do the math!

Financial security comes from having a high net worth, not from having little or no debt. Your net worth will climb much faster if you follow the plan I outlined.


76 posted on 08/02/2005 10:17:00 AM PDT by GovernmentShrinker
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To: GovernmentShrinker

Thanks for the advice.


83 posted on 08/02/2005 10:28:48 AM PDT by rwfromkansas (http://www.xanga.com/home.aspx?user=rwfromkansas)
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