General Question

Eggie's avatar

Did I save correctly?

Asked by Eggie (5700points) April 21st, 2018

I was paying for a Masters Degree and I had 40000 dollars outstanding on my loan. I recently got a huge backpay from my credit union of 100000. I decided to spend 40000 of it on my loan and invest the rest which was 60000 on shares adding to my existing share value. Did I managed that money well?

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9 Answers

zenvelo's avatar

Paying off debt is the best investment, because it stops the negative savings from compound interest. So yes, that was best.

Without paying it off you would still have that big negative on your balance sheet, and it would be growing.

Eggie's avatar

Negative? Can you explain further?

zenvelo's avatar

Uh, a cash balance is positive, a debt is negative. Interest on debt increases the negative balance; it is the opposite of savings.

JLeslie's avatar

I think paying off your loan was a great idea.

If you save what you used to pay every month for your loan, you will quickly save up a lot of money.

KNOWITALL's avatar

Yes as long as you have some non-stock savings, too.

Eggie's avatar

What if I used the money as a down payment for a SUV. I would have been driving a new SUV for a low installment. Next senario: What if I had put the money on shares and not pay the loan using the money. I would have used my monthly installments to finish pay for the loan and when it is payed off I would have had much more on shares. Some people think that would have been best….is that true?

zenvelo's avatar

No, It wouldn’t, because you are paying interest on the loan as long as it is outstanding. Your rate of return on your shares investment would have to be greater than the interest on the loan before you can consider it profitable.

And sure, you could buy a brand new car but that would depreciate immediately.

JLeslie's avatar

Do you need a new SUV? I still think paying off the school loan was good. Now, put aside that money you were paying every month, and in less than a year I’m guessing you probably easily have a nice down payment for the car. New cars are like throwing money on the street, so don’t do it hastily.

RocketGuy's avatar

Student loans have fairly high interest. That’s a lot of negative cash every month. Savings accounts have very low interest, so no use keeping cash if you have debts to pay off. You might be able to get a low interest car loan, but as others have stated, cars depreciate quickly.

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