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Advice about paying on a loan.

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sritchie27 posted on Sun, Mar 14 2010 12:31 AM

I would like some financial advice from some people that understand inflation and how it effects personal debt. I know that the intent of this forum is not for people just looking for financial advice, but I think that discussion in this area would be beneficial to more than just me.
I am a recent college graduate, and between my wife and I we have over $80,000 in student loans. We have around $5,000 at 6% interest on a Department of Ed. Loan, around $51,000 at 2.5% interest, over $15,000 at 6.8% interest, and around $8,000 at 4.75% interest.
My question is what is the wisest thing to do right now? I do not have a lot of income. My minimum loan payments all together are around $650 a month.
I know that inflation favors the debtors, so I am wondering how I could benefit in any way with my situation. I have around $4,000 in the bank and I am wondering if I should try and pay down on some of the higher interest loans or invest in some inflation-proof money (precious metals). My reasoning is that I could pay off my debts slower with the minimum payments and allow the ever-inflating federal reserve to devalue the dollar and essentially my loan. I am of course hoping that my income would increase and adjust to the rate of inflation.
I also bring up the question of investing in precious metals in my situation because I am worried about the U.S. going into complete economic collapse. I would like to have some real money such as junk silver coins that I could still use for buying the essentials.
So to summarize my question, I am wondering should I try and pay more towards my student loans or invest in precious metals with the little bit of savings I have? The last thing that I want to do right now is to leave the money in the bank and watch is lose its buying power by the day.
I thank you for your time and any constructive advice you can give is much appreciated.

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chloe732 replied on Sun, Mar 14 2010 11:01 PM

I do not have a lot of income. My minimum loan payments all together are around $650 a month.

If you are concerned you may not have a job soon, it would be wise to save cash instead of paying down the debt.   If your job is secure, then first save up three months expenses.  Then, start paying down the debt.  First, work toward paying off the $5,000, but don't use all your savings, make extra payments or save extra for the specific purpose.  Then pay off the $8,000 (the interest rate is lower, but I think you should focus on getting these things paid off).  Then pay off the $15,000.  Keep the $51,000 as long as possible, that interest rate is very low.  But this too should be paid off some day, early if possible. 

Don't try to play a game investing in gold.  Gold may or may not go up in value.  You don't have enough liquid resouces to absorb a loss.  Don't play a game about paying off debts with inflated dollars.  If we have hyperinflation, they will just recalibrate the loan amounts to make you owe $1,000,000.  You should live modestly until ALL of these loans are paid off.  Then, you can start living the life you and your wife have in mind.  Good luck.

"The market is a process." - Ludwig von Mises, as related by Israel Kirzner.   "Capital formation is a beautiful thing" - Chloe732.

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z1235 replied on Sun, Mar 14 2010 11:36 PM

1. Build at least a 6 month expense reserve/emergency fund and keep it replenished after each draw from it. Keep it liquid (in cash).

2. After that, start repaying the 6.8%, 6%, and 4.75% loans in that order. Assuming that the 2.5% is a fixed rate loan, you can leave that one until you are comfortable paying it off in full (say, when you have $150k savings), or years into the future. 

3. Forget about gold or other investments until you have enough assets and liquidity to afford being wrong. You're not even close to that today. 

At this point in your life, your (and your wife's) largest asset is your future earning/income potential. Whether the $4k you have loses to inflation or gains by deflation is going to be a drop in the bucket 10-15years from now, compared to what you have yet to earn/save over that period, so don't stress over it too much. 

Focus on staying liquid at all times. That should be much higher on your priority list than paying off the loans. This becomes extremely important in uncertain times such as these. Liquidity protects you from being forced into unfavorable trades, and also exposes you to opportunities to benefit whenever others (less liquid than yourself) are being forced into doing them. Most people underestimate the value of this optionality that comes with liquidity. 

Hope this helps. 





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Stephen replied on Mon, Mar 15 2010 12:07 AM


  1. Buy Peter Schiff's Crash Proof 2.0 and take the time to read it, both you and your wife.
  2. Live cheaply. Don't eat out. Focus on essentials. Cut corners anyway you can and save as much of your paycheck as possible.
  3. If any of your loans have a variable rate, and you have an option of locking it in, do so.
  4. Save up about $10 K for a reserve fund.
  5. After that, start buying gold. I would keep buying it until it hits $1200 and ounce.
  6. Then start buying foreign equities, especially Chinese and Australian. Pick value stocks. Commodities are a good buy as well. For investment advice, follow experts who have a good track record and clear morals. Ex. Peter Schiff, Marc Faber, Jim Rogers, ect.
  7. Consider leaving the States.
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I would like some financial advice from some people that understand inflation and how it effects personal debt.

If you private message me I will be happy to try to help .

[N.B.To first get an idea of what I do, just check my member profile  by clicking on my member name "onebornfreedotblogspotdotcom" when signed in.]

Regards, onebornfree.


For more information about onebornfree, please see profile.[ i.e. click on forum name "onebornfree"].

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