Last week, I talked about our next debt payment step and how we intend to pay off the truck loan rather than the student loan even though the student loan has a lower balance. Dave Ramsey suggests paying lower balances first but I decided to rid myself of the high truck payment instead just in case job loss is in our future.
Ann, a brilliant reader, also pointed out that if I paid off my student loan first, I would lose my tax deduction.
As someone who gets WAY too much joy from writing off the student loan interest, I am grateful to Ann for reminding me of this fact.
I’m sure a lot of you have student loans and this should be a consideration in your debt payment plan.
Thanks Ann!
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My Debt
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Posted: September 10th, 2009 at 1:33 am
Hey there! Greetings from Financial Samurai. Regarding your school debt, just double check and see if you qualify for the interest expense write-off. There’s an income limit you have to be under in order to qualify, and I can never write it off.
Hope all is well.
Posted: September 10th, 2009 at 8:57 am
I dunno, don’t get too fancy with it. Just keep breaking it down. Remember it truly isn’t a math problem.
If you truly think you have a job loss and aren’t just harboring fear then start building up a solid emergency fund, THEN when you realize you aren’t going to lose it you throw that money at the debt. I just paid my last payment on loan hours ago and believe me, I could care less about the tax write off I just lost, because Well 20k is a lot better than any write off.
People call Dave constantly and say “this person” said don’t pay off my home in full because I will lost the write off. Constantly Dave is telling them its not true and to pay off the house. (while its a little different because you don’t have the cash behind it)
KEEP IT SIMPLE and Stay Motivated! These are the reasons the debt snowball works. You have been doing an awesome job, don’t get too cute now.
Posted: September 10th, 2009 at 12:00 pm
Absolutely. The student debt shouldn’t be a priority with the other loan. I’m glad you didn’t listen to Dave Ramsey on this point (he has some good stuff but I’m not a big fan).
Posted: September 10th, 2009 at 11:30 pm
Hmmmm… just remember that you can pretty much never EVER wipe out a student loan in bankruptcy, whereas a truck loan is easy to get rid of if either of you loses your job. You could return the truck and wipe it out in bankruptcy, or, if you are above water already on your loan, you could get rid of it at any time by simply returning (or selling) the truck. The student loan write-down is great, but with less than 10k in student loans, it can’t be THAT much money (if it’s $900 a year (and I imagine it’s less) if you are in the 15% income bracket, you’ll save $135 a year). I’d gladly give up $135 a year (plus the higher interest rate) for the security of knowing that I no longer have non-dischargeable, non-waivable student loans on my head.
Oh, and for the record, I have $130k in student loans and wish I were in your shoes on that front!
Posted: September 12th, 2009 at 12:47 am
Sorry, I guess I wasn’t clear. I am going to pay off the student loan ASAP, I’m simply paying off the truck first so I can continue to get the tax write off. I’m not saying to keep the loan, I’m just saying to pay it last.
And, since I don’t plan on claiming bankruptcy anytime soon, I think I’ll be OK.
Posted: September 13th, 2009 at 1:50 pm
Hey gang. Speaking of Dave Ramsey. If you haven’t heard. Dave Ramsey is giving away $999 a day for people to start an emergency fund. There is a link to enter on my blog. If you don’t have an emergency fund established or want a chance to slap an extra $1,000 on your debt check it out.
Posted: September 19th, 2009 at 9:54 am
Good call!