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Thread: Paying off all debts first or save and invest while paying off debts?

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    Default Paying off all debts first or save and invest while paying off debts?

    I recently graduated from college with a great job, but will be taking on quite some debts to study one more year in another city. I also have some debts from prior studies, due to some mistakes I did in the past. I will be working very little this year, when I come back I will be doing the Bar school, then articling, so I still have two more years of studies. I am anticipating I will be able to pay off everything in less than two years of full-time work, but it will take me about four years, if I wait until all my debts are paid off before I start investing. I have an emergency funds and am ready to start investing in some index funds sometime this year, but I've been told by some people it would be better to pay off all my debts first, as the interests I would make are much less than the interests I will be paying on my debts...

    What are your thoughts?

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    Dave Ramsey says to pay off debt first

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    Quote Originally Posted by xStacey View Post
    I recently graduated from college with a great job, but will be taking on quite some debts to study one more year in another city. I also have some debts from prior studies, due to some mistakes I did in the past. I will be working very little this year, when I come back I will be doing the Bar school, then articling, so I still have two more years of studies. I am anticipating I will be able to pay off everything in less than two years of full-time work, but it will take me about four years, if I wait until all my debts are paid off before I start investing. I have an emergency funds and am ready to start investing in some index funds sometime this year, but I've been told by some people it would be better to pay off all my debts first, as the interests I would make are much less than the interests I will be paying on my debts...

    What are your thoughts?
    You know your financial plan. there is plenty of advice out there. You want your investments to grow because you want to use time and compound interest.

    it's really a matter of which ones do you see as a priority for you.
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    Default Re: Paying off all debts first or save and invest while paying off debts?

    1. Mistake debts, bad.
    2. Managed debt, ok.
    3. Debt incurred as cost of capital for investments with a higher return, good.

    I call these Lower, Middle, and Upper class debt.

    Get rid of 1 as fast as you can. Use 2 only for primary domicile, 1 car or student loans. Get as much of 3 as you can, through a corporation.
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    Default Re: Paying off all debts first or save and invest while paying off debts?

    What's the interest rate you're paying on your debt?

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    3.95% as they are student loans.

    I have about 6 months saved up for emergencies and am ready to invest a little, but after discussing with a tax lawyer at the office who said I should be paying off all my debts first I am wondering if I was making the right decision to save up and invest, instead of paying off everything, that would mean I would have nothing left for the next two years as I am taking on quite some debts to finance my graduate studies the next two years.

    I won't be working much the next two years, so considering the debts I currently have and the ones I will be taking on the next two years, I will be able to pay off everything in about two years of full-time work or a year and a half if I am extremely frugal, but it would mean 4 years without investing anything if I were to pay off all my debts first... My starting salary will be much higher than my current salary doing sex work and I already have secured employment once I finish my graduate studies.

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    Pay off all your debts, then make an emergency fund of at least 3 months of bills and money to survive on, THEN invest.

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    Quote Originally Posted by xStacey View Post
    3.95% as they are student loans.

    I have about 6 months saved up for emergencies and am ready to invest a little, but after discussing with a tax lawyer at the office who said I should be paying off all my debts first I am wondering if I was making the right decision to save up and invest, instead of paying off everything, that would mean I would have nothing left for the next two years as I am taking on quite some debts to finance my graduate studies the next two years.

    I won't be working much the next two years, so considering the debts I currently have and the ones I will be taking on the next two years, I will be able to pay off everything in about two years of full-time work or a year and a half if I am extremely frugal, but it would mean 4 years without investing anything if I were to pay off all my debts first... My starting salary will be much higher than my current salary doing sex work and I already have secured employment once I finish my graduate studies.
    3.95% isn't too bad. I suggest putting as much money as you can into your 401k and/or any IRAs available for investing, and for the tax deductions. I suggest index stock funds, if they're available, since they have the lowest fees. For your debt, pay off as much as you feel comfortable paying, as long as you pay at least the minimum required. Make sure you have some money on-hand for emergencies.

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    The thing about paying debt first, you have nothing save for yourself for the future. even if its 3 months in the future.

    Student loans you are stuck with them even after bankruptcy.

    then you could pay the smallest ones first or the highest interest ones. both ways work.
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    Default Re: Paying off all debts first or save and invest while paying off debts?

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    As a rule of thumb, investments should be made for the long haul after your short-term expenses are covered. Those expenses include your tuition bills and, since you don't expect to work much for the next couple of years, two years of living expenses. If you are forced to take loans out to finance your schooling and living costs, then you should not be putting your money at risk in the market. Markets go down too and it is a double whammy if you are forced to cash out at low points in order to cover immediate expenses, including unforeseen emergency expenses.

    You mentioned that your current interest is 3.95%, which is really low, even for Canadian student loans. You may not get such a good deal on the next round of loans, so you may want to keep socking cash away while you still can in order to minimize how much you need to borrow in the future. IMHO your best bet might be to split your extra money between paying down your existing debt and building up a much larger cash reserve in order to minimize additional future debt while making sure that you have enough cash on hand. Every extra dollar you put towards paying the existing loan is a guaranteed return of 3.95% (that you would otherwise pay) and every dollar you can shave off future borrowing is a guaranteed return of 5%+ if what I'm reading about current CA student loan rates is true.

    There is plenty of time to invest once you have finished school. And yes, once you have a good job with stable income, then maybe you could consider a calculated gamble in paying off your lower interest loans a little slower in order to get some long-term market exposure. But the time to do that is not when your income is dropping off a cliff and you're about to pile on additional debt. Right now, cash is king.

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    Thank you for all your answers. It makes a lot of sense.

    I have a bit over 6 months saved up for emergencies and was debating whether I should use it all to pay off my debts... But then I will be taking more money out from my students line of credit to pay for tuition on August 27 anyway... so I decided to keep the 6 months of emergency in my bank account as it is and it feels much better to have a few thousands saved up, rather than just paying off everyone else all the time and being in the negative even working a lot and earning a good salary.

    I have a good rate, as I am doing business with a credit union instead of a bank, and I have a special line of credit for students in professional programs (I'm a law student), with a very good interest rate. However, I renewed it this morning and the interest rate went from 3.95% to 4.2% due to the increase of interest rate very recently...

    I worked quite a bit this summer and have enough money to invest in an index fund, but I think I might hold off until I finish school completely and paid off all my debts... At least I would have my emergency savings covered, so will be able to start investing right away after.

    My biggest student debts will be my tuition debts to cover my graduate studies this upcoming 2018-2019 year. It's a highly selective, prestigious, but expensive program, but will be worth it in the end. I debated a long time accepting my offer or not, and probably wouldn't have accepted the offer if I hadn't gotten my job offer at my current law firm. I could have decided to go work right away after I graduated this summer, would have been able to pay off all my debts in a year... but I know I would have regretted refusing the offer.

    I was also very excited at first as I'm moving to a city where sex work pays much more, until I realized stripping and body rubs require a licence so I probably wouldn't be working much at all during the school year. I'll try to travel back to my city once every month where I have my established regulars and make enough to pay off living expenses and save what I make extra, but it will be difficult as it's 6 hours by train each way... But I am so close to achieving my professional goal, the situation is much different from when I started stripping 7 years ago, so two more years of debt is ok, rather than risking everything I worked so hard for the last few years to make some money in one year and risk having a licence, and my past exposed.

    In the meantime, while I am paying off my debts, I am starting to inform myself seriously and reading a lot about finances and investments so I'm ready when I finally have the money to invest. I made some mistakes during dancing, which I learned from, so I won't be making them when I finally leave the sex industry and enter the professional world making way more than I could make in the sex industry. I see some colleagues who are not used to having so much money and spend everything, they pay their condo of course, but even with years of practice earning a six figure salary they barely have anything saved up.

    (I will be deleting the posts later on, as there's too much information)
    Last edited by xStacey; 08-13-2018 at 07:21 PM.

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    my opinion: pay off highest interest first, student loans last. and do the math, if the interest of the debt is worse than the possible gained interest from investment, obviously pay off debt first.

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    You sound like you know what you are doing. Good luck. It’s nice to see a happy ending from working in this industry.

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    Default Re: Paying off all debts first or save and invest while paying off debts?

    You have a while to pay off your student loans, so I wouldn't worry about it so much.

    As far as investing, while it may seem prudent to start earlier rather than later, I think it's a bit premature. I'd focus on my studies first, then securing a job where the studies and student loans pay off. If you land a professional job, your job will give you retirement funds that you'd be able to invest into etfs and mutual funds via a brokerage firm, plus a host of other benefits. You won't have to set it all up yourself like self-employed folks do, strippers included. In the meanwhile, financial literacy via reading is good bc it'll prevent you from taking other ppls bad advice, even when they are in a position to give you advice. If you have a few hundred to toss around and are overly eager, maybe set up an etrade account. I know a classmate from college who got rich from what started as $500, which he put into stocks.

    I wrote a five-figure check for my student loans when I had a good year. Only thing is, living in high-cost areas with low earning potential for dancing, relatively speaking and constant traveling to more profitable areas to maximize earnings while living in la, is what messed me up. Live as cheap as you can possibly bear is one thing Id do to save.

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