The U.S. government is now struggling to devise a plan for managing our debt. Should they raise the debt ceiling or cut spending? As I watch the politicians battle over the issues, I am reminded of a faux pas I made early in life when deciding what to do about my college education loans. After graduating from college, I had a fairly sizable debt to pay off. The government loans carried a whopping high rate of about 3% simple interest, and I could take about 15 years to pay them off. Right after college, I went on active duty in the army and decided to defer payment on the loans until I was released from active duty and returned to work. While in the service, I was stationed overseas and was able to deposit a substantial portion of my military pay into Soldier Savings deposits. At that time, the Soldier Savings deposits earned 10% interest and were tax free. When I was released from active duty, I had the option of leaving the money in the Soldier Savings Deposit account. However, I wasnât comfortable with carrying the college loans. I wanted to rid myself of the debt.
Yep, I drew the money out of the Soldiers Savings deposits and paid off the loans. The government was excited, and I felt better (for a while) that I didnât have any debt. I kick myself now when I think of the earnings I gave up (tax free, no less). There was an article in the special section of the Chicago Tribune on July 13, 2011 entitled âTo pay off, or not to pay off?â The article presented various reasons why boomers should, or should not, pay off their mortgage debt. For those still saving for retirement, is it more prudent to pay off the mortgage or invest in IRAs or 401Ks? The article concluded that the decision was a personal one, noting that âreal estate is probably not going to have the return over time that it has in recent years, given there still are a lot of foreclosuresâ and âif you have minimal savings, itâs better to put more money into a retirement account rather than into paying off your mortgage.â
Keep those letters coming, folks. Send your ideas to: The Frugal Forum, P.O. Box 693, Huntley, IL 60142 or by email to: thefrugalforum@gmail.com.
2 Comments
Excellent points and ones my husband and I just discussed this am. We have a chance to refi our condo. Should we go for a 30 year fixed or try to pay off the loan in 15 years? We learned we could save the money we’d be giving the bank to pay it off early and then, if we wanted to — and were still living here — we could take our savings and pay it off in 15 years. In the meantime, our money would be earning money and we’d have a cushion for emergencies. Great advice Don! Keep it up!
Hey Nora, How much is that money earning you now? What a difference a couple weeks makes. The fact of the matter is that over the last 10 years stocks have performed poorly for the average retail investor. Right now the stock market feels like las vegas and the cards are stacked against us. Clearly it wouldn’t be smart to put all your free money towards your mortgage but thinking we can out invest our mortgage is somewhat of a pipe dream. Good luck everyone.