Looking to pay off $15k of student loan debt of my partner. It’s something we could wipe out with cash on hand if we wanted to relatively quickly. But one of the loans is 4.5%. Am I better off just riding that out but keeping the cash in for that loan in a HY savings account or keep reinvesting it in short term CD’s that have a 5% return and to have more liquidity?
There’s a part of me that used to really enjoy the piece of mind of being debt free when I paid off my student loans. But now that I’m more financially established and disciplined, I’m wondering if it’s better to pay it off slowly.
Don’t forget, you have to pay taxes on all income, including interest. So your 5% APY is not 5% cash in hand. I would recommend that you pay off the loans
Thanks. I didn’t even consider tax implications.
In the future, your can compare options with Fidelity’s Tax Equivalent bond calculator. For reference:
The number is the return you’d need for each type of bond to be equivalent after taxes. Your loan is a tax free return, so consider it as a Treasury bond.
I agree with this recommendation. After taxes, paying off the loan is probably slightly more profitable and improves your monthly cash flow.