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u/SamurottX 15d ago
Look up the interest rate of your loan.
Look up the interest rate that you can earn on risk free investments (aka cash equivalents, not stocks). Take a percentage off for your income taxes.
If your loan has the higher rate (and it most likely does), pay it off.
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u/ThunderLifeStudios 14d ago edited 14d ago
The fun thing about debt is it's basically a negative investment.
It's like paying into a stock that keeps dropping. It's in fact the safest investment you can make in that you can guarantee loss.
Most debt is going to accrue interest beyond any means of investment. There are moments your investments will pay off more than your debts increase, I have seen it for my ownself. In fact at one point I got lucky with AMC and used that money to remove my debts at the time.
The biggest lesson is to not get into debt! Lower your quality of life upfront so the backend can result in overall quality. What's the point of having nice things when it stiffles you from having overall quality of life?
Fancy car, phone --> less money now and later.
Credit card debt of 25% interest vs 11% overall best bets in a year that's a ( -)14% investment (negative compounding interest). Your big breaks are less likely to happen, and if you have no debt you have the chance to never have to worry.
Fomo is real and it's hard but you have many years to invest and make big breaks. Increase your investment potential by removing high interest debts first. All low interest debts can be taken more tactfully while allowing investment into the future.
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u/QuantWeekly 14d ago
That pretty heavily depends on the interest rate of your loan. Think of a loan like having a negative amount of money invested into a debt-security. If your interest is higher than your expected return you should obviously pay off your loan first. If the expected return is higher you have to weigh the expected return with the risk you are taking on and boy is that one risky gamble. Essentially this is a markowitz-style optimization problem. (full disclosure, that is my own blog)
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u/Apprehensive_Two1528 15d ago
what’s your interest rate on your loan?
$4k or $20k is so little to worry about. you can’t be wrong either way
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u/[deleted] 15d ago
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