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Monday, September 10, 2012

Update and dilemma. . . .

Hey there folks!

Long time no blog!  This summer has flown by - I'm still working like a dawg, but I can sense that the end is nigh!

I now owe $29,318 on my student loans!!  Here's a more organized update (and then I'll explain my dilemma):

Here's where things stand now, in early-mid September 2012:

Second Mortgage Debt: $31,400::::$25,176

Student Loan Debt: $61,762::::$29,318

Primary Mortgage Debt: $167,500::::$154,209

Here's what it looked like in late May 2012:

Second Mortgage Debt: $31,400::::$25,442

Student Loan Debt: $61,762::::$39,070

Primary Mortgage Debt: $167,500::::$155,191

That second mortgage really needs to DIE, by the way.  The balance never goes down!

So here's the dilemma:  I find that with the current stock market (which is doing pretty well, all things considered) I could sell ALL of my stock and pay off ALL of my remaining student loan balance.  As in, TODAY (or, end of the week, assuming that kind of thing takes a few days).

I was intending to pay down my loans to $20,000 by January 2013 (totally doable) and then use $20K of the stock to pay the rest of it, thereby retaining about $8K for future use (or if I needed it to pay taxes).  Assuming, of course, that the stock market doesn't tank between now and January.

Psychologically, having a bit of stock left over makes me feel all warm and fuzzy inside, though logically I know that the stock is NOT going to gain 8.25% a month as my student loans do.  Or 8.9% a month as my second mortgage does. So the smart thing to do is pay the student loan off now, and take the tax hit this year  Since it's considered capital gains (I think), it would be 15% on the 'gain' regardless of how much other income I bring in this year (and I'm closing in on $100K this year so my income taxes will be high).  (BUT WAIT:  I just had a thought.  Since my student loan rate is 8.25% and the taxes are 15%, won't I pay more in taxes than I will in interest if I sell up now? ARGH!  Why didn't I major in Accounting or Finance?).

So essentially my logical self is battling with my emotional self about this.  I know what Dave Ramsey would say:  Sell now and get out of debt - then start on the second mortgage.  My new-to-saving self wants a little nest egg, though.

Also, and I don't think I've mentioned this, but I also picked up an auto loan in the last year.  My 15 year old beater finally bit the dust - I'm not worried about the car loan (2.9% interest) mostly because I bought a used, reliable, low-mileage, in-demand car that will keep its value for years should I choose to sell it.  And with my current extra income I can pay off that car loan in about 4 months.  No worries there. 

Anyhoo, here are my options as I see them:

  • Sell ~ $28,000 in stock now and pay off all (or almost all) of student loan debt; would then need to spend the rest of the year saving for taxes;
  • Sell ~ $20,000 in stock now and pay off almost all of student loan debt, using the rest of the year to pay the rest of it off.  Downside:  have to pay capital gains tax for 2012 when I'm already having to save for extra federal and state taxes;
  • Pay down the student loan debt to $20,000 by January 2013 and then sell $20K in stock and pay the capital gains in 2013 when I may be making less money (and therefore won't have to save as much for my 'regular' taxes).
What would you do?


Anonymous said...

What would I do? I would call my tax man first, before I did anything. He would be able to tell me what the tax hit would be on selling the stocks....because it will not ALL be capital gain, as there is a cost basis there to begin with - you only pay on what the increase in value is. Do you have that figure?

Then the tax man could tell me if selling off only $20,000 would enable me to sell the higher cost stocks, resulting in less capital gain, and then selling off the balance in 2013 of the lower costing stocks (and taking a tax hit) would come out better in the long run.

I never make a move like that, meaning with tax consequences, without asking my tax man first. (and yes, he will bill me at tax time for the info)

Best wishes! Awesome progress by the way! Nice going!


Esperanza said...

I am not in any place to give advice I have lots of debt and no real plan of how to get out besides trying to get a job that is measurable to my education! But my advice is to wait until 2013 when you have a lower income and have a smaller tax. Good Luck! You seem to be doing a great job and working hard, take a moment and be proud of what you have accomplished.

Frugal Student said...

Do not sell your stock. Just keep plugging along.

RichUncle EL said...

I would just pay it off as soon as possible. Eventhough your paying 15% in taxes next year, you will end up paying less by not having the school loan interest accumlate for another 12 months. Then you can rebuild the savings with the exact amount that you were sending to the school loans.

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