Thread: Accelerate Loan Repayment or Increase Contribution?

Remember that when the loan is paid you can actually increase the contribution more than the loan payment because you will not pay taxes (withholdings) on the contribution amount.

Originally Posted by bkjames00

Thank you all for your suggestions. The bottom line is that I can only afford to put an additional $100/month (after tax) or about $133 (pre-tax??) into TSP.

So the question is, "Should it go towards paying the loan or increasing my contribution?" By paying the loan I can cut the repayment period in about half -- 15 years to about 7 years.

BK , I just dealt with that exact scenario and I chose the increase in loan payment to cut my repayment period to 5 years. Just my 2 cents worth. When raises come along you can step up the payments.

Originally Posted by Show-me

Remember that when the loan is paid you can actually increase the contribution more than the loan payment because you will not pay taxes (withholdings) on the contribution amount.

Thats true, but the "cost" of doing that is missing the Tax Deduction during the time he is accelarating those payments.

Either option is valid (or you could do a piece of both), just be aware of the costs associated with both approaches before you decide.

Originally Posted by ChemEng

Thats true, but the "cost" of doing that is missing the Tax Deduction during the time he is accelarating those payments.

Either option is valid (or you could do a piece of both), just be aware of the costs associated with both approaches before you decide.

The only consideration in my opinion is what is your normal allocation? If you are generally 100% stocks, then repay the loan as soon as possible. Your losing earnings(15 years of earnings lost is huge) on the 50K at a greater rate than the interest your paying yourself! (assuming we are at the bottom) If you generally have some in the G fund(50K or more) then increase your contributions. Use the loan principle as part of your G fund allocation. Interest rates are not going up in the near future.

Jeff

I would increase my loan payment. Who knows about the stock mkt....you may be puting money in while it is decreasing. I would want to get my house paid off. Then you can increase your TSP as you are able to. There is such freedom in paying off a housing loan....then you are free to deal with increasing your "TSP".

Originally Posted by Show-me

Me vote loan then after it is paid off kick up your contributions to include the loan payment.

Welcome to the mb.

DITTO!

No matter what debt you have (besides mortgage), get it paid off prior to increasing any type of investment.

And no matter what, always contribute up to a match, if one exists.