THIS IS ABSOLUTELY INCORRECT if you have any debt (Credit card, Car, and etc) that charges you relatively high interest, say 8% or higher. It absolutely does not make sense to keep $5000 as emergency cash (or cash equivalent like Money market) while paying 13 or 14% interest on credit card.
smart thing to do is to use whatever cash you have to pay down high interest loans. When emergency comes, draw from the credit account then because there is a good chance nothing catastrophic will happen to you.
Even though I have enough cash to pay for law school out of pocket, I am still opting for unsubsidized loan because I rather borrow at 6.8% and deduct interest expense on my tax return while my cash generates return in financial market.
If I had any debt that charges me anything above 7% APR that is non-deductible for tax purpose, I would pay that off first. Guaranteed 7% rate of return is better than 12% possible return in my book.
Does anybody know if balance transfer option from credit card could be applied to student loan balance? I can transfer balance at 2.9% fixed for the life of the loan but I dont have anywhere to transfer to since I have no credit card debt.
it would be pretty sweet to get unsubsidized loan and pay that off with credit card at 2.9% fixed APR for the life of the balance
I'm now thinking I did the wrong thing by rejecting unsubsidized Stafford loans. Would you mind running through some numbers that show what effective interest rate you'll be paying on the unsubsidized loans? I'm no math whiz, but if my numbers are correct, you really only have to hit a 5% return to break even. Are there origination fees?
Is this accurate, assuming your effective tax rate is 30%?
$12,000 * 0.68 = $816 interest.
$816 * .70 = $571 interest payment minus tax savings.
$571 / $12,000 = 4.76%