Pay off student loans or DVC in full?

[WinterSolider]

Is the student loan interest deduction still a thing? Not sure if that would fit into calculations or not, but something to consider.

You would use that in calculating the effective interest rate.

Effective Interest Rate = (1 - marginal tax rate) * Nominal interest rate

 

[thanxfornoticin]

What you pay off is a very personal decision. I think I'd personally find great stress-reduction in paying off DVC contracts (more than one?), selling them, and then paying down/off some of the other debt. That way you reduce monthly payments by eliminating the DVC payments and by eliminating the DVC dues. Get back into DVC in the near future after the other debts are reduced.

 

[Aladora]

Pay them off entirely.

It is human nature to immediately want to pay off all or some of your debts but it might not always be the best course of action.

DH and I have been meeting with financial planners and this is my takeaway.

Figure out if you could reasonably expect a higher or lower rate of return on investing the money than your loans are accruing interest.

For example, what can you expect to get as a return on any investments? It might be better to invest the entire amount and keep paying off the loans.

Using totally fake numbers:
$100,000 invested, earning 10% return on investment for 20 years would equal $672,749.99, total earning on investment of $572,749.99
$100,000 DVC loan, with 11.02% interest rate for 20 years would cost you a total loan amount of $248,051.96, total interest of $148,051.96
$50,000 student loan, with 8% interest rate for 20 years would cost you a total loan amount of $100,373.81. total interest of $50,373.81

So, investing the money would earn you $572,749.99 and repaying the loans would cost you $198,425.77. In this example you would come out ahead by around $375,000 at the end of 20 years.

Of course, it gets tricky when you are guessing the earnings on the investment because it is just that, a guess.

My mother just bought a new car, she had the option of paying it off in full by taking money out of her investments or taking a loan out for the car and making monthly payments. The car loan would have been at around 5% interest but her investments so far have had a return on investment of around 10% so for her, it was better to keep the money in her investments and take out the loan.

Depending on the amount you are receiving, you might want to have a meeting with a financial planner to run the numbers.

 

[Mackenzie Click-Mickelson]

What you pay off is a very personal decision. I think I'd personally find great stress-reduction in paying off DVC contracts (more than one?), selling them, and then paying down/off some of the other debt. That way you reduce monthly payments by eliminating the DVC payments and by eliminating the DVC dues. Get back into DVC in the near future after the other debts are reduced.

That could depend on when they bought into DVC since over time there have been minimum contract requirements and point purchasing that buyers of years past would be in a very different situation if they bought now.

IMO the decision to sell off DVC (now or later) as opposed to just paying it off would be dependent on how tight a person's finances were and what their intentions are in the future.

It wasn't entirely clear in the OP if this was a question pondered by dire financial situations (like being steps away from bankruptcy or otherwise high financial issues) or by the idea of having unexpected money coming that could aid in reducing overall debt.

 

[gmi3804]

What you pay off is a very personal decision. I think I'd personally find great stress-reduction in paying off DVC contracts (more than one?), selling them, and then paying down/off some of the other debt. That way you reduce monthly payments by eliminating the DVC payments and by eliminating the DVC dues. Get back into DVC in the near future after the other debts are reduced.

Respectfully, OP asked which would be better to pay off (financially), and "personal feelings" don't play a part in an objective answer to this.

Always pay the higher interest rate loans off first. That's Finance 101.

 

[AnnaS]

Can you send extra payments to either one? Say you pay off your student debt - the amount you would send them each month, send the extra money to DVC or vice versa (start paying your school debt earlier). Just a thought.

 

[WinterSolider]

It is human nature to immediately want to pay off all or some of your debts but it might not always be the best course of action.

DH and I have been meeting with financial planners and this is my takeaway.

Figure out if you could reasonably expect a higher or lower rate of return on investing the money than your loans are accruing interest.

For example, what can you expect to get as a return on any investments? It might be better to invest the entire amount and keep paying off the loans.

Using totally fake numbers:
$100,000 invested, earning 10% return on investment for 20 years would equal $672,749.99, total earning on investment of $572,749.99
$100,000 DVC loan, with 11.02% interest rate for 20 years would cost you a total loan amount of $248,051.96, total interest of $148,051.96
$50,000 student loan, with 8% interest rate for 20 years would cost you a total loan amount of $100,373.81. total interest of $50,373.81

So, investing the money would earn you $572,749.99 and repaying the loans would cost you $198,425.77. In this example you would come out ahead by around $375,000 at the end of 20 years.

Of course, it gets tricky when you are guessing the earnings on the investment because it is just that, a guess.

My mother just bought a new car, she had the option of paying it off in full by taking money out of her investments or taking a loan out for the car and making monthly payments. The car loan would have been at around 5% interest but her investments so far have had a return on investment of around 10% so for her, it was better to keep the money in her investments and take out the loan.

Depending on the amount you are receiving, you might want to have a meeting with a financial planner to run the numbers.

Respectfully, your financial planners are lying to you to get you to invest with them so they can collect fees.

You're not risk-adjusting your hypothetical scenarios.

Investing might yield 10% annually in the long run but there are RISKS associated with those investments. When you pay off debt at 8% interest, you're avoiding 8% interest expense guaranteed. There is no competent financial planner anywhere on the planet who wouldn't sell every asset they own to get an 8% guaranteed return.

The math gets squishier if you're talking about paying off a 5% car loan or a 2.5% mortgage early, but there's absolutely no ambiguity when we're talking about APRs up around 10%.

 

[onelove8187]

I am not an accountant of financial advisor in any sense so I might not be exactly right with method or lingo but considering you would be paying with todays dollars, you can google how to calculate the present value (would be negative negative for you because it is a cost for a loan) of both loans which takes into account the interest rate, principle amount, and time frame of loan repayments, whichever is a higher cost in todays dollars is probably a better financial choice to pay off today. It is important to account for the time value of money, $100 today is way more valuable than $100 in 20 years. This doesn't account for other things like being able to sell the DVC to pay off either loans, inability to escape student loans under current law, potential for future changes to student loan repayment plans or forgiveness, as well as the mental effect one might have vs the other. Best of luck.

 

[Aladora]

Respectfully, your financial planners are lying to you to get you to invest with them so they can collect fees.

You're not risk-adjusting your hypothetical scenarios.

Investing might yield 10% annually in the long run but there are RISKS associated with those investments. When you pay off debt at 8% interest, you're avoiding 8% interest expense guaranteed. There is no competent financial planner anywhere on the planet who wouldn't sell every asset they own to get an 8% guaranteed return.

The math gets squishier if you're talking about paying off a 5% car loan or a 2.5% mortgage early, but there's absolutely no ambiguity when we're talking about APRs up around 10%.

Sorry, there was a line in my post that I had written then got distracted and had to re-write my post. This is what happens when I start a reply, go away for a bit to get coffee then come back to post.

I meant to add that investing is always based on a guess about what you could reasonably hope to get from investments and that they are never guaranteed.

Also, student loans add an extra wrinkle since there is no asset there to sell if you needed the cash, the DVC loan does result in an asset so if you paid off that one in full you could always look at selling in the future if needed.

 

[WinterSolider]

Sorry, there was a line in my post that I had written then got distracted and had to re-write my post. This is what happens when I start a reply, go away for a bit to get coffee then come back to post.

I meant to add that investing is always based on a guess about what you could reasonably hope to get from investments and that they are never guaranteed.

Also, student loans add an extra wrinkle since there is no asset there to sell if you needed the cash, the DVC loan does result in an asset so if you paid off that one in full you could always look at selling in the future if needed.

Sure but the DVC asset can be sold to pay back either loan.

If they pay student loan now, they could sell DVC to pay off DVC loan later if they had to.

If they pay DVC loan now, they could sell DVC to pay off student loan later if they had to.

It's not like selling their DVC contract would result in cash that could only be used to pay back DVC debt.

 

[Aladora]

Sure but the DVC asset can be sold to pay back either loan.

If they pay student loan now, they could sell DVC to pay off DVC loan later if they had to.

If they pay DVC loan now, they could sell DVC to pay off student loan later if they had to.

It's not like selling their DVC contract would result in cash that could only be used to pay back DVC debt.

Well, yes, I thought that was what I said in the post you quoted.

Sorry, there was a line in my post that I had written then got distracted and had to re-write my post. This is what happens when I start a reply, go away for a bit to get coffee then come back to post.

I meant to add that investing is always based on a guess about what you could reasonably hope to get from investments and that they are never guaranteed.

Also, student loans add an extra wrinkle since there is no asset there to sell if you needed the cash, the DVC loan does result in an asset so if you paid off that one in full you could always look at selling in the future if needed.

 

[AstroBlasters]

Are you able to deduct the interest of either from your taxes?

Which one has the higher payment?

 

[NY Pirate Princess]

The amount of money you have will either pay off DVC financing or Student loans (in deferment until 2029 but accruing interest) entirely?

Many people are urging you to pay off the higher interest rate, which is DVC loan at 11+%. This is sound advice.

However, depending on your overall financial situation, keep in mind that the DVC loan can be resolved in multiple ways but the Student Loans, short of some type of government intervention which now seems unlikely, are not going away unless they are paid off.

If you decide on the student loans, I might stick that money in an online HYSA (high yield savings account) until closer to the election, just to see if there is any further movement on the forgiveness front. I would hate to pay off debt that I might have gotten partially or totally forgiven just a few months later if I had waited!

 

[Bucketfoot]

If you will have enough to payoff any single loan, as recommended payoff the highest interest one. If however you cannot pay the highest interest one off completely, go with the highest interest loan that you can completely payoff. Then apply the payments from that to the next highest interest rate loan.

 

[gottalovepluto]

DVC.

Uncle Sam keeps paying off student loans/not making people pay interest. Uncle Sam is never gonna pay off that DVC loan.

 

[Stank]

TL;dr: pay off the student loans.

Problem is the loan has to be paid every month. By buying DVC in addition to that, you’re now piling on monthly dues so another expense that chokes off monthly personal cash flow.

When you have DVC, it basically obligates you to take a Disney vacation. It makes it a routine. While that’s what we’re all here for and want, if you’re even mildly struggling financially (paycheck to paycheck; your income equals your expenses with crumbs for savings), I cannot think of a worse thing to do than to add more burdens and stretching yourself thin.

Yes, you can rent points out. Yes, you can sell your contract. Yes, you can bank points and defer the vacation.

But when you buy DVC, while it does “save” you money on hotels, you’ll find you may spend even more than if you didn’t own DVC. As I said, you’ll want to vacation more. You’ll want to buy more points. You’ll want to use more points for nicer stays/1 bedroom/2 bedroom/etc.

Buying DVC, you’re essentially obligating yourself to a very expensive vacation every year. Is that financially feasible?

 

[Stank]

DVC.

Uncle Sam keeps paying off student loans/not making people pay interest. Uncle Sam is never gonna pay off that DVC loan.

I wouldn’t arrange my finances around banking on politicians bailing me out. Sounds like a recipe for disaster.

The average person has astonishingly low savings/retirements by prioritizing vacations/luxuries. They get to 65 essentially desperate politicians don’t change their minds.

Maybe that works maybe it doesn’t. I don’t want to be average.

Imagine owning a timeshare with a double digit interest rate, a student loan that didn’t get paid off, and a recession and/or job loss. Owing more on the timeshare than what you can sell it for if something changes in the next 1-2 years.

In other words, a likely outcome for an average person.

 

[Stank]

Sure but the DVC asset can be sold to pay back either loan.

If they pay student loan now, they could sell DVC to pay off DVC loan later if they had to.

If they pay DVC loan now, they could sell DVC to pay off student loan later if they had to.

It's not like selling their DVC contract would result in cash that could only be used to pay back DVC debt.

By buying DVC instead of paying off the student loan, you’re doing the equivalent of borrowing a student loan that cannot be discharged to buy DVC. Does that make any sense to anyone?

Sure you can resell DVC. At what price—after commission and fees, likely a loss. DVC resale has continued to drop for the past 2 years.

The problem is if you get into a situation where you need to sell your contract, it may very likely be in a situation that’s NOT favorable. Job loss, income reduction, recession, or emergency. DVC isn’t exactly liquid. It takes weeks/months to sell and close. If you’re in the pressured situation to sell and get money quickly, DVC ain’t it. You’re waiting a good while. And you’ll be pressured to take a lower offer to get the cash quicker. Not to mention you may very well be underwater on your loan after you sell.

 

[Aladora]

By buying DVC instead of paying off the student loan, you’re doing the equivalent of borrowing a student loan that cannot be discharged to buy DVC. Does that make any sense to anyone?

Sure you can resell DVC. At what price—after commission and fees, likely a loss. DVC resale has continued to drop for the past 2 years.

The problem is if you get into a situation where you need to sell your contract, it may very likely be in a situation that’s NOT favorable. Job loss, income reduction, recession, or emergency. DVC isn’t exactly liquid. It takes weeks/months to sell and close. If you’re in the pressured situation to sell and get money quickly, DVC ain’t it. You’re waiting a good while. And you’ll be pressured to take a lower offer to get the cash quicker. Not to mention you may very well be underwater on your loan after you sell.

As far as I can tell, the OP is not looking at buying DVC, they are looking at paying off their current DVC contract loan.

 

[eticketplease]

I understand this is a no brainer for many. My mother came into a little money and wants to help us, myself and my 2 brothers. We have many bills, car payment, mortgage, student loans, the amount my mom is giving will only pay in full 2 of those debts, my student loan or my DVC contracts.
My mother tells me, it’s your life, you have your priorities, up to you. I can’t decide.

What would you do and why?

Thanks everyone in advance

OP Post is above...

In that post, OP never stated they were struggling to pay bills so I'm not sure everyone is stating to sell off DVC.

OP stated mother came into some extra money and wanted to help family and was given enough to be able to pay some debts in full.

I am also in the pay the bills with the highest APR's first which OP stated was DVC at 11% and the Student Loans were 8%

Once that was paid off I would then take your DVC payment and add that to pay the principal of whatever had the next highest apr.

Remember while your student loans are in forbearance you do not have to pay however they are still accruing interest during that time and you are not paying anything to the principal so they will continue to grow.

If money is needed I would rent my points pay my dues with that money and apply that towards the debt with the highest interest rate instead of selling.