What if you owed some amount of money as Student Loan Debt but you had 1.5x to 2x that amount as stock options that could be cashed out to pay off your student loan debts. Should you cash-out and pay off your student loans or not? While most would argue that getting rid of your student loan debt as fast as possible is of paramount importance, it might not be all that simple and easy to decide. There is certainly an appeal to paying off your student loan debt early and pocketing the money you would’ve paid as interest over the next few years of repayment. For very low-interest loans, there is definitely an argument to be made for investing that money into some venture which would be more profitable, although there are risks involved, logic dictates that a profit can be made by putting the extra money elsewhere. Let us dive a little deeper and analyze the reasons to avoid the same.
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Reasons to Avoid Cashing In
The most important and biggest reason, perhaps, would be how much this particular transaction might cost you. It would make sense to leave the account alone, along with the money in it, if it is a retirement account. After all, you do not want to risk your life after retirement, just to pay off your student loans early. Not to mention, all the exorbitant early withdrawal fees as well as the prepayment penalty that you will incur. Not to forget the additional hit on your taxes that early withdrawal of funds, as well as prepayment, will levy on your yearly taxes.
In the same way, it would make sense to leave the account and it’s funds alone, even if it isn’t a retirement fund as the same transaction costs, penalties and tax hits will be applicable.
The Taxes that will be levied from a stock sale of such a huge proportion will also be equally big. We do not need to go into deep details about the financials and the accounting principals at work here, to get a detailed overview of the same, we suggest you talk to an accountant to get the complete lowdown of the situation. In most cases, talking to an accountant will give you a clear view of what might be the best option for your particular student loan debt situation, depending on the stocks you own.
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We all know that a high-interest Student Loan Debt repayment is a lot of stress to deal with and will probably require good financial planning to keep you on your feet during the repayment period. The debt will not disappear magically in a fortnight and there is not easy and fast fix for it. Your best course of action to keep yourself in a good financial position is to end your student loan debt as fast as you possibly can and save a decent amount of money in the form of interest you won’t have to pay over a long time. If you possess a cache of funds that can be helpful in clearing your student loan debt early, then it might be a good financial move to do so. Another option to look at might not pay off your debt all at once, but can surely help reduce your repayment period, and that option is refinancing your student loans. Check out the Best Companies To Refinance Your Student Loans to find the best fit for your financial state. Ultimately, If you do possess the means to pay off your student loans early, then the decision rests on you, and that decision comes down to how you manage your personal finances and how you weigh The Risk vs The Reward. As always, do your due research and make the financial decision that best suits your situation and helps you out the most.