Reamortize my TSP loan

[ozzyman]

Well, I had to take a loan out earlier this year to pay for a second vehicle(we needed third row after my son was born). I couldn't get a second car loan so this was a great option. Well I have been realizing that i was paying $138 a month on the loan over 3 years.

I was also contributing a little over $200 a month from my paycheck. It recently struck me that this seemed non productive. So I reamortized my loan so now I will stop contributing from my paycheck but will be paying an extra $200 monthly towards my loan and will now have it paid off within a year.


Does this make sense and seem like a good move?

Yes I will lose the tax write-off for contributing BUT my household currently pays $0 in taxes and receives huge tax credits due to having 4 young children, college tuition, being a home owner and one E-5 paycheck(sometimes i wonder how we do it) Basically I pay no Fed tax and usually get $6-8k back anyways.


Hoping to here some thoughts on this.


~Mike

 

[Frixxxx]

Well, I had to take a loan ....

I was also contributing a little over $200 a month from my paycheck. It recently struck me that this seemed non productive. So I reamortized my loan so now I will stop contributing from my paycheck but will be paying an extra $200 monthly towards my loan and will now have it paid off within a year.

Basically I pay no Fed tax and usually get $6-8k back anyways.


Hoping to here some thoughts on this.


~Mike

1. Sorry to hear you had to take out a loan. Having kids are expensive. and remember that EIC only got a 2 year extension....

2. To answer your loan question...always pay off loans to get money working for you. If you are going to retire military, your TSP is an extra holding place for money. If it's not in the account it is not working for you.

3. The stuff in bold is something that needn't be discussed on this site, but glad you get a bonus each year, it may not last. Most here just got told they are on a pay freeze for the next two years, so be careful advertising it.

Over all you are doing the right thing ozzyman....now let's get "OVER THE MOUNTAIN..take me across the sky"

 

[JTH]

Dats no workin bonus, it's a I's poor and an't gots shizz so I gets me a federal tax break. Earned income credit, and credit for the kids. I get it too, becuase my wife stays at home, this keeps us out of the higher tax brackets.

Work less = get more from the feds

 

[ozzyman]

Dats no workin bonus, it's a I's poor and an't gots shizz so I gets me a federal tax break. Earned income credit, and credit for the kids. I get it too, becuase my wife stays at home, this keeps us out of the higher tax brackets.

Work less = get more from the feds

Exactly, i'll take what i can get until the kids are older and the wife can actually work without racking up a big ol child care bill + more taxes

i count myself lucky to be able to even pay off debt under the circumstances. lots of folks today would just get more credit, buy more stuff, get more credit until they are screwed...... hmm sounds kinda like the government in ways...

 

[JTH]

So true, back when I was a civilian I worked 2 jobs and hit overtime often. For my hard work I was rewarded with a hefty tax increase. I made more money per person when I was single and was taxed to death. Now that I have a family of 5 to support I make much less, yet live so much better. It's so much harder to be single supporting youself in today's world.

 

[Birchtree]

You two will be so proud when your youngins can qualify as members of the reduced lunch bunch at their respective schools. And I'll have the blessed satisfaction of knowing they are eating healthy on my dime.

 

[JTH]

You two will be so proud when your youngins can qualify as members of the reduced lunch bunch at their respective schools. And I'll have the blessed satisfaction of knowing they are eating healthy on my dime.

Well I'm not that poor! Just for the record, my kids are home-schooled, those cost come out of my pocket, I get zero local, state, and federal funds.

 

[shawnph]

So arguments about not doing this to the side, the deed is done. Should you pay the loan off early or keep putting in $200 in TSP? By shifting to paying the loan off and also stopping contributions, you're now losing the tax benefit of the TSP in addition to agency matching funds. So even though you're paying into the loan, you've now structured it to lose yet more money. You'd be better off paying the loan off on the original schedule and putting the $200 back in as a normal TSP contribution. Get a 2nd job and try to get the TSP loan paid off. Treat it like a standard loan, realizing though you're losing a lot of potential interest the longer it sits there with a balance.

TSP has been doing moderately well recently. I made 14% investing mildly conservatively. TSP may have charged you 2.5% interest that goes into your account as you pay it back. But you lost (for the sake of argument) 14% over the past year on the money you took out.

Good luck!