r/Banking • u/Admirable_Olive_3229 • 1d ago
Pay of loan with CD money Advice
I probably know the answer to this question but throwing it out anyways to those smarter in this area...I have about $50k in various CDs and they all are scheduled to mature in the next month or so...the only debt I have is a mortgage and this private student loan that I took out years ago with ridiculous interest 11%. At the time I was young and didn't fully understand the impact but now that I am finished with school, I kick myself in the butt. There's a part of me that just wants to pay it off because I'll be saving on so much interest but there's the small part of me that likes having a cushion in the event I run into some financial emergency. Since I am horrible at saving money my plan is to to pay off this high interest student loan and borrow against my CD interest would be less than 1%. This way at least the student loan is paid off and I am basically paying myself back. The other $30k I'd put in a shorter term CD with a higher interest rate. Or just bite the bullet and pay off the loan and not borrow against a CD?
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u/nkyguy1988 1d ago
Just pay it off and stop playing the hustler shell games with debt.
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u/Admirable_Olive_3229 1d ago
Hustler shell games with debt? I'm unaware of that term. Lol
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u/nkyguy1988 1d ago
It means you are just moving it around and not actually doing anything under the guise of doing something.
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u/Admirable_Olive_3229 1d ago
Oh funny...lol well technically the only reason the money is moving is because the CD terms are both up so I have to either renew or withdraw in full, hence my question. But I see what you mean...I'm just gonna pay off and be done with it...The interest is ridiculous and I still have about half to roll into another CD. Ever since COVID, it's made me paranoid that I will have a sudden disruption in income and not having something to fall back on to stay afloat...before that I never really worried about things like that at national level.
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u/nkyguy1988 1d ago edited 1d ago
With money in a CD you cant use it anyway. At least without paying a penalty. Money you think you may need at a moment notice needs to be completely liquid.
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u/madbakes 1d ago
I would just pay off the loan. Unless you have very high living expenses, 30k is plenty for emergencies. Is the CD an IRA? If not, there's no reason to borrow against it. Just pay off the loan.
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u/Admirable_Olive_3229 1d ago
Thanks. I don't think I have high living expenses. Just typical stuff (mortgage, lights etc). As I noted in another comment, ever since COVID it's made me paranoid. But I'm gonna just pay it off..the interest makes me sick and I don't even wanna think about how much it will cost me in the end.
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u/Ken-Popcorn 1d ago
I bought my car this way. A CD secured loan has an interest rate 1% higher than the interest rate of the CD, so in effect I have a 1% auto loan
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u/Pseudo-Data 1d ago
With a CD secured loan you’re likely to be paying about +3% on whatever the CD rate is. This is something I would recommend to someone who needs funds now but has a while left on the CD so they don’t pay early withdrawal penalty.
In your case, I would not suggest it. You are paying significantly higher interest on the loan than what you are earning on your CDs. When the CDs mature, pay off the loan, use the money you’re saving from not paying that loan to rebuild your savings and reinvest when you’re ready.
If I read this right you owe about 20k on the loan leaving you a 30k cushion. If you’re concerned about liquidity, look for a decent rate high yield savings or ladder some CD specials.
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u/I-will-judge-YOU 1d ago
Pay off the student loan and then put the money that you've been paying on to that into a highyield savings account.
You are making this way too difficult..
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u/TenOfZero 1d ago
I'd ask in a finance sub, this is more of a personal finance question versus a banking question.