Pay off student loans or DVC in full?

[Arguetafamily]

Thank you to everyone for their feedback. I really appreciate the insight and perspectives.

I decided ultimately to pay off my DVC loans, use those amounts, to pay my student loan. If they get zero out due to politics, great, if they don’t, that’s okay too.
I enjoy taking my vacations at my happy place, which right now, and for a decade or so, has been Disney.
Life is short, peace for me is looking forward to guaranteed vacations rather than no debt. Yes I do know I could always take maybe more vacations with less debt. We are also the people that use the Dining plan if it’s available, for convenience.

Thanks again

 

[WinterSolider]

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.

If someone were in such dire financial straits, it's wildly irresponsible for them to be in DVC in the first place and they should sell immediately.

 

[gmi3804]

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.

This is preposterous. I'd love to hear why you think not paying off the a higher interest loan debt, with as much as you have, first, would possibly be a benefit?

 

[Sandisw]

This is preposterous. I'd love to hear why you think not paying off the a higher interest loan debt, with as much as you have, first, would possibly be a benefit?

Years ago; we were advised that eliminating one debt, even if it is a little higher rate, made more sense because then you free up a payment that you can then put directly on the other one, and increase that..vs still having payments for both.

 

[ray3127]

This is preposterous. I'd love to hear why you think not paying off the a higher interest loan debt, with as much as you have, first, would possibly be a benefit?

It's called the debt snowball, and it is not preposterous. It harnesses human behavior/psychology, which is far from perfect.

The snowball allows you to rack up little wins along the way, which keeps momentum going.

You might end up paying a little more in interest, but your chance of actually paying off all of your debts is greater.

Yeah yeah, it was popularized by Dave Ramsey, so boo all you want. I don't agree with Dave 100%, but the snowball works.

 

[disney-inspired]

Whatever has the highest interest and/or highest monthly payment.
I'd go for the DVC loan.

 

[we"reofftoneverland]

I’d do the student loan. I’d prefer to owe Disney than the feds.

 

[jo-jo]

Even if you pay off DVC and use those payments toward the other bills, I'd skip a year or two of vacations and rent out those points to cut down on the bills even more. Not too long ago, none of us were going on vacations. I've never rented out points but it seems people are getting at least twice the amount needed for paying dues. So if you have 300 points....you would have at least 2 grand to pay off other bills AFTER you set aside money for dues. Not even counting the other cost of a disney vacation.

For me, I'd enjoy the vacations more, knowing I have less stress waiting for me at home.

 

[crvetter]

It's called the debt snowball, and it is not preposterous. It harnesses human behavior/psychology, which is far from perfect.

The snowball allows you to rack up little wins along the way, which keeps momentum going.

You might end up paying a little more in interest, but your chance of actually paying off all of your debts is greater.

Yeah yeah, it was popularized by Dave Ramsey, so boo all you want. I don't agree with Dave 100%, but the snowball works.

The problem with Dave Ramsey and this method is most people that follow it think it’s saving them money and the best option from a pure financial perspective. To the point they argue paying the highest off saves you less, I’ve seen this stated on his show. I would much rather see both options presented to people with the pros and cons and highlighting that the debt snowball costs more money however may be helpful to you as an individual if you need the wins.

Dave and other proponents of it sell it as the answer when as you suggested it’s an option that’s for individuals but not every individual needs this level of comfort.

 

[Brob2132]

Thank you to everyone for their feedback. I really appreciate the insight and perspectives.

I decided ultimately to pay off my DVC loans, use the payments I would have paid on my loans to pay my student loan. If they get zero out due to politics, great, if they don’t, that’s okay too.
I enjoy taking my vacations at my happy place, which right now, and for a decade or so, has been Disney.
Life is short, peace for me is looking forward to guaranteed vacations rather than no debt. Yes I do know I could always take maybe more vacations with less debt. We are also the people that use the Dining plan if it’s available, for convenience.

Thanks again

Congratulations!

 

[Miffy]

Thank you to everyone for their feedback. I really appreciate the insight and perspectives.

I decided ultimately to pay off my DVC loans, use the payments I would have paid on my loans to pay my student loan. If they get zero out due to politics, great, if they don’t, that’s okay too.
I enjoy taking my vacations at my happy place, which right now, and for a decade or so, has been Disney.
Life is short, peace for me is looking forward to guaranteed vacations rather than no debt. Yes I do know I could always take maybe more vacations with less debt. We are also the people that use the Dining plan if it’s available, for convenience.

Thanks again

OP. I just read through this entire thread and wanted to first thank you for posting what you decided to do--since so many threads end without readers knowing what happened. And also to say that I think you made the absolute best decision.

Using the money you were paying the DVC loan with to pay off your student debt will hugely accelerate the payoff date, and you'll be so happy when it's done.

And enjoy your Disney vacations. I mean, how could you not?!?!?

I do, however, disagree with you about the dining plan. Its convenience is minimal and the cost is, for me anyway, far more than I'd actually pay for food at WDW. Think of it this way--if your mortgage lender told you that, for convenience, you could send them $15,000 once a year and then you wouldn't have to think about it for a year . . . or you could just send them the usual $1,000/month, which would you choose? Would you really send them an extra $3,000/year just so you wouldn't have to think about it every month? I doubt it.

But maybe the dining plan does save you money. I don't drink alcohol, and apparently that's one of the greatest savings of the DDP, so perhaps it does work for you. But if convenience is the only reason you purchase it, then think about it again.

And, meanwhile, congrats on paying off your DVC. I think it was the wisest decision of all your choices.

 

[Brob2132]

OP. I just read through this entire thread and wanted to first thank you for posting what you decided to do--since so many threads end without readers knowing what happened. And also to say that I think you made the absolute best decision.

Using the money you were paying the DVC loan with to pay off your student debt will hugely accelerate the payoff date, and you'll be so happy when it's done.

And enjoy your Disney vacations. I mean, how could you not?!?!?

I do, however, disagree with you about the dining plan. Its convenience is minimal and the cost is, for me anyway, far more than I'd actually pay for food at WDW. Think of it this way--if your mortgage lender told you that, for convenience, you could send them $15,000 once a year and then you wouldn't have to think about it for a year . . . or you could just send them the usual $1,000/month, which would you choose? Would you really send them an extra $3,000/year just so you wouldn't have to think about it every month? I doubt it.

But maybe the dining plan does save you money. I don't drink alcohol, and apparently that's one of the greatest savings of the DDP, so perhaps it does work for you. But if convenience is the only reason you purchase it, then think about it again.

And, meanwhile, congrats on paying off your DVC. I think it was the wisest decision of all your choices.

The DDP discussions have always confused me. Create a budget. If budget > DDP, buy DDP. If not, skip it.

It’s never even come close for us because we never buy snacks or sodas (and we do buy some alcohol).

 

[Ashlotte]

Unfortunately for me interest for student loans are 8% and DVC 11.05%.

Yikes, that’s high. Is there any real financial savings to DVC over rack rate when the interest is that high?

I’d pay off student loans and sell DVC and use the money I was paying towards both to save until I could buy a resale account without that high rate.

 

[Arguetafamily]

The DDP discussions have always confused me. Create a budget. If budget > DDP, buy DDP. If not, skip it.

It’s never even come close for us because we never buy snacks or sodas (and we do buy some alcohol).

Thank you @Miffy I enjoy closure too

My husband is very strange when it comes to seeing the money come out, when dining, or anything really. The kids and I hear allot of no’s or complaints about what we order. We usually do at least one sit down and or character meal per day, including alcohol, and I like the more expensive restaurants.

For me personally it saves me arguments when paid a premium ahead of time. I make the reservations, we eat, pay the tip, that’s all, and he seems to say nothing when we do it that way. I understand it’s not worth it in the financial sense but for piece of mind for me and the kids, it makes our vacations go just a little smoother and that’s worth it, for me.

 

[ray3127]

The problem with Dave Ramsey and this method is most people that follow it think it’s saving them money and the best option from a pure financial perspective. To the point they argue paying the highest off saves you less, I’ve seen this stated on his show. I would much rather see both options presented to people with the pros and cons and highlighting that the debt snowball costs more money however may be helpful to you as an individual if you need the wins.

Dave and other proponents of it sell it as the answer when as you suggested it’s an option that’s for individuals but not every individual needs this level of comfort.

Sure. But for the vast majority of people, money isn't a math problem. So it's better to take a behavioral approach, full stop. This is where the snowball wins every time.

Except for extraordinary circumstances, if you run the numbers on a true snowball (paying off lowest balance, then rolling that payment into next highest balance, etc.) vs. the debt avalanche (paying highest interest balances first), the difference between the two is minimal.

Not even Dave Ramsey would argue that if you stick to either plan the snowball will save you money compared to the avalanche. He can do math. His argument (which I agree with) is you are more likely to actually complete the snowball compared to the avalanche. In turn, you will actually get out of debt, and therefore save money in the long run and in the future.

I teach corporate finance at a university for a living, and as part of that I teach (and study) behavioral finance. The fact is people are not rational with money (exhibit A: borrowing money at over 10% for a timeshare). Therefore, most people should just go straight to the snowball. Unless they want to live with debt, in which case it doesn't matter.

In general, I agree that Dave & Co. are too dogmatic ... they don't consider other options. But in this case, considering behavioral finance, I think it is clearly the best option for most people.

 

[Miffy]

Thank you @Miffy I enjoy closure too

My husband is very strange when it comes to seeing the money come out, when dining, or anything really. The kids and I hear allot of no’s or complaints about what we order. We usually do at least one sit down and or character meal per day, including alcohol, and I like the more expensive restaurants.

For me personally it saves me arguments when paid a premium ahead of time. I make the reservations, we eat, pay the tip, that’s all, and he seems to say nothing when we do it that way. I understand it’s not worth it in the financial sense but for piece of mind for me and the kids, it makes our vacations go just a little smoother and that’s worth it, for me.

I get it. And, btw, I completely understand your love of Disney and your desire to vacation there. I'm exactly the same way and I'm sure that I could've saved mucho $ over the years instead of spending it at WDW, however, as I've told my DH many times, although I regret many purchases I've made, I do not regret one dime I've ever spent at WDW. Yes, I love it there . . . and I'm sure you do too.

My only WDW regret is that I never purchased DVC. I'm sure I would've gotten a ton of enjoyment out of it, but the timing was never right. At the price DVC is now, there's no way I would purchase it even though we do spend quite a bit at WDW every year.

 

[Miffy]

Sure. But for the vast majority of people, money isn't a math problem. So it's better to take a behavioral approach, full stop. This is where the snowball wins every time.

Except for extraordinary circumstances, if you run the numbers on a true snowball (paying off lowest balance, then rolling that payment into next highest balance, etc.) vs. the debt avalanche (paying highest interest balances first), the difference between the two is minimal.

Not even Dave Ramsey would argue that if you stick to either plan the snowball will save you money compared to the avalanche. He can do math. His argument (which I agree with) is you are more likely to actually complete the snowball compared to the avalanche. In turn, you will actually get out of debt, and therefore save money in the long run and in the future.

I teach corporate finance at a university for a living, and as part of that I teach (and study) behavioral finance. The fact is people are not rational with money (exhibit A: borrowing money at over 10% for a timeshare). Therefore, most people should just go straight to the snowball. Unless they want to live with debt, in which case it doesn't matter.

In general, I agree that Dave & Co. are too dogmatic ... they don't consider other options. But in this case, considering behavioral finance, I think it is clearly the best option for most people.

Thanks for this thoughtful and fascinating post.

 

[Brob2132]

Sure. But for the vast majority of people, money isn't a math problem. So it's better to take a behavioral approach, full stop. This is where the snowball wins every time.

Except for extraordinary circumstances, if you run the numbers on a true snowball (paying off lowest balance, then rolling that payment into next highest balance, etc.) vs. the debt avalanche (paying highest interest balances first), the difference between the two is minimal.

Not even Dave Ramsey would argue that if you stick to either plan the snowball will save you money compared to the avalanche. He can do math. His argument (which I agree with) is you are more likely to actually complete the snowball compared to the avalanche. In turn, you will actually get out of debt, and therefore save money in the long run and in the future.

I teach corporate finance at a university for a living, and as part of that I teach (and study) behavioral finance. The fact is people are not rational with money (exhibit A: borrowing money at over 10% for a timeshare). Therefore, most people should just go straight to the snowball. Unless they want to live with debt, in which case it doesn't matter.

In general, I agree that Dave & Co. are too dogmatic ... they don't consider other options. But in this case, considering behavioral finance, I think it is clearly the best option for most people.

Just had a version of this conversation with my wife. She’s very intelligent and excellent at math.

We just had to buy a second vehicle at 6% (vomit, worst time ever to buy another car). Our first vehicle is roughly half way through the life of the 3.5% loan (and we were going to pay it off in roughly 36 months). She didn't initially want to alter course because she wants to pay off the first vehicle, even though doing so will result in roughly $1500 more for the life of the loan.

The extra 1000 a month on a brand new loan just has a different feel than one you can taste paying off.

 

[eticketplease]

For me personally it saves me arguments when paid a premium ahead of time. I make the reservations, we eat, pay the tip, that’s all, and he seems to say nothing when we do it that way.

You could try the unofficial dining plan.

Price the dp for your stay and then instead buy discounted gift cards from Target or elsewhere. You will still order and dine where you want put it will come off the card instead. You will probably have put enough on the card that it will even cover some of the tips.

 

[Cfabar1]

I would pay off the DVC - especially if the loans are Federal Student Loans and not private.

Federal student loans have so many tricks and ways to reduce or even eliminate your payment for a period of time if you get into trouble. You can get deferments, move to income based repayment plans, get a forbearance, or perhaps take a new job which qualifies for one of the several loan forgiveness programs that exist.

DVC loan is going to continue to be that monthly payment until it is paid off.