Liquidity Management & My Student Loan Balance

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My previous post shows that I still have a student loan balance. This is one target that I did not meet this year. Although my overall financial picture is relatively healthy, I failed to pay off my student loans as I planned to by the end of the 2018 first quarter. The question is why I would not pay it off if I have such high liquid assets (cash, savings, securities available for sale, etc.). The answer is liquidity management. Sometimes we have to make a choice to keep a debt on the books in order to keep cash in the bank.

Asset/Liability Management

Currently, my student loan balance is under $10k with a monthly payment of less than $150. However, at the time of that post, I had a vacancy in my rental with no concrete tenant applications in hand. That means, I need to be ready to pay the mortgage (an amount that is significantly higher than the student loan bill) indefinitely in theory. I say “indefinitely” because you don’t know that you have a tenant until you sign a lease. If I have to start tapping into my savings to make the mortgage payments on the vacant rental, I do not want to put myself in a position where my liquid savings are very depleted because I paid off the student loans. I’d be putting myself in a financial bind to pay a bill 8 years early (rather than 7 years early) only to jeopardize a mortgage payment.

However, when I do get a signed 12-month lease, I will have better confidence that the mortgage is going to be covered for at least a year and using several thousands to pay off the loans will be less risky. I will have 12 months of rental profits to replace that $8,000 lump sum payment as I will no longer be covering the mortgage by the tenant will. Ultimately, my desire to get out of debt cannot be greater than my need to meet my immediate funding needs.

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