Dear Debt Adviser,
My husband has $250,000 in student loan debt. He has been paying the minimum and deferring them while he’s between jobs. I ran the numbers and realized that if we were to continue paying the minimum, we’d pay $2,500 per month until 2045! But if we live frugally for 3 years, we can get rid of the bigger loans ($170,000 between 6% and 8.5%), and pay off the remainder with the monthly minimum for another 7 years.
We also want to build some savings and open a managed investment account. We’d like to buy a small apartment (we live in New York City) in the next 5 years and have a baby.
So here is the question: Does it make sense to live frugally and put all of our extra income toward repaying his student loans? Or should we put some of that money toward savings and investments? I’m 26, he is 29, and it’s time to start building our future.
Before you pay down his loans, you need to build a cushion for emergencies and feed your apartment-purchase fund. So keep paying the minimum until you have 12 months’ worth of basic living expenses set aside and a down payment on your new home.
Once you have your emergency fund in place, consider an investment program. I like investing over the long term and think that the sooner you start, the better off you’ll be. I suggest that you find a highly recommended financial planner instead of a banker or a broker to guide your financial plan. In my experience, investing isn’t about hitting financial home runs. It’s about avoiding mistakes.
Over time, your income will hopefully increase and your husband will turn his expensive education into gainful employment. When that happens, you’ll have the opportunity to pay down his debt faster and fund more of your financial and family goals.
I also suggest that you don’t forget to put a few dollars aside regularly, maybe from raises or promotions, to allow for some fun. At your age, 3 years without some breaks may be more than either one of you can stand. You may actually increase the likelihood of meeting your savings and investment goals if you allocate a modest amount of money for activities or things you both enjoy.
Ask the adviser