(Closed) Pay off debt or save?

posted 10 years ago in Money
Post # 17
Member
1985 posts
Buzzing bee
  • Wedding: June 2012

I am paying off my student loans aggressively as opposed to saving.  I want to enter marriage with as little debt as possible.

Post # 18
Member
47421 posts
Honey Beekeeper
  • Wedding: November 1999

You really need to do both. Everyone needs at least 6 months expenses covered in savings in case you are suddenly unemployed.

You also need to get rid of debt asap. Obviously pay off the higher interest debt first as that is what is costing you more money.

Put some aside in savings and then use the  money you are no longer making payments with to increase your savings.

Post # 19
Member
1826 posts
Buzzing bee
  • Wedding: July 2011

I’d pay off the credit card straightaway – the interest rates on those are killer, although you stated yours is 8%, which actually isn’t too bad.  As you only have $900 in CC debt, that’s a fairly reasonable amount, which hopefully won’t be too difficult for you to pay off….and whilst I agree having some savings in case of emergency is essential, it doesn’t really factor in with this situation until your CC debt is zero.  You could either pay for your emergency in cash and still be carrying your CC debt, or you could pay off your CC debt now and if an emergency comes up before you build up savings, you pay for it on your CC.  Same same really.

As far as student loans, hold onto them as long as you can.  DH and I have savings in the six figures now, on top of his income (I don’t work right now) and I could easily pay off the remaining 10K on my student loans, but I don’t.  I only throw a couple of hundred at it every month because the interest rate is so ridiculously low, I’d rather pay that off for the next 5 years and keep our savings high.  Seriously, it’s the last debt you want to get rid of.

Post # 20
Member
1985 posts
Buzzing bee
  • Wedding: June 2012

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@Ree723:  Out of curiousity what is a ridiculously low interest rate?

Post # 21
Member
4410 posts
Honey bee
  • Wedding: December 2010 - Savannah, GA

I’m going to go a little against popular opinion and suggest you work towards paying off the debt that you owe the least on first regardless of the interest rate.  That’s what I have been doing, and it really makes me feel like I’ve accomplished something every time I get another debt paid off.  It keeps me encouraged to keep working hard at it. After I paid off the smallest of my debts, I put the entire amount that I had been paying on that debt towards my next smallest debt. Then I did the same thing again when I paid off that debt…the entire payment for that loan and the previous loan are going towards the next smallest one.

The amount I’ve been paying out every month on debts hasn’t changed, but I’m reducing my debt so much faster than if I had put the extra towards the highest interest loan. If I had started working on paying off the one with the highest interest, I still would have four debts to pay off instead of only two.

 

Post # 22
Member
4822 posts
Honey bee

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@accorn: I know this wasnt directed to me, but my school loans are less than 2%. Take into account the tax break, it would be silly for my to pay them off since I can invest that money and make it work for me/ save it for a house down payment etc.

Post # 23
Member
1985 posts
Buzzing bee
  • Wedding: June 2012

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@lefeymw: Ah!  I wish mine were that low, they are all between 5-7 percent.  Which I know is not terrible but it isn’t 2 percent.

Post # 24
Member
5667 posts
Bee Keeper

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@lefeymw: and
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@amnystik: are 100% right. Save up a baby emergency fund just in case and then prioritize by interest rate.

Post # 25
Member
1826 posts
Buzzing bee
  • Wedding: July 2011

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@accorn:  Right around 2%, give or take a tenth of a percentage or two, same as lefeymw.  DH and I are still in a period of transition and uncertainty, trying to decide what country we’re going to live in long term, so until we have that settled and have made our next big move, I’d rather keep the loan and maintain our healthy savings/disposable income.  I didn’t realise the interest rate on students loans varied so much – I thought they all were right around the 2% mark!  I’m sorry if my comments sounded a bit harsh, clearly a poor assumption was made on my part!  🙂 

Post # 26
Member
1985 posts
Buzzing bee
  • Wedding: June 2012

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@Ree723: No, I was curious if I was just really off on what was thought of as a low interest rate.  If my rate was 2% I wouldn’t be paying it off as aggressively as I am.I have 4 small loans, one for each year.  Now I wish I hadn’t taken them out because I really didn’t need too but I enjoyed college because of them and didn’t have a job. 

That said I still do have savings- enough to hold us over for 4-6 months depending on how we use it. 

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@Bao: So I guess it really depends on your interest rates, if they are 2 percent I wouldn’t worry about them as much.  However I would pay off the 900 on the credit card and work towards the car payment. 

Post # 27
Member
3616 posts
Sugar bee
  • Wedding: November 2011

I would pay off the CC and then start saving. For me, I like the financial freedom of not having any debts to worry about.

Post # 28
Member
1561 posts
Bumble bee
  • Wedding: November 1999

You have to have money in savings for emergencies first.  I would suggest 6 months worth.  However, if that isn’t doable, at least one to two months.  Then work on paying things off.

Post # 29
Member
3977 posts
Honey bee
  • Wedding: May 2011

Pay off debt!

Seriously.

Post # 31
Member
4410 posts
Honey bee
  • Wedding: December 2010 - Savannah, GA

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@Bao:  That’s a really good plan. 

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