You read a lot about people with a ton of credit card debt, and how paying that off is more important than saving for retirement. But what about those of us that have no credit card debt, but student loans instead? Do you wonder if you should be aggressive with those loans, and cut out all retirement investments?
We’ve been saving for retirement while still paying off my wife’s (Megan) student loans. She graduated just under a year ago, and we’ve had these student loans hanging over our head for as long as we’ve combined our finances. While she was in school, we paid the interest on her loans with just my income, while paying her current college expenses (so she wouldn’t rack up any more student loan debt). It was all we could afford to pay. Once she graduated and got a job, we have gotten aggressive with paying them down. We’ve made a good dent in them, but still have the largest loans still out there.
Now that we are having a baby, our priorities have shifted. We won’t have as much income if Megan decides to cut back a day or two on work to stay home with our daughter, plus all the added expenses of raising a child. This debt that’s been hanging over us has gotten me thinking even more about how we should handle the student loans.
I figured that if we cut down our retirement saving to be the bare minimum, we can pay off all our debt other than our house in 2-3 years. Since this is just a short term commitment, it won’t have too much of an impact on our retirement savings. I wish I would have realized this right when she graduated, as we would have been even further on our way of paying down the debt.
If you have student loans, and wonder if you should pay down that debt or save for retirement, my recommendation is to cut all retirement saving and get rid of all your non-house debt. It’s a short-term commitment that will help you out in the long run. Some people might argue that you lose more in the long run because of compounding interest, but getting out of debt is just as much mental as it is mathematical. Once you are out of debt, you can contribute more to your retirement fund to catch up. Since you only take a couple years off, it’s not that difficult to catch back up to where you were. Get rid of all non-house debt, then save for retirement. It’s a much better feeling being debt free than the little bit of difference you’ll possibly make in those 2-3 years investing.