Which debt to pay?

[bjl584]

Okay, I currently have two major debts, and I am trying to decide which to attack first.

#1: Mortgage: 15yr fixed 5.25%. Original balance of 83K. Remaining balance of 62K. I've been paying on this since Dec. of 2004.

#2: Student Loan: 20yr fixed rate of 6%. Balance of 47K. Repayment begins in Feb. of 09.

Some background info, I'm 30, single, and don't plan on moving in the foreseeable future.

My thoughts: I was thinking that it may be a better bet to try and get the mortgage paid off early first because, should the economic downturn hit me, at least no one will be able to foreclose on me and throw me out of my house. Should I have to default on a loan, the student loan would probably have less of an impact on me.

I guess that I should list this stuff too:

401K: 18,400
Roth IRA: 8000
Stock Portfolio: 4500
Mutual Funds: 10000
Cash: 7800
EF Fund: 14800, IGO Banking earning 3.08%

Any thought?

Thanks

[deadgoon]

Aren't student loans non-bankruptable? Just my personal opinion, but I'd pull my non-retirement funds with the exception of the emergency fund and pay that on the student loan, then I'd prioritize it first.

[jIM_Ohio]

I don't know income, but just guessing that the tax reasons for keeping the mortgage are better than for keeping the student loans.

It will be EASIER to pay off the student loan than the mortgage.
You get more FLEXIBILITY in cash flow with paying down the student loan than the mortgage.

Here is what I mean- you are locked into a payment of whatever on the mortgage. You did not list payment, but short of refinancing or government intervention, you are committed to the same fixed payment on the mortgage until you pay it off. That does not sound flexible to me.

If you pay extra on the student loan, the payment next month goes down. If you choose to pay extra next month, the payment goes down for the third month- and so on.

If in the 20th month of extra payments you need to send only the minimum to the student loan to pay a doctor bill, car repair or vacation, you can. You have that flexibility.

Because the student loan has a lower principal balance, higher interest rate and lower tax advantage, I would advise it is easier, more financially sound, and gives you more flexibility to pay down the student loan first.

How much extra are you planning on paying?
What are the minimums on each?
What is your income (taxable income on tax return in particular)?

[disneysteve]

deadgoon is correct. If you hit a financial crisis, you could get out of a mortgage by selling the home or declaring bankruptcy but you can't ever get out of a student loan.

How much do you earn? What % of income are you currently saving?

With no more info, I'd say the student loan should come before the mortgage.

[disneysteve]

If you pay extra on the student loan, the payment next month goes down.

Really? My student loans didn't work that way. They had set repayment plans. The only time the minimum payment changed was when a variable rate adjusted.

[SnoopyCool]

My student loan is set, too, as far as I understand it.

[bjl584]

Let's see:

Gross income in 08 was just under 50K
Currently saving 22% of Gross income annually
Mortgage payment = 686
Student loan payment = 329

I have the ability to pay an extra 700 toward either debt.

Also, I believe that the payments on the SL is fixed. It won't go down if I pay extra.

[disneysteve]

Gross income in 08 was just under 50K
Currently saving 22% of Gross income annually

I have the ability to pay an extra 700 toward either debt.

Is that $700/mo in addition to the 22% you are already saving? $700/mo would mean you'd be saving about 39% of income. That's fantastic if it is accurate.

I'd put it toward the student loan for reasons already mentioned.

[bjl584]

yes, that would be in addition to the 22%. I'm currently putting that money in the EF fund, but it's now fully funded.

[disneysteve]

yes, that would be in addition to the 22%. I'm currently putting that money in the EF fund, but it's now fully funded.

That's great! Good for you.

[bjl584]

thanks for all the replies guys. looks like it's the SL that will be getting my full attention. thanks again

[KatieNK]

I would pay off the mortgage. The student loan you can always defer or work out cheaper payments if you HAVE to, that is harder to do with the mortgage.

[poundwise]

Another vote for the student loan.

[Alex_Adviser]

As you’re carting around much high debts, you can turn your attention to your mortgage. After all, although your home loan probably has a lower rate than any of your other debts, you’re probably still paying thousands of dollars a year in interest towards it.

Regards

[CoreAssets]

Best to pay off the mostly costly first.