paying debt vs investing

[akromyk]

My wife and I have a combined debt of about $100,000. Around $80K is from my student loans debts, which consists primarily of subsidized loans. On top of that I still have two years of school left till I complete my master, which will add another $27K on top of everything (not including interest). Aside from our combined debt we also have a $147K mortgage that we've just begun to pay over a 30-year period.

My wife makes $35K/year while I make $70K/year. Ten percent from each of our salaries goes to our respective 401K accounts.

What should we be doing with our money? Below is a list of potential ideas we have come up:

• Focus on paying student loan interest while continuing to pay credit card minimums
• Ignore student loan while it's in deferment and pay off credit cards, beginning with the highest-interest card
• Ignore student loans, pay credit card minimums, and being investing money using Acorns or Betterment
• Ignore student loans, begin paying highest APR card at slow pace, and also invest funds but at slower pace

Any recommendations as to what we should do would be greatly appreciated.

[TheKayla]

1. Emergency fund (6 months living expenses)

2. Credit cards, because they are likely very high interest -- or will be once any intro rates expire

3. Max out 401ks

4. Invest/pay off student loans at the same rate. Will all your student loans be subsidized a the end? Check interest rates on all of them, and compare to return rates you would get in the market. Then, prioritize. It will likely be close. I personally find more security in less, or zero debt. In the end, its important to save up in the market, but you never know what its going to do. Make sure you're not holding onto that debt for the next several decades.

[Bob B.]

Ten percent from each of our salaries goes to our respective 401K accounts.
[*]Ignore student loan while it's in deferment and pay off credit cards, beginning with the highest-interest card
.

Are you and your wife maximizing your employer match toward the 401K accounts? If so, I'd knock out the CC debt, and forget about additional investments while you're still working on your Master's. Consider your Master's degree your "investment".

If you and your wife are not maximizing your employer match toward your 401K accounts (at 10%, I assume you must be?). Do that, it's free money.

You would provide a much clearer picture if you would post a monthly budget. Forum members might be able to suggest areas where other spending could be cut.

Good Luck!

[autoxer]

My recommendation is to put together a net worth statement, listing all of your assets and all of your debts. You don't have to share it with us if you don't want to, but be honest with yourself. If your goal is to build up your net worth, then don't bother with investing until you have eliminated the high interest debt.

As to your list of ideas, I like #2 the most. 'Ignore student loan while it's in deferment and pay off credit cards, beginning with the highest-interest card'

[dczech09]

You need to focus on finishing school. As Bob B said, consider your degree your "investment."

If I were you, I would postpone any investing for right now. You have a mess to clean up in regards to debt. You make $105,000 as a household and have $247,000 in debt with another $27,000 on the way.

Monthly income: $8,750
Mortgage payment: About $700 per month (8%)
Student loan payment: About $1,200 per month (with the $27,000 loan) (13.7%)

Your student loan debt is going to be a little steep. Ideally, your payment should not exceed 10% of income (yours will be over 13%). However, the debt is already there, so rather than dwell on it we gotta come up with a plan! I just hope that you understand that these student loans deserve your attention, even if they are in deferral. You need to focus on them if you want them to go away!

With that being said...

Step 1: Pay minimums on all debts. With extra money, set aside an emergency fund of a few thousand dollars (about $3,000 since you are in a house).

Step 2: Pay minimums on all debts. With extra money, focus on the credit cards until they are gone.

Step 3: Pay minimums on all debts. With extra money, focus on the student loan with the highest interest rate. If your loans all carry similar rates, focus on the smaller balance. Once you clear a debt, move to the next.

Stick to step 3 until you have cleared all of the student loans, or at the very least reduce them by a significant amount.

At some point, you will want to make sure that you are investing in company 401k or 403b to the extent that you get a max. You and your spouse may also want to consider investing in Roth IRA since you still qualify (your income isn't too high yet).

I think you should focus on the debts for a little while before worrying about any investing. At the very least, pay off the credit cards (and stop carrying balances) before investing in 401k up to employer match.

[snafu]

my .02 cents...

I wonder if we could persuade you to track expenses for at least a month to better understand 'where the money goes.' I don't know if you're familiar with www.mint.com - a free tracking program. I'm concerned by your higher than typical interest rate on student loans in this low extremely low interest rate environment. Is your mortgage likewise at a higher rate? Do you pay 'extras' like mortgage insurance? How are your monthly mortgage payments allocated? What sum goes to interest, principal, taxes, and other items deducted from the sum paid?

While I realize SLs are currently in deferral, how many years will every decision you make be impacted by having $ 1,200. subtracted from net income before any discretionary sums can be spent? I add my voice to others that ask you to consider your Master's program cost an investment in yourself. The level of risk in the stock market doesn't balance well with your level of debt at this moment in time. I'd like you to capture any matching retirement contribution from employer as that's free money.

[BrokeGirlGetsRich]

A lot of good advice here

My two cents:

You'll want to knock out your high-interest debt first. Since you're already committed to a 401k, you do have some investments going, so I'd focus on getting out of debt / building an emergency fund before you invest further.

[moneysma]

My recommendation is to put together a net worth statement, listing all of your assets and all of your debts. You don't have to share it with us if you don't want to, but be honest with yourself. If your goal is to build up your net worth, then don't bother with investing until you have eliminated the high interest debt.

As to your list of ideas, I like #2 the most. 'Ignore student loan while it's in deferment and pay off credit cards, beginning with the highest-interest card'

I agree, get rid of the high interest rate debt first. While I'm all about living debt free, the credit card debt is costing you the most, so knock that out first then start focusing on the student loans.