WWYD first--pay down debt or save?

[Anonymous]

HHI of just under $150K, and monthly take-home of around $7600 (after retirement, health insurance, and pretax FSA withholding).
We owe around $20K total in student loans and have been paying more than the minimum due every month, for a total of around $525 per month.
We are about to close on a new house that will increase our monthly mortgage and bills by around $1000-1200 per month, and DH is VERY anxious about money being tight for the next couple of years. For that reason, he wants to increase the amount we have saved--right now we have 4-6 months of expenses saved and he seems to feel this is not enough of a cushion for his comfort level, and/or he would like to be saving more generally.
I feel like it makes sense to continue paying down our student loans so that we have fewer monthly expenses going forward, and because we can still afford it even with a higher monthly mortgage payment. DH (who is usually quite conservative with money) has proposed not making payments for a while since we are ahead, which seems wrong to me.
Thoughts?

[Anonymous]

What is the interest rate on your student loans?

[Anonymous]

He doesn't want you to stop making payments, at all, right? Just the extra amount?

Stop making the extra payments until you have a grasp on your new financial normal. And because your DH is freaked out about money.

If all goes well, you can resume the extra payments in a few months.

[Anonymous]

Interest rate on mine is 6.8%. I don't know about DH's.

We had already agreed to stop paying above the minimum, largely bc he is so worried about money and our perceived lack of cushion. I am still not totally convinced this makes sense, but am willing to go along to assuage his fears.

He actually has proposed to stop paying entirely for a time. Since a lot of his loan was repaid by his employer, he is technically ahead and would not have a payment due for 6 months or so. In my case, I started making payments during the grace period after I completed school and am therefore in the same boat, though I think I'd have more like 2-3 months before a payment is due.

[Anonymous]

I have student loans as well with a similar interest rate, and we paid off a chunk so I'm technically ahead and don't owe a payment every month - still, in trying to pay them off sooner than later, I usually make a payment of double the accrued interest for that month, so that some still goes toward principal. In your case I would not stop making payments altogether, but would be sure to pay the accrued interest each month. That would save a little extra each month and that extra would add up and hopefully make DH feel better.

[Anonymous]

Do you have an emergency fund? If the answer is no, then your DH is correct.

[Anonymous]

do you have 4-6 months of expenses at your current expenses or your future expenses? If you won't have 4-6 months at the higher mortgage, that suggests your husband isn't being irrational.

In the end, I would try to find some compromise between your desire to get out of debt longterm and his desire to have a bigger cushion-- perhaps you continue to pay your loan and let his rest for a few months, or perhaps you pay accrued interest but not principal.

[Anonymous]

what is the total amount of your student loans?

Pretty much whatever it is, at 6.8% with today's savings rates, you are better off paying that monkey off sooner rather than later, because you won't earn that much on what you save. If you had absolutely no cushion I may not say that, but aggressively pay this off. If DH's student loan debt is at a similar rate (and you should know the rate!) pay that off as well. (Pay off whichever one is higher).

[Anonymous]

Knowing what I know now, I would say savings should always be a priority. I used money given to me to pay off debts, and I wish now I had not used so much of it to do that. I would have been better off putting some of it away for myself into something that would accrue. Then I would have it now.

[Anonymous]

Get 6months worth of emergency fund first. You never know what house repairs might come up with the new house.

Then pay off debt that's higher than 5% first.

Then save.

Getting rid of debt will naturally increase money that you can freely allocate, not to mention the mental benefit of having less debt over your head.

[Anonymous]

Anonymous wrote:Do you have an emergency fund? If the answer is no, then your DH is correct.

+1

[Anonymous]

OP again. We have what is a 6 month emergency fund, which I calculate to be more like 4 months with new expenses. Apart from that we have about $10k earmarked for home repairs--some we know we'll need in the next 1-2 years, and some that we may or may not need. For me, this is a comfortable cushion; for DH, it's stressful to not be setting aside more money for savings.

Thanks for the input. We met with a financial planner 3-4 years ago and asked a similar question and he was not very helpful or direct. Sounds like we can find a middle ground an go with that for now.