“Just keep saving”: I have $25k in student loan debt and $20k in savings. How can I decide whether to pay off my debt or continue saving?

Hi Money Minder,

So, I’m 26 and managed to save 20k – not too shabby, right? But here’s the thing – I also have 25k in loan debt. My interest rates aren’t too crazy, ranging from 3-5.15%, but I’m still nervous about carrying that debt. I save out of fear of the unknown, but I also want to pay off my debt. It’s just scary to think about starting over with savings again. I have a temporary job that pays well until September 2025, and I’m also a disabled vet, though not at 100% disability. And to top it off, I have a CD at 5.16% that I just started last month. Any wise words of advice for me?

Farewell,
Seeking Clarity

Response from THE MONEY MINDER:

Hello There,

Greetings,

Congratulations on being able to save $20k at the age of 26, that is no small feat. I understand that dealing with debt can be anxiety-inducing, but you have already taken the important step of acknowledging your financial situation and seeking advice. It’s great that you have a temporary job that pays well, and being a disabled vet adds another layer of complexity to your financial planning.

Given your circumstance, it might be beneficial to prioritize paying off your loans. Since you have until September 2025 on forbearance, you have some time to strategize. Start by looking at the interest rates on your loans. Focus on paying off the loans with the highest interest rates first while continuing to make minimum payments on the others. This can save you money in the long run by reducing the amount of interest you accrue.

Regarding your savings, it’s understandable that you feel anxious about starting over after paying off your debt. Perhaps you could create a plan where you allocate a certain amount each month towards both paying off debt and building savings. It doesn’t have to be an all-or-nothing approach. Building a financial cushion is essential, especially when unexpected expenses arise.

The CD you have at 5.16% can be a good addition to your financial portfolio, as it offers a higher interest rate. You can consider it as part of your emergency fund or a safe investment option.

Ultimately, it’s about finding a balance between paying off debt and saving for the future. Take small steps, set achievable goals, and track your progress. Remember, you have already shown discipline in saving, and that same discipline can help you in managing your debt effectively. All the best from THE MONEY MINDER.