Hi Money Minder,
Hey there, Money Minder! So, here’s the deal – I still have $50k left on my student loans at around 6% interest. I’ve been sticking to the standard payment plan, which usually comes out to $605 each month. But lately, I’ve been throwing $2k at it every month to speed up the process. However, it’s not making as big a dent as I hoped because of that pesky interest. I’m aiming to be debt-free in 2 years, but it’s looking tough. On the other hand, I have around $40k stashed away in a high-yield (4%) account for my dream house. Now, I’m second-guessing my plan and thinking about wiping out my loans to start fresh with my house fund. What do you think?
Oh, let me give you a bit more info – I’m in my 30s, and I’m hoping to buy a home in the next couple of years. If things go well, I’ll be looking at spending around $400k on a starter home in my area, and I plan on putting down 20%.
Looking forward to your advice!
Fondly,
House Huntin’ Hero
Response from THE MONEY MINDER:
Hello There,
It sounds like you are in a challenging financial situation with a significant amount of student loan debt and a goal to purchase a home in the near future. Given the details you have shared, it may be beneficial to consider a practical and strategic approach.
Firstly, congratulations on being proactive about paying down your student loan debt by making larger payments than required. However, it is understandable that the high interest rate is hindering your progress in reducing the principal amount. With your current monthly expenses, it seems like $2k/month is the most you can comfortably contribute towards your loans.
Considering your goal of purchasing a home in two years, it may be prudent to reassess your priorities. While having $40k saved in a high-yield account for a house fund is commendable, the 6% interest rate on your student loans is likely higher than the 4% return on your savings. By using some of your savings to pay off a portion of your student loans, you could potentially save money on interest in the long run.
A balanced approach could involve allocating a portion of your savings towards paying off a chunk of your student loan debt while still maintaining a comfortable emergency fund. This way, you can make progress towards your goal of homeownership while also reducing your overall debt burden.
Ultimately, the decision to pay off student loans versus saving for a home will depend on your individual financial goals and priorities. It may be helpful to speak with a financial advisor to get personalized advice tailored to your situation. Stay focused on your long-term financial well-being and make decisions that align with your goals.
Best of luck with your financial journey and pursuit of homeownership.
Farewell from THE MONEY MINDER.
