Pay Down Debt Too Fast?

Question: Background: My wife and I are recently married. She has a good entry level job with the university in town, which pays about 30,000 dollars a year. I am finishing up my last semester of college and with some successful job hunting will be in a similar situation. My wife has some substantial student loan debt ($40,000). We are planning on paying of the debt as aggressively as possible in the next 5 years.

Question: Is it possible to pay down debt in an overly aggressive manner? Blake. Fort Collins, CO

Answer: It is possible to try to reduce debt too quickly. It's terrific to be ambitious about getting rid of a loan. And there will be a real financial and psychological relief when you make that last payment to your student loan lender. But 5 years seems like a very difficult schedule to keep unless you sacrifice other goals to getting rid of the debt.

Personal finance is always about trade-offs. You want to pay down the student loan quickly, but you also want to save for your retirement. In all markets--but especially today--it's important to build up a cash cushion. The reason is that the job you accept on graduation may not work out for you. Savings allows you to take a risk and try another employer. You could also lose your job through a downsizing or restructuring (pick your favorite euphemism). You and your wife may decide to have a child. And so on.

So, yes, attack those student loans with discipline. But don't strap some other important goals in your young married life in the meantime. I consider student loan debt to be "good" debt. It's an investment in her career and future earnings. On a more pragmatic note since there is no prepayment penalty with student loans, as you're incomes improve over time you can always pay more.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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