Ask Money

Pay Down Debt Too Fast?

Chris Farrell Jul 14, 2008

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.

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