My point was that a bulk of comments, and initial concern was whether more money could be borrowed at the same rate as the student loan (for emergencies? who needs $95K in EMERGENCY savings?), when the ability to easily repay it exists. My point was that for a Christian (this is a Christian PF blog) the goal should not be to borrow more money. From a strictly pragmatic view, one seeking freedom from debt cannot obtain it by borrowing more.

My position about repaying the student loan first was not based on religion but was purported to restore proper ordering to his obligations. The mortgage should never have existed before the student loan was paid off, so to eliminate is simply to bring Sam to the point of being free from consumer debt (which is where you want to be to have a mortgage).

All this buzz about cash flow misses the simple truth that no matter how much you make and how hard you work, there is a finite (and usually projectable) amount of money that can be earned in an individual’s life (and therefore, a finite quantity of things can be bought). Money spent on interest now, no matter how good your cash flow means you will have spent that money on something (unnecessarily to boot), and you cannot spend it on something else, nor can you replace it in the really big picture. The fact that adults consistently fail to realize this shows they haven’t moved beyond the child who can’t wait to eat a marshmallow for the promise of two.

Here’s my concern with your approach. Someone with no debt except for the house loses his job. With no job, there’s no easy way to borrow cheap money. The bank would foreclose faster on someone with high equity in their home. Same person saves in retirement account, 5% matched each year. 10 years in, he has more than a year’s gross salary saved, only have from his own deposits. Even after 10% penalty and taxes, he’s secure for a couple years, not the months the $10K offers.

Tax free munis are probably worth a look for you right now.

What order you pay off debts is your business, but I would point out that the student loan (it is consumer debt) should have been paid off before the mortgage was even purchased. So I would do it now.

I would keep a $10k emergency fund, no other cash other than monthly checkbook balance. It only needs be enough to met bare expenses until you can replace it if used, or find a new job if that is the emergency.

Then kill the mortgage before putting money in retirement accounts. Investing monies must be surplus, but you can’t really afford to lose money when you have outstanding debt. In addition, those monies become inaccessible to help pay the mortgage in the event of an emergency. Especially right now, I think you will find it difficult to beat 6% returns averaged over several years in the market (especially once you start subtracting 5.25% from all gains). Once you have no debt, you can put even more into the market, and your ability to keep the money there will ensure you see returns over time. Good luck.

I’m actually kind of surprised that nobody is advocating Option 2: “Attack the student loan with extra principal payments every month or year. If so, by what amount a month/year?”

Interesting it’s either all or nothing yeah?

The “Freedom Fund” is planned to grow to $1 million bucks by the year 2018 or 2019. The fund is just that, for financial freedom where I can hopefully draw $30-50,000/yr risk free from it during “retirement.” Add on another $50,000/yr in rental income from the rental property which will be paid off by them, hopefully from just these two assets alone, there will be $100,000/yr.

The payment on the loan is only about $210/month, which is automatically deducted from my checking. $210/month to pay off $30,000 for the next 16 years seems reasonable, no?

The are limitations if it was just a vacaiton property. The interest mortgage deduction phases out after a certain income.

I’ll take a look at DVY, thanks for the alternative investment suggestion.

20 years is that what’s left on the student loans? You’re still a young guy huh? Can I ask how old?

I’d think that you can put the $30K in tax free munis and come out ahead. Consider that DVY has a yield of over 4% and all the potential gain over the next 30 years. If I could borrow money at sub 3% fixed, I’d do it in a minute.

If you would sleep better paying it off, just do it. I’d make a different choice.

After paying off the loan I’d probably keep about 30k in the account as an emergency fund of sorts, and then use the rest pretty much the same as matt above. I’d work on getting that mortgage paid off ASAP.

But, with every tick down in the savings rate, it starts making me wonder.

@ Matt – Thanks for your suggestions. Drop a $32,500 slug to pay off the rental still lives me with a big rental mortgage. Hmmm, doesn’t feel that great.

Right now it’s 2:1 paying off loan to paying off rental. Will check back later this evening!

This is the whole dilemma… pay off the mortgage, which is much larger than the student loan… so there is no enjoyment of big progress.

The lower CD/savings rates go, the more I feel I should pay off the student loan.

WRT to the rental, I guess my indecision is my feeling that it’s an illiquid, and I might just sell the place when I retire rather than keep it as a cash flow positive asset.

But I’d recommend wholeheartedly to pay off the entire mortgage before paying a dime more than you have to toward the student loan.

But that’s just me. To me, paying off low interest debt when there’s higher interest debt on your balance sheet isn’t “freeing yourself from a burden” but rather “wasting your hard-earned money.”

If you are leaning toward paying off the student loan first, at least do yourself the favor of calculating how much more money (and hours worked at your job) it’s going to cost you as opposed to paying off the mortgage first. Then you can at least make an informed decision.

I would pay that student loan off tomorrow. What fun is a FREEDOM FUND if you really aren’t DEBT FREE?? Sorry Sam, just my thoughts.

I understand using the money to make money, but I’d much rather not worry about having a student loan over my head than making an extra 2-3%.

I would order the options like Matt did. I would leave $10,000 in the Freedom Fund to give me motivation to build that back up quickly. The 10K would come from the 32K for the rental. Changing that amount to 22K, which is a great starting point to blasting away that mortgage.

Best of luck Sam