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My wife and I graduated with our Masters degrees and accummulated a HUGE student loan debt. We combined the student loan debt into one and now owe over 140,000.

We have no credit card debt and we are paying 300/mo in a car loan that is at 13% for 5 years. We also are buying a house for $115,000. We currently are investing our money in an index fund type account that is "like" a money market in that we can withdraw from it similarly. We also have a ROTH IRA, 401(k) (maxed out) (I am a new Fool and will look to see if the 401(k) is in an Index fund but I think it is) and Life Insurance. The Life Insurance allows us to invest over the premium of the life insurance as another investment vehicle that is TAX free when we withdraw from it (for college for our children, etc.)

This means we're investing about 1200/mo after the 401(k). Should I minimize the investment and try to pay down the school loan debt? This seems like it would take about 12 years of enormous fiscal discipline.

Any suggestions?

Ok, to summarize your situation (making a few guesses/assumptions):

$140k @ 8.0% student loan
$115k @ 8.0% mortgage
$13k @ 13% car loan

2 401k maxed out ($10500/year x 2)
2 Roth IRA maxed out ($2k/year x 2)
Life Insurance "investment" $1200/mo = $14400/year

Estimated Monthly payments:
$1200/mo student loan (20-year repayment)
$850/mo mortgage (30-year repayment)
$300/mo car loan (you stated as such)

Student loans typically have 5-years of tax-free interest, while your mortgage will have a full 30-years of tax-free interest.

Using the Fool's calculator, if you doubled your student loan payments with the extra $1200/mo (paying $2400/mo) you would have it paid off in 75 months. That's slightly over 6 years, and would save $6150/year in interest.

Since you are already maxing out your 401k/Roth-IRA, I would recommend putting the extra 1200/mo towards your student loans instead of a taxable-investment. The first 5-years should be interest-deductible, then in 6 years your car and student loans will both be paid off. At that point you could put all $2700/mo (car payment, loan payment, and "extra" money) towards investment or mortgage payments.

Are debt-reduction payments as fun as investing? Probably not, but I think it would benefit more in the long run.


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