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I'm conflicted and am curious what you would do if you were in my shoes:
I am 26 and I can't decide if I should just go full force and try to pay my student loan as quickly as possible or do the normal payment but also contribute towards retirement. My company does no matching, so if I don't contribute I won't be missing the "free money"... the loan is at 5.88%, thoughts?
I would focus on paying off the student loans as quickly as possible. Also, it's a good idea to put money away into an emergency fund. You can also contribute to a Roth IRA and the contributions can serve the dual purpose of emergency fund and retirement. Just make sure that the money is invested in something that is more secure (i.e. CD, money market).
Go full force on the student loans. I am basically in the same situation as you, age 25 with 40k in student loans last May. I decided to buckle down, and I challenged myself to a one year payoff plan, which seemed crazy at the time. Fast forward nine months, and I'm slightly ahead of schedule. I haven't regret it a single bit.
For me, it has become an obsession to pay them off. I followed Dave Ramsey's debt snowball, starting with the smallest balances first. Paying each one off was like crack. I just couldn't get enough. Now I am numb to the large amounts of money being thrown at them, so I challenge myself to go even further. I throw every dollar at them. I'm not sure if it's healthy to get such a high from paying them off, but I sure will be happy once I'm done in a couple months.
After I've demolished these beasts, the extra cash flow is going right to my retirement accounts. I haven't really missed the money, so why blow it on stupid things? I suggest you try something similar, and you will be able to "make up for that lost time" on your retirement once your done.
I will also add that I agree with Cosmic Blue on the emergency fund. At least start a small one before you begin to tackle the debt. Once you're done, boost up the emergency fund, then start socking away for retirement.
Go full force on the student loans. I am basically in the same situation as you, age 25 with 40k in student loans last May. I decided to buckle down, and I challenged myself to a one year payoff plan, which seemed crazy at the time. Fast forward nine months, and I'm slightly ahead of schedule. I haven't regret it a single bit.
For me, it has become an obsession to pay them off. I followed Dave Ramsey's debt snowball, starting with the smallest balances first. Paying each one off was like crack. I just couldn't get enough. Now I am numb to the large amounts of money being thrown at them, so I challenge myself to go even further. I throw every dollar at them. I'm not sure if it's healthy to get such a high from paying them off, but I sure will be happy once I'm done in a couple months.
After I've demolished these beasts, the extra cash flow is going right to my retirement accounts. I haven't really missed the money, so why blow it on stupid things? I suggest you try something similar, and you will be able to "make up for that lost time" on your retirement once your done.
Absolutely agree with this post...read more Dave Ramsey and your retirement with no debt will be great...I did the same and at age 50...no better feeling...plus it is very true that the extra cash flow going to retirement accounts after you pay your debts off, you won't really miss the money and a healthly retirement account will greatly help you!
You should invest some per centage in retirement savings now. The reason being you need to learn early about retirement and make retirement investments part of your regular yearly routine.
Personally, I went the route of paying off all debt first. I didn't start investing for retirement until age 31 (3 years ago). I regretted that until I realized that at age 31, most of my peers who started investing 10 years earlier were quite upside down in their investments (some were down 50% or more), because of the economy. And they all still had debt they were paying interest on on top of that loss. So for my particular situation, at that particular point in history, it worked out much better for me to have started by paying off my debts. Now that I have no non-mortgage debt, I am saving/investing about 50% of my take home pay.
However, going forward from today, I don't anticipate the economic situation to be the same as it was over the last 3 years. It would be a more difficult decision today, especially with no company match from work. If you feel that your investments will make more than 6%/year in return, then you should put it toward retirement savings. If you feel like they will make less than 6%/year in return, then you should pay down debt. In the last 3 years, with a moderate to moderate-high risk level, my return on my IRA has been 5.8%/year average, with 2012 being the best returns of the 3 years at around 11% return.
I think if you could throw every cent at the loan and pay it off in a year or less, I'd do that. If you can't, then I'd put it into a Roth IRA. You didn't mention any numbers, so if you are talking about more than $5500/year in surplus funds, then after maxing out the Roth IRA, use any additional to pay down the loan.
Oh, yeah, and as others have said, I wouldn't do either unless you have something for an emergency fund. At least 3 month's worth of expenses, to start with. Sure you COULD use the contributions from the Roth as an emergency fund if you had to, but I prefer to think of that as a backup that you never want to touch except in dire dire emergency.
if you're not even getting a match then definitely focus on paying off the student loans. don't forget to save some money though just in case. you don't want to put all your extra money toward your student loans only to have your car blow up and have to borrow money for a new one at an even higher interest rate.
Get the match... That's a 100% return (your interest won't be that high, and you have to loose that much before your down $1.
My company does no matching
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