Tales from the Wallet: Paying Down Debt vs. Saving

paying down debt vs. savingIt’s the New Year, and I heard a lot of chatter among commenters about when they should be paying down debt vs. saving. It’s a huge question, and we’ve talked about some related things (like how to pay off huge student loans and live within your means), but we haven’t talked about when to save vs. when to pay down debt in too long. Readers, what are your best thoughts on paying down debt vs. saving? When is getting out of debt a priority?

(Pictured: Comme des Garçons ‘Super Fluo’ French Wallet, $204 at Nordstrom.)

A few thoughts from me:

  • Avoid credit card debt at all costs — if you can’t pay it off that month, don’t buy it! If you do have some, always pay your minimum, and know your interest rate — this will likely be the highest interest rate out of all your debts, so paying this debt off should probably be your highest priority, above your student loans (but see our thoughts on that below).
  • Emergency fundBefore we start talking about saving or paying down debt, you do need at least a little bit in your emergency fund.  $1000, $5000, $25,000, $100,000 — this is going to vary based on your risk tolerance level, how expensive your daily life is (if you lost your job tomorrow, what would you need just to sustain yourself for 2 months?), and how easy your access is to other money (non-retirement investment accounts, wealthy family, whatever).  I’d strongly suggest having access to at least two months’ living expenses before you start seriously trying to pay down debt.  If that seems undoable, it may be time to take a hard look at your life to see where you can cut back — for example, a cheaper apartment may be what you need if you really want to accomplish your goals.
  • Get your retirement match: If your employer provides any match for retirement savings, strive to contribute AT LEAST that amount.  If you don’t have an employer match, try to put at least a little bit away from each paycheck, because the younger you are when you start, the more time the money has to grow.
  • Student loans: Always make your minimum payments — but it’s important to know your numbers! If you have any debts where the interest rate is higher than 7%, focus your attention on those first.  Look online, or call your lender and ask about paying “more towards principal.” Then, see what you can do — if your loan payment each month on your highest interest loan is $73.50, can you round up to $100?  What about $500, or even a $1000?  If you make it an even number it also turns out to be easier for your accounting — the less math you have to do to know if you have enough in your checking account, the better. Bonus points if you can automate the higher payment so you don’t even have to think about it.  Another start strategy: when you pay off Loan A completely (woo hoo!), move the money you had been putting towards Loan A, over to Loan B — it really starts to snowball!
  • Mortgage: Maybe I’m crazy, but this debt doesn’t stress me out at all — our interest rate is low enough (4% I think?) that I’d rather put the money in the market, towards retirement, or towards the boys’ college educations.  We always make a higher payment than we have to, but I wouldn’t call our mortgage-repayment strategy aggressive.
  • College savings: If you have kids, always prioritize your retirement above their college savings. Note that if you or your significant other are planning to go back to school, you can use a tax-advantaged 529 savings plan for yourself.

If you’ve done all of the above — you have 2 months living expenses, you’re getting your match, and your loans are all below 7%, then you can think about saving more aggressively towards retirement, paying down other debts, or buying property.

Ladies, what are your thoughts on paying down debt vs. saving? What choices have you made, either in the past or currently? 

Further reading:

  • Paying Down Debt Vs. Saving More: Which One Comes First? [Mint]
  • Should You Save While You’re Paying Off Debt? [NerdWallet]
  • Should I Pay Off My Student Loans or Save for Retirement? [NerdWallet]
  • Don’t pay off your student loans — yet [MarketWatch]
  • High Cost to Focusing on Student Loans Over Saving [New York Times]


  1. Yay! These are all execellent Idea’s, Kat! My dad make’s me save to the MAX in my 401K, and also in a sepearate Partnership Retirement Account that deduct’s from my salary a fixed amount EVERY month. Dad paid all of my education, so I have no debt’s. As far as my coop is concerned, I pay through dad my MORGAGE every month, so I will own it free and clear he says by 2025. ONLEY 9 more year’s! YAY!!! Credit Card debt is NOT an issue b/c dad pays for my credit cards and I do NOT have to pay those. I am lookeing forward to haveing a wedding and kid’s so I can start a college fund then. I think it would NOT be prudent to do so at this time, since I need to find a guy first. FOOEY!

    There is one item NOT on the list that would think is important. That is a VACATION FUND. We should all put away money each week so that we can have $ for vacation’s without haveing to ask dad for money. The first few year’s, I had to BEG dad for money to go on vacation. NOW, I just take $100 each week out of my ATM and by the end of the year, I have $5000 that Dad does NOT even know about that I use for vacation and if I don’t use all of it, I just go shoppeing with it and he can NOT even compleain, b/c he does NOT even know about that.

    I think the rest of the HIVE should do this to have spendeing money that their HUSBANDS do not know about. YAY!!!

  2. Sydney Bristow :

    My plan isn’t quite as black and white because I need to prioritize a few things since my student loans will take so long to pay off.

    I paid off all my credit cards about 4 years ago (yay!), which was my first priority.

    Since my loans will take so long, I’m not willing to put off retirement savings. I don’t get a match so I’ve decided to just contribute 6% to my Roth 401k. As I pay off my loans I’ll likely add a percent or two a year.

    I currently have about $2000 in an emergency fund and am putting in $500/month to that until it reaches $10,000 then that will go to my loans.

    Anything extra is going to my student loans. I’m paying them off private loans first (from highest to lowest interest rate) then federal in the same order. The only loans I have below 6.8% are from undergrad so they are all the way at the end of my plan. I could pay the minimums on them at that point, but the amount is so low that it will only take me a few months to finish them off so I’m planning to finish paying everything off.

    At that point, my plan is to start saving the same amount (or close) as those loan payments and shoveling them into retirement to catch up.

    • Sydney, now that you’re a full time employee, couldn’t you refi with SoFi?

      • Sydney Bristow :

        I’m going to try to. Just for my personal loans though because I don’t want to give up IBR.

  3. Conservative w/ Money :

    I always struggle with deciding what is the “right” choice when we come upon extra money. My fiance and I are lucky enough to be in a good financial position. We have no credit card debt and our student loans are paid off. We each have more than 6 months expenses saved up for an emergency. We are both contributing more than enough to our 401K’s to get our companies’ full match. The only debt we have is my fiance’s small car loan and our mortgage.

    Every year we get a cash back from our credit union based on how much business we do with them. This year we received $2500. After much discussion, we used it to pay down the principle on our mortgage. I know I’m very conservative when it comes to investing my money, so I always worry that I’ve made the “wrong” choice and my money could be doing more for me somewhere else.

    • I really relate this. I’m in a pretty similar place as you, and I get a large bonus at the end of the year. Apart from the obvious retirement funding, I always feel SO GUILTY spending that money on things that are perceived as “extras” or not necessary (ie: a vacation, or the new car I really want while I have a 2010 entry-level/size sedan that otherwise operates fine). I’m starting to learn that I need to let go of the concept of right and wrong when it comes to money.

    • Same. I paid off my car loan which wasn’t even a very high interest rate because I just can’t stand the thought of debt (already paid off my student loans and an ungodly amount from an ex I let use my 0% credit when we were together and he was unemployed. Sigh, the things we do for love.) Anyway, sometimes I question whether I should have put that money into a brokerage account or something. I dumped literally 98% of my bonus into my down payment fund, but that’s earning 0.75% so clearly that wouldn’t have been more beneficial than paying off the loan. I guess I just worry that I would always make the choice to pay off debt even if my money could be, as you say, “doing more for me somewhere else” when I actually crunch the numbers. The psychological benefit of being entirely debt-free right now is worth something, though!

    • It really comes down to the interest rate of your mortgage, your risk tolerance, and when you would plan on using the money if you didn’t use it for your mortgage (short-term savings like buying another house, longer term savings like retirement, or leaving it to heirs/charity after you die). If your time horizon is very long (e.g. retirement), and your interest rate on your mortgage is very low (e.g. 3-4%), it may make sense to consider investing the money instead of paying down the mortgage, because over a long time span, you will very likely get a higher than 3-4% return even with relatively conservative investments. If, on the other hand, the money you spend on your mortgage would otherwise go towards a shorter-term investment–say, 3-5 years–it would be more risky to invest the money because you would face a high risk of getting a less than 3-4% return.

      Think of it this way: paying down your mortgage is the same as investing your money at a guaranteed rate of return equivalent to the interest rate on your mortgage. A guaranteed 3-4% return is not bad, but if you were to invest that in something simple like a 70/30 split of total stock market/total bond market index funds, you would likely do a lot better than that over say 20-30 years. Just as an example, if you invested $10K in the Vanguard total stock market index fund in 2005, it would have dropped to around $3K during the financial crisis in 2008, but then it would have bounced back and would be at around $20K today. By comparison, a 4% return over that time period would have yielded under $15K. And that’s entirely in stocks, which are generally riskier than bonds. If you needed that money in 2008 (three years after your initial investment), you would have been in a really bad place — with a loss of $7K! — and that’s why it’s generally not a great idea to invest in stocks for short-term purposes. But if you’re certain you won’t need the money for a long time, investing is usually the better choice.

  4. 35, married. Right now I have a mortgage at 5.25, student loans at 3.5, and two car loans at 1.9 and 2.9. I know I could refinance the mortgage at a lower rate, but I’ve done the math and I wouldn’t come out “ahead” for at least two years, and that’s right about the time we’re likely to move. Right now I pay around $30 extra on the mortgage, and I’m considering putting that on the cars to get the paid off more quickly (2 years versus 3.5 years). But with their rates so low, it would only shave a few months off payments. We have a little over 21K in non-retirement savings, but our retirement isn’t great (I do have a pension benefit that will kick in soon). We recently had our first baby so daycare has put a dent in our saving ability. I’m trying to decide the best use of that extra money. Pay off cars? Extra to retirement? The regular savings is about 5 months expenses, two income household (but I make about 3/4 of our household income).

  5. I am all over these money threads lately. I’m about to turn 35, single, no kids. I would like to get married one day if I can find a decent dude – courthouse and thus not expensive – and also adopt a child at some point whether married or not. I will probably adopt through foster care but possibly private adoption if the money is there at that point. I have no interest in ever being pregnant.

    I have about $100K in student loans (law school and undergrad) remaining. I didn’t prioritize them as much as I should have for a few years after graduation – never defaulted, but just paid standard minimums. That said, I’ve never earned BigLaw money. After years at various small firms, I’m now a solo practitioner making about 85K per year. I have a home office in my LCOL (mid to low?) area.

    My retirement savings are pathetic. I never had an employer match program and started a Roth IRA less than two years ago. I contribute $100 per month and it currently sits at about $2500. I pay $1350 in rent (including tax deductible home office) and am doing my best to pay $1500 toward my loans every month. (I am on the standard 25 year repayment plans for everything but pay about double my monthly amount due.) I want to pay them off completely within 5-7 years, and at that point will be able to substantially beef up retirement investments. My loans are not at super high interest rates (federal loans of about 65K at 3.3% fixed and 35K in private loans at 4.1% variable). My loans are the BIGGEST STRESS IN MY LIFE. I think about it every day usually multiple times per day, and beat myself up about going to law school even though I actually like my work at this point.

    I have read a ton of things about how retirement is just as if not more important than paying off your loans, but psychologically, I can’t seem to get there. As long as I have this debt, I feel strangled and like a slave to repayment. I do have about two months of bare bones living expenses in emergency savings, and would like to increase that to about four months’ worth. I transfer $200/month to that savings account. I have a dog and two cats, which are certainly not as expensive as kids but the expenses add up. (How I wish for a tax deduction for my girls!)

    I am one of those people who actually hates traveling so I rarely do it other than to visit family or friends maybe once per year. I have inexpensive taste and don’t buy clothing except for running and yoga gear occasionally (and only on sale).

    I just feel stuck most of the time. Like I can’t truly begin to live and plan for a future I want as long as I have these loans. This shift has mainly come in the last 2-3 years – maybe that’s what happens when you hit your mid-30s. I always assumed I would find a good guy to marry and have a dual income, but maybe it won’t happen. If I want a kid, I might have to do it myself. I just can’t imagine doing that while still having student loans.

    Am I being irrational? Posts from the other day where people are living large while sitting on 200K of debt make me insane with disbelief, but I have my own mother saying she thinks I am prioritizing my loans too much and she wants me to have more of a life.

    These are hard questions and everyone has a different situation. I don’t really know why I’m writing this or what I am asking, if anything? Maybe just some internet hugs that I’m doing ok and will be ok in the future.

    • Sydney Bristow :

      My loans are absolute the biggest stressor in my life and I think about them every day. I got too freaked out about retirement, which is how I ended up contributing to that. I think you’re doing ok though as long as you’re happy. In 5-7 years you’ll be able to start throwing a lot of money at your retirement and the student loan stress will be gone. Even if the math doesn’t totally make sense to prioritize things with low interest rates, I absolutely believe that the emotional weight of debt can make it worth paying off.

      • Thank you for that. It sounds like you have a good plan as well. I really like this community, but I often get freaked out by the super high-earners who lament that some amount of money they have in retirement which I would kill for isn’t enough for them. Money is so emotional. I am living lean during this time, but even being in control of it makes me feel better than I used to.

    • Anonymous :

      I think you need to forgive yourself a bit here. Yeah, you got off to a slow start. But that’s a done deal.

      I think you need to stop doubting yourself. Choose a monthly payment and set up auto-debit. Every six months spend a while looking at your finances and see if that makes sense. Student loans do not need thought multiple times a day.

    • mathwoman :

      You have to weigh the psychological aspects, but from a purely mathematical standpoint you’re probably better off contributing to your retirement at this point than aggressively paying down loans. The average rate of return on the market is ~6% (inflation adjusted) which trumps your interest rates. From a tax perspective, the interest on your loans is deductible, further reducing their effective rate. Finally, there are tax advantages to retirement savings that effectively increase their return. Compound that interest!

      Congratulations on thinking seriously about your financial future!

      • Anonymous :

        Interest on student loans isn’t tax deductible if you make 85K.

        • Wildkitten :

          And you can never deduct more than $2500. (I make under $65k and pay more than $2500 in interest).

          • I paid over $4000 in interest last year. I have since paid off two smaller Perkins loans so the interest total should be lower this year. Even with my adjusted gross income because of business expenses, I was still above the 75K threshold and thus couldn’t deduct any of it. I could do so much with that $4,000…

        • mathwoman :

          Good point about the taxes. I still stand by the comparison of the interest rates on her loans versus the probable gains on any investment income. Really, the OP has made a great decision by putting $1500/month towards her financial future. We can discuss (and disagree on) the optimal way to allocate that money but she’s already made the most important decision.

    • The phaseout for student loan interest deduction begins at $65,000. With you making $85k and assuming you don’t itemize, your income is $74,700 with your standard deduction and exemption. Your health insurance costs will also reduce your AGI. After that, you would probably be pretty close at meeting the beginning of the $65,000 deduction phaseout.

      Do you have any employees? If you don’t, maybe consider a SEP IRA (or a traditional IRA if you are contributing less than $5500/year, which you are), so your AGI is lower and you can qualify for that student loan interest deduction.

      Another thing to remember is that you can withdraw your contributions from a Roth IRA without penalty or taxes. You can’t withdraw any earnings. Obviously this should only be for emergencies only, but in case something should arise, you have access to that.

  6. Anonymous :

    My H and I are 30, no kids. He had no student loans and I had a small amount that I paid off in my mid-late 20s. After our student loans were paid off we saved very aggressively and bought a house in a LCOL area with a large down payment. Now we are focusing on paying off our 2.5% interest rate mortgage. We have a healthy emergency fund and we contribute to our retirement up to the extent of the employer match, but we are otherwise not saving much and putting all our money towards the mortgage. At the current rate the mortgage will be gone by the time we’re 35 and we will then start putting most of that money into retirement and college fund for future kid(s).

    Even though the mortgage interest rate is low, becoming debt free is very important to us, and since we’re both frugal people, I know our lifestyle won’t change much when we pay off the mortgage (a little more travel, but that’s it), and so delaying saving until that point is not that big a risk. If you have the type of personality where when you become debt free you immediately look to upgrade to the next level thing, like a bigger house or fancier car, then postponing savings to pay down debts isn’t smart.

    • Meg Murry :

      We are also in a LCOL area and are focused on paying down the mortgage over investing beyond what will get us the minimum match.

      I know it is technically not “correct” in all of the “the market yields an average of 6%” blah blah statistics, but I watched relatives invest tons of money (relative to their income in this LCOLA, it probably wasn’t much to high earners here) in what were supposed to be “safe” investments only to have the bottom completely drop out of the market right at the time when they were planning to use those investments to send their kids to college – so they honestly might have been better off stickinig that money under the mattress. Same with family members that had to push back retirement for 5-10 years because markets were down.

      I’ve also watched family members lose their houses due to bankruptcies caused by medical problems and/or long term job loss. My priority is to have the roof over my head paid off as quickly as possible, and then I’ll focus on other savings.

      I’m probably far more risk averse than the average person my age, but I’m almost at the point of my depression era grandmother who told me to pay off the house so they couldn’t take it from me and stick any other money under my mattress. I’m not quite at the point of money under the mattress (although I do have emergency cash in my sock drawer), but yeah, that’s where I stand.

      • Meg Murry :

        Oh, and since I’m in a LCOL area with lower housing cost and lower salary, every year we put alllll the info into Turbo Tax for our mortgage, student loans, etc, and so far out of the last 10 years it has told us to take the standard deduction all but one year, when the difference between the standard deduction and the itemized was something like $200. So we aren’t losing out on any tax advantages for our mortgage as others have mentioned – there isn’t an advantage at my income level/mortgage rate.

      • Meg Murry :

        And I realize I misspoke above when I said lost the house due to bankruptcy. I meant lost house due to foreclosure – which sometimes came alongside bankruptcy, sometimes not.

  7. I have been despairing of late about our financial situation. 28, law firm job, fiancé is in the public interest. We have about $200k of debt between us (his is being handled through a loan repayment program — once we get married monthly payments increase). I have a 401k to which I contribute 5% a year and maybe 20k of personal savings. Which results in having enough money to pay the bills and live on, but at the end of the day we’re still in the hole with no hope of having enough for a downpayment soon. We’re trying to save more aggressively this year and ultimately everything will end up getting thrown at the loans.

    • Sydney Bristow :

      I don’t know about public interest, but with IBR the payments will stay the same if you file taxes as married filing separately. You’ll have to consider the math of the higher tax rate versus the higher payments though.

  8. Wildkitten :

    30. Not married. No kids. Credit card debt and student loan debt. I contribute 5% to my 401k to get the match. I am in the 10 year PSLF loan payment program. I put all my cash towards CC debt, and I just switched a bunch of financial stuff so I’ll have more money to throw towards that this year (like switching from Roth to Tradition 401k so I can save on taxes and put that toward my CC.) It took me a year after law school to get a job, and I put that year on my credit cards, and now I’m balancing paying them off and also enjoying my life now that I finally have the life I spent so many years working towards.

    • Wildkitten :

      Delightful that the people who say I am making more than all of the worst life decisions skipped this thread today.

      • Anonymous :

        Girl. No one said you were making all the worst decisions. Get over it. They offered legitimate advice to a poster in a different situation than you and you decided to take it personally and keep bringing it up.

        • Wildkitten :

          They said a poster in better shape than I was making *all* the bad decisions. Therefore, I am making *more* than *all* the bad decisions. Logic. And the whole point of this site is people take the comments personally. That’s like, the entire basis for every comment ever made here. Welcome.

          • Anonymous :

            Oh, are you making 400,000 but still have credit card debt? No right? Let it go.

          • No, I think that poster was actually making way worse financial decisions than you. Debt is never great and it is true that credit card debt is “bad debt,” but it’s a lot more understandable when you have a more modest salary (you make <$100K, no?). If you are making $300K+ a year and have $400K of debt, you are clearly doing many things wrong with your money, since people can live in even the most expensive cities on far less than $300K. So, no, it's not "logic" that the harsh comments to the OP with $400K of debt were by definition criticizing you.

      • Whoa you are really sensitive and overreacting about a comment that wasn’t even about you.

        And since you’ve asked, maybe you should calm down on giving other people financial advice until you get your own situation sorted (i.e. pay off credit card debt)

      • Anonymous :

        For someone who is always recommending therapy, maybe you should consider therapy yourself to figure out why you are overreacting so much to a comment that wasn’t even about you.

        • Wildkitten :

          People with normal finances usually don’t even comment on this site since the input skews so much towards high income no debt “How should I allocate my extra thousands?” Which is a real question, but not the only one. I was delightfully surprised that my normal comment was not attacked. Clearly I spoke too soon.


          • Except, again, no one is attacking your finances…

          • What’s the deal with you today WK? No one is attacking you. You’ve been kind of aggressive and defensive lately. I’d say without a doubt that the poster with 400k in debt was doing everything wrong- more wrong than you for sure, even if on paper you feel like it looks like you are worse off. I’ve been reading this site for years and have never seen anyone attack your finances- but you have been more sarcastic/snippy/defensive lately so people have made comments about that.

  9. Financial advisor advice? :

    Looking for advice about financial advisors – from the very basic (do I need one? when to get one? are there different types?) to specific (recommendations in the Northern VA/DC area would be appreciated!). My husband and I have no kids and no house — yet. I’m thinking it might be nice to get some help to plan for these upcoming life events!

    • Wildkitten :

      You could try learnvest if you don’t want to pay the in-person prices.

    • Yes, there are different types. Financial advisors can generally make money 3 different ways: 1) fee-based (they charge you a flat fee for service), 2) asset-based (they charge you a percentage of your assets, usually around 1%), and 3) commission-based (they invest your money in mutual funds that deduct a portion of your investment as commissions for your financial advisor).

      I’m in the asset management industry and I would 100% urge you to use a fee-based advisor. You can find one on napfa.org (the website for the association of fee-based only advisors). As far as personal recommendations go, I use Skyler Heimark at Raymond James, and I pay her a flat fee ($1500) to go through my finances yearly and help me plan for the upcoming year. She’s incredibly thorough, a great listener, and will make you a very detailed plan that’s specific to you and then spend the time to talk through it with you, answer your questions, and adjust the plan as needed.

      The reason I always recommend against asset-based or commission-based advisors is that their incentives are not aligned with yours. They’re incentivized to charge you high fees because that’s how they make their money. Any money they make from commissions or asset-based fees is less money in your account. It’s also tough because you have no way of knowing whether they’re doing a good job or whether they’re just telling you they’re doing a good job… I’ve said this before, but the difference between 0.05% fees that you pay on a Vanguard index fund vs. the 5% up-front commission that you could pay on another mutual fund vs. the 1% asset-based fee that a financial advisor might charge you — that difference is enormous over time.

      Ultimately, you want someone who is going to help you put together a plan that you then go out and implement. You do NOT want someone who says “oh this is really complicated, just let me handle it for you.”

      Lastly, make sure your investments are in Vanguard index funds (lowest expenses in the business) or one of the robo-advisors Betterment or Wealthfront (they do tax-loss harvesting which can be great if you’re in a higher bracket). Do not let anyone put you in an active (non-index) fund. The fees are much higher on active funds and there is a lot of research showing that they do not outperform index funds over the long-term.

  10. Wildkitten :

    The colors of this wallet make it look like a children’s toy.

  11. Shopaholic :

    28, unmarried although I practically live with my boyfriend. (We are really wasting money paying living expenses for 2 places when we spend 5-6 nights a week together but that’s a different issue).

    I have no more debt, except a mortgage, which I’ve been paying off on the 25 year schedule because the interest rate is so low. I have a shopping habit which has contributed to me not saving as much as I should, I have an emergency fund, a retirement fund and another mid-term savings fund. I really need to up my contributions to the retirement fund, which is the plan once my emergency fund hits my target (which should happen in the next 3 months or so.

  12. When considering paying down my mortgage vs investing, I took into account that the mortgage interest is tax deductible. In the 25% bracket, that means that my 4% loan is actually 3%. In a HCOL area with high state taxes and property taxes, the additional deduction is pretty valuable.

  13. Anonymous BigLaw Associate :

    Has anyone down a small down payment (in the 5% range, or perhaps 10%), paid a higher interest rate and PMI, at least until your equity got to certain level (20%?), and then re-financed? My financial adviser is recommending I at least consider this path. It obviously goes against the 20% down rule-of-thumb, but I would like to get into a home sooner rather than later anyways…

    Any questions I should ask before I pull the trigger on something like this other than the obvious?

    • Anonymous :

      Nearly everyone I know who has bought in my HCOL area has put less than 20% down.

    • Anonymous BigLaw Associate :

      I should have mentioned I am in a moderately high cost of living area. Los Angeles.

      Meant to reply here, sorry.

    • Wildkitten :

      This is a common path. It can be easier if you house gains a lot of value so you end up with 20% equity without having to pay down 20% of your mortgage, but getting to 20% of equity depends a lot on the housing market as well as your mortgage payments, so there’s risk.

    • Anonymous :

      I put down 15% in cash, took a 75% mortgage and a 10% HELOC, which all closed simultaneously. It saved me PMI and I can pay off the HELOC anytime (I believe there’s a modest fee if I pay it off before 2 years have elapsed). No PMI, I pay the HELOC very aggressively so I’m on target to eliminate it within 2 years, and I got my dream house while it was actually on the market.

    • We found a small local bank that had no PMI for first-time buyers who out at least. 8% down

    • I did this. I (obviously over simplifying) felt like I would rather essentially pay myself equity than pay someone else rent. Market was good at the time and I felt home values were going up. I’m glad I did it although it is riskier. I put 10% down.

    • Look into a 10% down payment mortgage from Sofi. They’ll do these for Loan amounts above and below jumbo loan thresholds, which is great if you are in a HCOL area and a starter home costs almost a million…

  14. Anonymous BigLaw Associate :

    I should have mentioned I am in a moderately high cost of living area. Los Angeles.

  15. I always get to these at the end of the day. :(
    Married, 1 newborn, HCOL area, renters. We graduated 5 yrs ago w/ about 350k in ed debt @ 7% interest. The first year, I think we paid about $20k in interest and I was like, “hell no, never doing that again.”

    The first year out of law school we did public interest & made about $60k and this his risen steadily to a high of this year making about $350k. My biggest worries were balancing our crazy loans, saving in case of unemployment, and saving for retirement.

    First of all, I did the rounding up trick Cat mentioned in the post. I rounded all of our loan payments up to the nearest hundred. Also, any time we came into some extra money, I’d pick a smaller loan & throw a bunch of money at it that rounded it down to a pretty round number.

    As soon as we were above subsistence, I also built the tax right off amount for retirement- this meant $1500 out of each of our pay checks each month. At first it hurt, but it also doesn’t hurt as much as you’d think because we are in a pretty high tax bracket (so the hit feels more like 1k, rather than 1.5k). I think it’s a universal truth that no amount of money ever feels like enough & I knew the sooner we bit this bullet, the quicker we’d get used to having it as part of our lives.

    Every time we get a pay bump (usually mid year due to the social security cap & at the start of the year), I raised our payments by $50 or $100. Every bonus- I threw most of it at the debt (always picking the smallest loan & wiping it out if I could). Anytime I felt bad about not treating myself, I’d remind myself that 1. I still live a much better life than when I was a student & 2. No handbag or piece of jewelry can possibly bring me the happiness & freedom that paying off these loans will.

    Also, every time I paid off a loan, I put the money I was paying off towards that loan towards the other loans (ex we paid off our cars- that was $300/mo each, which then I ended up putting towards law school loans). I think this is called snowballing?

    To balance the stability of savings vs. paying off debt, I’d always time big payoffs to be at the start of times of stability. My husband works in big-law & I had a job I didn’t love for a long time- so we had a goal of 3 months of expenses saved (w/ a preference twds 6). After a good review- we knew we’d be good for 6 months or so, so we’d go down to the 3 months of savings & put the rest twds loans & then work back up to the 6 months before the next review, so that in case anything bad happened, we’d have a safety net.

    Then, I got pregnant a year ago & I really wanted to pay off the rest of our loans before the baby came. We got even more aggressive. Paid off the loans in early summer. Saved those payments in another account to get up to 1.5 yrs of savings and then had the baby. We each bought one 1k item after we paid off our loans that we had been eyeing. It felt extravagant, but also ok, since we had been working so hard for so long and had done such a great job at paying off our loans.

    By the end of this- we were living on about 5 mk a month, saving 3k/mo pretax towards our retirement & spending $10k/month on loans (I know kind of insane).

    There were times were I doubted myself- should I spend more on other things? Should we have bought a house & gutted our savings (houses here start at $1m). However, I felt really great about the decisions we made- it is allowing me to take 6 months off to spend with my baby now & my husband just got laid off, so we have enough to get by for plenty of time for him to find the right job as his next job.

    I HIGHLY recommend the book “I will teach you to be rich” by Ramit Sethi. He has a great plan for prioritizing & putting savings & debt repayment on autopilot. At first, I had a hard time following it (we just didn’t have enough money), but as we got better jobs & promotions, I was able to easily integrate it into our lives & it didn’t fee that hard to do.

    • Slow clap, lady. This is awesome and inspirational!

    • It really is!! Thanks for sharing.

      • I can’t brag about it in person to people, so thanks for letting me brag about it here. :) Biggest accomplishment of the past 5 years (& did I mention I had a baby in that time? ;-p).

  16. While I’ve saved to some degree throughout (mainly retirement), more debt was paid down in the first 7-8 years of my career. Now I’ve transitioned to more of a savings/accumulation method. This is what worked for me in a HCOL area, but YMMV.

    Credit card debt: None – probably partially due to being 17 my first year of college and unable to open one when my friends were running wild.

    Emergency Fund: Always kept 6 months of living expenses in liquid savings. This lets me sleep at night, is a larger than usual cushion because I had just started in asset management when 2008 rolled through, and acts as a ballast to my more aggressive investment strategy.

    Retirement: Always contributed to my 401k to at least get the company’s match. At my current firm I pay in ~6%, they match 4% (mine that day), and they contributre ~2-3% in profit sharing (vests over 5 yrs). It’s a bit scant for my industry but not awful. I’ll probably start funding a Roth IRA in the next couple of years too.

    Student Loans: I paid them off in August and had a very aggressive strategy for the last couple of years (paying more than my monthly rent). I also used the ‘snowball’ strategy described by Kat since the loans were split up among lenders and type. I’m still excited to be done with them and it’s very liberating!

    Mortgage: This is a current project – funding a large down payment. In my area, 20% down on a 1 bedroom condo can run you 80-100k (and ideally you’d want a 2 bedroom for the space, so more $$). I don’t think carrying a mortgage will worry me though. As long as I don’t over burden myself it should be manageable – plus there’s the tax deduction!!

    Medical/Kid-Related: I’m single without children; however, I would like to have a family someday and I’m not getting any younger. So I’m maxing out my HSA contributions and plan to freeze my eggs by early 2017. An added bonus is that the HSA contributions reduce my taxable income.

    Future college funds: While I had to pay my own way, if/when I have kids (1-2) I would like to be able to cover fully or dramatically reduce the cost of their educations (at least undergrad). I won’t cannibalize retirement to do so, but I can see beginning to fund a 529 or education trust shortly after birth.

    Clearly the future plans are predicated on maintaining my current career growth/income trajectory, but I think it’s reasonable overall.