Pause Saving for Retirement to Pay Down Student Loans/0% Car Loan?

[ReadySetMillionaire]

My big internal debate at the moment is whether my fiance and I (both 28 years old) should temporarily pause retirement contributions in order to wipe out a couple debts within 6 to 12 months.  These debts include:

-Her car loan, which is 0% interest, $375/month, and has about four years left; and
-Her student loans, which have varying interest rates and total about $14,000.

Without any retirement contributions, we would have a monthly surplus of about $3,000 per month. I'm thinking we could use that to rapidly pay off her student loans (4 months) and then her car loan (6 months).

This idea appeals to me because it would greatly reduce my fiance's monthly expenditures. When we first met, she spent about $2,500 per month ($850 on student loans, $375 on a car payment). She is now down to about $1,900 per month after paying off all of her private loans. Getting rid of her car payment and her student loans would bring her down to $1,385/month.

That low monthly cost of living would leave us with about $2,500 in monthly expenditures while we earned about $9,200 per month.  That would mean that we could quite easily max out 401k, traditional IRA, etc.

Basically, I'm torn between the current hybrid approach we have (some to retirement, some to debt) versus being able to concentrate all our efforts towards a singular goal.

Part of me thinks I'm taking a Dave Ramsey-esque approach with my idea--paying down the debt likely isn't the best mathematical approach, but it certainly seems more emotionally appealing.

Any thoughts?

[boarder42]

i'd sell the fancy pants car - but if you HAVE to keep it then dont pay down a 0% loan early EVER

student loans greatly depend on rates.  i'd only pay down anything over 6% personally and ride out the rest to term. who knows the govt may do debt forgiveness and you'll miss out... not to mention market gains. 

[CmFtns]

Forget the Dave Ramsey crap and don't pay back the car loan... Being the evolved financial machines that we are we don't need small emotional victories because we can do math and know how to win the BIG victory.

That that car payments gets cheaper every month with inflation and the money you would use to pay it off will be working for you for the next 4 years.

[dandarc]

You're only free up $515 / month in cash flow.  I'd personally go with:

Max 401K
Max tIRA

Then hammer on the debt.

With a $9200 / month income, and only about $3000 / month expenses all-in, there should be enough money to do that and pay off the debts early.

Exception: the 0% loan is a good deal for you to stretch as long as possible.  Although it is small enough that I can understand wanting it off the books.

Exception 2: if any of the student loans are high-interest rates (maybe over 6 or 8%), then it might be worth it to prioritize those.  But forgoing the tax-break is a big deal, so tread carefully.

[HPstache]

Forget the Dave Ramsey crap and don't pay back the car loan... Being the evolved financial machines that we are we don't need small emotional victories because we can do math and know how to win the BIG victory.

That that car payments gets cheaper every month with inflation and the money you would use to pay it off will be working for you for the next 4 years.

Dave Ramsey would say to SELL the car.

To the OP:
I would put into retirement at least what is needed to max out your employers contributions (if any) and also put into an HSA the maximum you can (if available).  Then I would throw the rest at the student loan.  I will also say that I would wait until you are acually married to start paying off your fiance's debt... coming from a guy who's been thru a broken engagement, it's too soon to pay her debt.

[notactiveanymore]

I don't think I understand your financial situation... You have monthly income of $9200 and your surplus without retirement contributions is only $3000. Then your expenses  (outside of debt obligations) seem to be $2500.

I'm confused.

You don't say how much your fiance's car loan is, but I just don't see how you can max out retirement and pay off the debts in 12 months making $9200/month.

[Proud Foot]

Don't pay back the car yet.  I wouldn't pay off her loans with your money until after you are married.  Continue to contributing to your retirement and save any excess in a savings account.  Once you are married you will have a lump sum you can use to knock out the student loans.  Have you set a date for the wedding?

eta: of the $9200 monthly income, how much is earned by you and how much by your fiance?

[hoodedfalcon]

With that income, I don't know why you aren't able to max retirement and pay off SL's? I'd leave the car alone, because 0% isn't costing you anything extra.

As a personal anecdote - I am paying over $1200/month on SLs and maxing retirement, and I still have extra $$ at the end of each month, and I bring home much less than you are. Might want to take a look at your budget and see where things are going....

[Sibley]

I second theotherelise and hoodedfalcon. You seem to be missing expenses or something. Recommend doing a case study and letting us poke holes in it.

Don't pay off a 0% loan early. Do try to pay off higher rate SLs.

[CmFtns]

Forget the Dave Ramsey crap and don't pay back the car loan... Being the evolved financial machines that we are we don't need small emotional victories because we can do math and know how to win the BIG victory.

That that car payments gets cheaper every month with inflation and the money you would use to pay it off will be working for you for the next 4 years.

Dave Ramsey would say to SELL the car.

They didn't ask about other solutions like selling the car, they asked about paying debt vs retirement contributions. And I probably would have mentioned selling the car anyway except for the fact that @Boarder42 already mentioned that in the post right above mine.

[frugaliknowit]

Don't pay back the car yet.  I wouldn't pay off her loans with your money until after you are married.  Continue to contributing to your retirement and save any excess in a savings account.  Once you are married you will have a lump sum you can use to knock out the student loans.  Have you set a date for the wedding?

eta: of the $9200 monthly income, how much is earned by you and how much by your fiance?

I concur.

[ReadySetMillionaire]

To answer a few of the questions asked and points raised...

1. We are getting married next May. We have already co-mingled savings with checking certainly to come when we get married, but hopefully before that.

2. She makes about $65k/year, I make about $50k per year. Without our checking combined, it's very difficult for me to max 401k and HSA (leaves me almost no discretionary room, which isn't feasible this year due to saving for wedding and traveling to three weddings).

3. I thought paying down debt was equivalent to saving? Seems like we'd be accomplishing about a 35% savings rate with what I posted.

I should also add that we are hopefully going to have kids within the next 2-3 years. So freeing up that $515 in cash flow, to me, seems to give us a lot of flexibility with her work. It would put our total expenses to about $2,500 per month, and we could live on just my income with that amount of expenses.

I assumed I'm still going wrong somewhere, though, so I appreciate the input so far.

[boarder42]

Paying down debt is not equivalent to saving. 

[notactiveanymore]

I understand the emotional aspects of wiping out debt. That's what we decided to do. We paused retirement and we'll be debt free in a few weeks. Our 55,421 in debt was all at 6.8% and will have it paid off in 21 months making an average of about 77k during that time. So I get wanting to attack debt.

If the emotional release of paying off debt is what is driving you, go after it. But I still don't understand why it would take you 10 months if you're pausing retirement. It seems like she's got 32k in debt (14 SL, 18 car). And your base expenses together are 2500 with your takehome (w/no retirement) at 9200. So your wedding is in 11 months. Why not pay off the debt in 5 months and then you can save for the wedding and contribute to retirement starting in month 6? Even with saving for other things, 5 months seems pretty reasonable with your income.

That said, I do agree with others on waiting until you get married to pay off someone's debt. If your fiance wants to free up cashflow, she could sell her car and buy something cheaper. However, if you're joining finances already and the car is a non-negotiable and you want the debt gone, then just take care of it asap.

I still think the case study would be a good plan. You've got about 3k a month jointly that seems to be disappearing.

[therethere]

I thought you were gaming the system with stretched out loans with REPAYE? Won't hers just be combined with yours for payments once you get married? And wasn't part of that plan to max out your 401k's?

[ReadySetMillionaire]

I understand the emotional aspects of wiping out debt. That's what we decided to do. We paused retirement and we'll be debt free in a few weeks. Our 55,421 in debt was all at 6.8% and will have it paid off in 21 months making an average of about 77k during that time. So I get wanting to attack debt.

If the emotional release of paying off debt is what is driving you, go after it. But I still don't understand why it would take you 10 months if you're pausing retirement. It seems like she's got 32k in debt (14 SL, 18 car). And your base expenses together are 2500 with your takehome (w/no retirement) at 9200. So your wedding is in 11 months. Why not pay off the debt in 5 months and then you can save for the wedding and contribute to retirement starting in month 6? Even with saving for other things, 5 months seems pretty reasonable with your income.

That said, I do agree with others on waiting until you get married to pay off someone's debt. If your fiance wants to free up cashflow, she could sell her car and buy something cheaper. However, if you're joining finances already and the car is a non-negotiable and you want the debt gone, then just take care of it asap.

I still think the case study would be a good plan. You've got about 3k a month jointly that seems to be disappearing.

We gross $9,200, not net. After taxes it would be about $6,000.

I thought you were gaming the system with stretched out loans with REPAYE? Won't hers just be combined with yours for payments once you get married? And wasn't part of that plan to max out your 401k's?

Her loan balance is so low that they will be paid off eventually. Thus we might as well get rid of them.

[SilveradoBojangles]

It it were me I would spend the 4 months to pay down the student loans, but leave the car payment as is because it's 0% interest. A 4 month pause is minor in the scheme of things, and it will feel so, so good to be rid of student debt forever, plus give you flexibility moving forward. Then, I would spend the remainder of the year throwing everything possible at the retirement account to catch up (or saving for your wedding).