Pay off school loans or invest/save for house?

[AngelaM]

I have about $32,000 to my name, no debt ($10,000 I have in a ROTH, the other $20k I'm sitting on in savings, which I know is a waste). I'm getting married in 3 months and my fiance has $40,000 in debt. $10k of that is credit card debt which he used to get his business off the ground last year, and that we will pay off immediately. The other $30k is school loans, with an interest of 5% and a monthly payment of around $370.

When we get married I'll be moving with him (out of state), meaning I'm quitting my job ($42k/year) and hopefully finding something similar when I move. My fiance owns his own sealcoating and landscaping company and last year with equipment costs and surprise repairs, he basically broke even.

My question is: do we dump most of the remaining cash we'll have into his school loans, or invest it somewhere to start saving for a house? (our goal is to buy a duplex so we can rent the other half, then eventually move out to buy a single family house and rent the whole duplex)

A stupid sidenote: I bought a 2008 Mazda last year for $12,500 (cash) and with the miles I've put on it it's worth about $10,000 now... should I sell that and buy a more affordable car so that we can be out of debt sooner? (If I had found Mr. Money Mustache before I bought the car it never would have happened).

[Ben]

Angela,

Since you will be on one income and self employed, you may need a larger cash cushion than most. It might be worth keeping a larger buffer as you wait for your husband's business to become profitable and/or you find a new job. Just something to consider...

[Parizade]

You seem to be more financially stable/responsible than you fiance. I would recommend postponing the wedding until he can manage to grow his own mu-stash. Especially if the marriage requires you to quit your job and relocate.

I'm sure he's a fine man and you obviously love him, but the two of you seem to have very different money habits and that can be a disaster in relationships.

[Ben]

The credit card debt is (or appears to be) due to business start-up costs, so I might show a little more grace in that circumstance. Certainly this is an area where they will need to communicate and grow together as a married couple. Three months prior is a pretty short time frame to call off a wedding... :)

[Parizade]

Three months prior is a pretty short time frame to call off a wedding... :)

If they have known each other for many years and have been planning marriage for a long time I would tend to agree, but she hasn't told us that. For all we know she met this guy on the internet 2 weeks ago.

What she has told us is:

She is more of a saver than a spender
Her fiance is more of a spender than a saver.
She is giving up her job to move out of state with this man and give him her life savings, while he currently has $0 income from his business and $40,000 in debt

Sorry, I see red flags waving every which way on this one. Based on the information she has given my advice is to rethink the wisdom of this marriage.

[AngelaM]

I'm completely confidant in my fiance's long-term ability to earn an income. When we met over 2 years ago he was working full time (earning more than I currently am), going to school part time to finish his masters degree, and also working to start up his own business on the side. He was putting in 70+ hours a week so he's not afraid of hard work.

When he finally quit his job to focus on his business full time he had a friend who saw a good opportunity (and this friend talked a good game) and they became partners. Reading MMM's "biggest mistake" post pretty much sounded like a different version of the same story... to make a long story short my fiance ended up paying his partner thousands of dollars just to get him removed from the company. Live and learn. That was a year ago and he's still working to repair some of the damage that his "friend" caused, but his business is growing very fast and has been very successful.

He plows in the winter (we live in New England) and this has been a terrible season with only 4 storms. If it had been a typical New England winter he would have a lot of that credit card debt paid off by now.

I appreciate the concern and good advice about hesitating before jumping into a messy financial situation. We've had plenty of money talks and we are both on the same page when it comes to spending and saving.

Ben thanks for your advice... you have a good point about keeping more cash on hand until things have stabled out for us.

Assuming I can find a job quickly when I move, I guess my question really is: Is it worth it to carry a long-term student loan so we can buy a house faster, or should we put any cash we get into paying that down first, then focus on a house?

[arebelspy]

Carrying the student loan while you purchase a house is probably fine.

You don't need to sell the car, either, IMO, since it's paid for.  Run it into the ground and get a cheaper used one next time.

Congrats on the upcoming nuptials!  :)

[sol]

Assuming I can find a job quickly when I move, I guess my question really is: Is it worth it to carry a long-term student loan so we can buy a house faster, or should we put any cash we get into paying that down first, then focus on a house?

IF you find a comparable job, then this just becomes a question of interest rates and principle amounts.  As suggested earlier, I'd keep a hefty cash cushion on hand while running your own business, because that income stream isn't very secure.  If I were in your shoes, I'd probably make the minimums on the student loan debt while amassing a large cash* cushion, then in a year or two you should have a better idea of how viable the business is and can reassess your options.

Ideally, in two years the business would be profitable and you'd have a big enough chunk of money saved to either put a big dent in the student loan or make a down payment on that duplex.  Worst case scenario, in two years the business is a bust and you're living off of that savings cushion.

In either case, in the short term I'd be saving money rather than throwing it an existing student loan.  It can always go toward the loan later if that's what you decide is best, but you don't need to decide anytime soon.

* note that by "cash" I meant low- or zero-risk investments, many of which can still match inflation if you shop around a little.  I did not mean stuff your mattress.

[Ben]

I echo SOL, and would save until you have a source of income and/or his business stabilizes. If you can live off of your income stream alone then your cash cushion does not need to be as large, but if you are relying on his business for living expenses you want a comfortable margin built up before you buy, so you can pay the mortgage during a couple of slow seasons.

If you have adequate cushion/security, it then becomes a matter of priorities, your local housing/rental market, and interest rates. Paying off the student loan is one good way to reduce monthly obligations. Is it an important goal for the two of you to be debt free asap, or is that not a high priority for the two of you? Also, are the two of you pretty sure you will be staying in place for at least the next 5 years, or is there a chance you will relocate his business elsewhere?