Don't Change the Steps

Nicole and her husband are 30 years old and have a substantial amount in retirement plus college savings for their kids. Should they put those steps on hold to pay off their mortgage sooner?

QUESTION: Nicole in Indiana and her husband are 30 years old and have a substantial amount in retirement plus college savings for their kids. Should they put those steps on hold to pay off their mortgage sooner?

ANSWER: I wouldn’t. The reason is simply that it doesn’t make that big of a difference.

Twenty-one thousand is 15% of your income each year to be saved. Obviously you’re going to be paying more than that on the mortgage, right? It’s not just the amount you would’ve put at Baby Step 4. You were going to be aggressively trying to knock out this mortgage. A hundred and forty thousand dollars in two years is $70,000 a year. Your amount in Baby Step 4 is $21,000 going into retirement. For two years, that’s $42,000. In other words, what we’re discussing here is if you do retirement and put $50,000 on the debt, it takes about three years. If you don’t do retirement and put $70,000 on the debt, it takes two years. What we’re talking about here is one year. That’s our discussion. That’s not worth stopping your retirement. I would stay right with the Baby Steps. Then just cut lifestyle and attack and we’re looking at probably two and a half years actually. You’ll be debt-free if you do that. That’s how I would do it. I wouldn’t stop retirement because it doesn’t make a big difference. If the difference was you could be out of debt in two years on your house or if you do investing it takes you 10 years, yeah, we might think about it then. It’s a difference between two years and three years.

You need to be doing something toward college and then everything else can go toward the house. Again, I think you’re going to be debt-free—house and everything—in three years. You’re just rock stars. You’re doing fabulous. How many people out there have credit card debt up to their eyeballs and have cars leased and they’ve got a student loan themselves that’s been around so long they think it’s a pet? They’re not 30 years old and thinking about paying off their mortgage in three years. You guys are incredible. You’ve done a great job. I would not let my foot off the gas. This system has worked for you. Continue to work this system.