An Emergency Fund For Your Emergency Fund

Dennis is paying off his last debt, and if he works for the next five years, the debt will be forgiven. Should he just keep making minimum payments?

QUESTION: Dennis in Joplin is paying off his last debt, and if he works for the next five years, the debt will be forgiven. Should he just keep making minimum payments? Dave recommends banking the amount of the student loan debt and keeping it in case he decides to leave his job.

ANSWER: You should pay off everything but the $17,500, and you should put $17,500 extra in the bank as an extra emergency fund. Then you’re not sitting there going, “Man, I hate this new superintendent. The whole school system sucks. I want to leave. This is bad, but I can’t leave because I’m five months away from this $17,500.” You’re not stuck. These deals end up being golden handcuffs. If you could get a job making double and you’re not in an underserved area and you bump into another area or something, then you take that job if you’ve got the money in the bank. If you don’t have the money in the bank or you’re in debt and you’re trying to work your way through this indentured servant plan, then you stick yourself.

Let’s go ahead and pay off the debt down to $17,500. Put $17,500 in the bank, and that gives you options.

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