Expect Mediocre Results From Standard Advice

Stan in Tulsa and his wife only owe on the house and the student loan. He’s been advised not to pay off the student loan because of the low interest rate. Dave tells him it’s time to pay it off.

QUESTION: Stan in Tulsa and his wife only owe on the house and the student loan. He’s been advised not to pay off the student loan because of the low interest rate. Dave tells him it’s time to pay it off.

ANSWER: I’m going to pay off the student loan first--immediately--as fast as you possibly can. I deeply disagree with your financial advisor. Your financial advisor is giving you pretty standard advice in the marketplace. But as Warren Buffett said when the downturn came and the people were struggling out there a few months back, “When the tide goes out, you can tell who’s been skinny dipping.” Really, that’s what’s happening to your financial advisor here. The formula he’s using to suggest that you stay in debt is a very naïve formula that doesn’t bring any risk into the mathematics. By keeping debt around, you’ve kept risk around, and you’ve potentially added problems to your life. Sitting there with a paid-for house and a paid-for student loan would bring peace, wouldn’t it?

I’m an evangelical Christian, and when I went broke, I determined I was going to learn what the Bible had to say about money. I started studying that about 20 years ago. I found a couple of things there that helped me guide my life in spite of my academic training. One of those is that Proverbs 22:7 says the borrower is slave to the lender. That’s not to say that being in debt is a sin or that it’s a salvation issue. I don’t think it’s either one of those. But having studied the Bible, there’s not one time anywhere in there that debt is mentioned in a positive light. It’s always a negative comment beside it. That’s a nice way of saying debt is biblically stupid.

The academic side of the discussion is that as I studied this all these years, I started realizing maybe God knew something I didn’t. It turns out He did. What I was always leaving out of the formula was risk. By not having a house payment and not having a student loan, there’s a sense of release and peace in your life that allows you to do so many other things with money, not to mention the fact you have an increased cash flow because you don’t have those payments anymore.

I just think your financial advisor has given you standard financial advice, and that would scare me to take any more of his advice, and I probably wouldn’t. If I were in your shoes, I would pay off my student loan as fast as you possibly can, make sure you have an emergency fund of three to six months of expenses, start investing 15% of your income into retirement, and everything above that you can get your hands on, start throwing that at the house and pay that house off as fast as you can. Be careful of financial advisors giving standard financial advice. You will get standard--mediocre, at best--results.

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