Should I Pay Down Debt and Invest at the Same Time?

Amber graduated from college with $70,000 in student loans. She is 33 years old, and she wonders if she should continue paying off the student loans before investing in a retirement plan.

QUESTION: Amber in Spokane graduated from college with $70,000 in student loans. She is 33 years old, and she wonders if she should continue paying off the student loans before investing in a retirement plan or if she should start contributing to retirement. Dave says Amber is going to have to have focus to get rid of these student loans.

ANSWER: The first thing you need to do is get your written budget going, where every dollar has a name and every dollar behaves. I want you to squeeze every dime out of your life because I want this debt paid off in, like, three years. I want you to have no life for three years. During that time, I don’t want you to be saving anything beyond your $1,000 baby emergency fund. I want you instead to just clean up the debt, because if you get this debt off your back, then you’re in a position to invest. But you can’t do both at the same time because if you’re getting out of debt while trying to invest, neither one is effective.

What we’ve found is that the power of focus will cause your life to win—cause you to explode. You’ve just kind of got to become obsessed and mad and angry at this debt to where you’re thinking about nothing else and I’m just going to go bananas on this debt. That’s your only way out, so I would stop saving anything for retirement and I would live on beans and rice, rice and beans, with no life, and when anybody asks what you’re doing, you say, “I’m doing nothing. I’m getting out of debt. That’s all I’m doing.” You feel that sense of power, that focus, that growl—you’ve got to have that. And that’s how you bust through this because otherwise, you’re going to screw around with this debt for a decade and this student loan’s going to start to feel like it’s a freaking pet. The way you get rid of it is you bust it. You kick it in the head. That’s how this works.