Student Loan and ARM?

Ken asks Dave what to do about the student loans and interest-only loan on his house.

QUESTION: Ken’s wife has just gone back to school, and they have to get student loans.  They also have an interest-only loan on their home.  Should they pay that off and take out the student loans?  Or should they focus their finances on paying cash for school first?  What about refinancing?

ANSWER: The first rule for getting out of debt is to stop borrowing more.  The second rule is to start working on the debts you already have.  You have to draw a line and say you’re not using debt for anything for any reason.

When you start working on your current debts, you have to start with the smallest and work your way up to the biggest debt you have. 

You should refinance your home to get rid of the adjustable rate and to get it to a 15-year fixed rate loan.  Then you should pay off your $1,500 student loan, finish your fully-funded emergency savings, and continue on with the Baby Steps.

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