The Mortgage Is Less Than The Student Loan

Jeanine has about $500 left to finish paying off credit card debt, and her mortgage is $15,000. Her student loans are $30,000. Should she go ahead and pay off her mortgage or go ahead and start working on her emergency fund?

QUESTION: Jeanine in Oklahoma City has about $500 left to finish paying off credit card debt, and her mortgage is $15,000. Her student loans are $30,000. Should she go ahead and pay off her mortgage or go ahead and start working on her emergency fund? Dave recommends sticking with the Baby Steps in order even though her mortgage is less than her student loans.

ANSWER: We’re really arguing about fine points here. There’s not a wrong answer. Both are going to get paid, and both are going to get paid within a year or two at the rate you’re going. Which one comes first is not a big discussion because you’re just killing it and doing a good job. I’m just going to say keep killing it, and whatever floats your boat and keeps you motivated, go do it.

Personally, I would probably pay off the student loan first and continue the Baby Steps in the order we designed them—that being that you pay off everything but the house in Baby Step 2. Finish your emergency fund. Then start your retirement. And then start paying off your home. Why would I do that even though your student loan is twice the size of your mortgage? Because student loans are forever. They don’t quit. They’re not bankruptable, you can’t get rid of the things, they hang out forever, and the only way you get rid of that thing is to punch, and punch it hard and often. That’s why they hang around so long; they’re big, they’re low interest, and people try to set them over in the corner and act like they’re not there.

There’s a sense of student loan denial that goes with that territory, and I’ve had a lot of success over the years with just saying, “Kill that thing. Kill it!” That is the way I go at this. I’m going to stick with that, and you’re going to get both of them done anyway. I’m not going to argue with you much.