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Ask Dave

Big Student Loan ... Should Our Emergency Fund Be Bigger?

It will take a while for Penny to get out of debt. Should her emergency fund be bigger in the meantime?

QUESTION: Penny and her husband have a $33,000 student debt.  They bring home $50,000 a year and she wants to know if they should have a bigger baby emergency fund since it’s going to take them so long to pay back the student loan.  Should they sell their home to pay off the loan faster?

ANSWER: Since it’s going to take you so long to pay off that student loan, you should go back to Baby Step 1 and build up your emergency fund to about $3,000.  Then go back to Step 2 and finish paying off the student loan.  You’re going to be at it for a while on your income, so you need to have more of a cushion in savings.

Don’t sell your home.  Your payment is not out of line.