I am finally in a place in my life where I am earning enough money to pay my bills and have a little left over. After buckling down and sacrificing (and selling) a lot, the only debt I have left, besides my mortgage, is my student loan which stands at a little over $100k at about 5% interest.
To date, I owe about the same amount on my student loan as I do my mortgage, and they both have the same interest rate. I am currently paying my student loan on the IBR repayment plan, and qualify to have my loan forgiven in 10 years (now 9).
There was a period in my life, that wasn’t so long ago, where I wasn’t able to feed my child, let alone pay for day care or keep the lights on and I made just enough not to qualify for any benefits.
As a single mother with a toddler (who doesn’t get any kind of support either financially, emotionally or physically), I am terrified of going back to that dark period. I bring home about 4k a month, and with my excess, I realize that I could buckle down (and by “buckle down” I mean ramen noodles and Cheerios) and pay off my student loan OR my house in about 5 years.
Do I buckle down and pay off my student loan even though I know that if I only paid the IBR minimum in 10 years the balance would be forgiven?
Even if it would take every last free cent I have? Do I pay off my mortgage, knowing that I’ll at least have a roof over our heads and I can defer my student loan if hard times hit?
Do I pay my IBR minimum and hoard as much money as possible, invest it and try and get a higher rate of return?
In my book getting out of debt is about balance. I can’t see how it makes any logical sense to rush to pay off your debt early and direct every penny towards that if you are avoiding building an emergency savings account and saving for retirement.
See The Saddest Avoidable Mistake People Make When Getting Out of Debt to put this in perspective.
So My advice is to stick with the IBR, which you are going to have to qualify for each year, start building your savings account and participating in any employer sponsored retirement plan up to the maximum matching amount, and then let’s see what is available to use to pay down the mortgage.
Your comment about the IBR forgiveness in ten years worried me a bit. With the IBR the loan is forgiven after 25 years of payments. The Pay as You Earn Plan is forgiven after 20 and the Public Service Loan Forgiveness program is forgiven after 10. You can find out more in my guide here.
Another alternative is to save up what the extra you were going to pay the mortgage company each month and then make one yearly additional big payment.
Don’t let your fear of the past control your financial management in the present and sacrifice a better financial future.
Please post your responses and follow-up messages to me on this in the comments section below.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
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