Which to prioritize: the $120K in student loans, the $20K in credit card debt, or funding the 401(k)? Here’s what financial advisers say.
I’m a 26-year-old software engineer with an M.B.A. earning $85,000 a year, and my take home pay is roughly $3,700 a month. I contribute 8% to my 401 and get matched once annually by my company for 7%. Currently my 401 has $28,000 in it, most of which is in a target-date fund. I put $1,500 into my HSA annually. I have no other investments or savings .
The government estimates it will take 18 years to pay off my student loan debt with my final payments costing $1,200, 15 years from now. How will I ever be able to buy a home? Should I stop putting money into my 401? I would save $6,000 a year to pay down debt. Will I ever be able to retire? I feel like this high salary and “high earning potential” means nothing.
First off, don’t despair. “It must appear as though you are in a no-win situation, but you have one of the best things going for you: time,” says Mitchell Hockenbury, a certified financial planner with 1440 Financial Partners in Kansas City, Mo. Indeed, at just 26 years old, you have decades to save for retirement. Plus, you “have a great salary in a less expensive city than other parts of the country,” he adds.
For example, “selling your newer car and buying a $5,000 car might be worth your while. It frees up $650 a month,” says Hockenbury. You might want to also look into a 0% balance transfer card for your credit card to save on interest payments . And Egler adds that if your health expenses tend to be very low, “it may make sense to halt further contributions to your HSA in order to more aggressively pay down your debt. This would free up over $100/month you could put toward your debt.
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