Reply #20: Always pay off debt first.

[Rabrrrrrr]

You have no guarantee that investment income will be more than your rate of debt. And since a Roth IRA is not tax deductible, it's not worth doing while you hold a debt load.

Your plan of action should be -

1) Save enough in cash to last up to 6 months without a job or income; don't invest this money, except maybe in a CD or other quickly liquidated form with guaranteed return. Unfortunately, this emergency money will never do much work for you in terms of earning income, but it will be necessary if you ever caught without income.

2) Live simply for a year or two, not making big purchases and shoving as much money as possible into debt payment.

3) Pay down all non-mortgage debt, making bigger payments than necessary. As big as you can make.

4) Once non-mortgage debt is paid, then invest while also making double or triple or more payments on mortgage.

(in your case, your mortgage rate is less than your student loan rate; if it were reversed, I'd say pay the mortgage down first, then work on student loan - in essence, always pay off the highest interest bearing debt first, then work your way down).


One thing you can do during all this is, if you have 401(k) through work, put as much as into that as possible, even before paying down your debt. That's almost free money for the most part - it gets deducted from your taxable income, and your take home pay will be almost the same as if you didn't have any money taken out. When I had a 401(k) doable job, I was socking away something like $800 a month into the 401(k), and my take home pay only went down about $300 a month because of the tax savings.

Carrying debt is never a good thing - it will sit on your shoulders like an albatross and haunt you. Mortgages aren't as bad, since they're actually a debt for something physical that can be resold if need be, but they're still expensive loans. Even a small percent stretched out over 15 or 30 years means you're paying at least twice for the house.