Pay down the debt or stash some more cash?

[sarah1122]

Hey all...just looking for a bit of advice.

We're expecting another babe in May (hooray!) and I'm wondering if we should temporarily change our family budget for the next seven months. I currently work part time (I have my own business), but will be taking six weeks maternity leave followed by 8-10 months of a drastically reduced work schedule so that I can stay home full time for the babe's first year. DH and I are pretty sure we can swing this, but it is going to be tight and we won't have income left over for emergencies.

We've got about $50,000 in debt (mostly student loans...no credit card debt) that we are actively paying down as fast as we can. We also have just under $10,000 in savings (about 3 months of living expenses for us). We also are fortunate to have generous parents who would bail us out in a heartbeat it we got stuck with a major expense.

My question is this. Given the above information should we continue putting all of our spare money toward our loans in the next 7 months or should we go back to paying the minimums on our loans and stash away every cent we can? We've got about $1300 a month to play with...

It would mean another $9000 in savings by my due date. A nice cushion in case of emergency for the babe's first year.

or

Another $9000 paid off on those loans...which aren't going to see much payment beyond their minimums for the year after the babe is born.

Lend your wisdom wise and frugal mamas.

[nd_deadhead]

How many years do you have left on the student loans, and what are the interest rates?

Without knowing that information, my instinct is to make minimum payments, and save the extra. You can always make additional payments later; once you make an extra loan payment, you can't get it back.

Oh, and congratulations on the baby, and on not having any other debt!

[ssantos]

I would stash the money for emergency funds unless you are paying really high interest rates. We have $20,000 in student loans with less than 3% interest, and $15,000 in a car loan with 4% interest. We have about $30,000 in savings, and my husband finally got a job after being out of work for 2 years. We will be looking to buy a house probably next year. We avoid credit card debt but are comfortable carrying low interest student/car/house loans.

[sarah1122]

There are three separate loans at rates of:

6.8% (which only has about $4000 left to be paid...with that $1300/month I could have it all paid off by the end of the year).

5% ($27,000...a $450/month payment).

4.5% ($15,000...a $130/month payment).

I know that stashing the money is probably the best idea...we were just on such a roll with paying those loans that it is hard to stop. We've paid off about $7000 in the last 3 months.

The loans all have many, many years left....I just got out of school about 3 years ago.

Maybe I should pay off the 6.8% loan by the end of the year and start stashing cash in January?

[Mom2SammyJoe]

I'd say pay off the 6.8% loan. You'd still be able to stash 5k, you'd feel awesome about having something paid off, which you have been working for, and you'll free yourself from at least one payment for after baby.
Good work on knocking down that debt!

[TheSavedQuarter]

I wonder about the $1,300 figure. Could you cut your current expenses and save more? Live on just your husband's income and stash yours into debt and emergency fund?

I would also knock out the 6.8% debt and work on saving a few extra thousand before the baby arrives. They're surprisingly expensive and you don't want to be caught in the place where you blow through your emergency fund and have to work more than you'd like.

[A&A]

Originally Posted by Mom2SammyJoe

I'd say pay off the 6.8% loan. You'd still be able to stash 5k, you'd feel awesome about having something paid off, which you have been working for, and you'll free yourself from at least one payment for after baby.
Good work on knocking down that debt!

[SunRise]

I would make the minimum payments on all three loans and stash the rest away. After your baby is born and at different intervals or when you return to work, you can use what is left of the stashed money to pay down one of the loans.

[sunnysandiegan]

I would aim to save some of the money and work on paying off the 6.8% loan at the same time. I'd do an Excel spreadsheet and calculate interest and keep track, so I could work backwards to have the loan paid off in March or April (is baby "due" in early May or late May) and then use the "extra" per month towards building up savings. I would start building it up now versus waiting until the loan is paid in full.

Like a PP mentioned, I would also work on lowering expenses further. I'd probably save most of that, but would probably be tempted to put some towards the debt.

[phathui5]

Originally Posted by Mom2SammyJoe

I'd say pay off the 6.8% loan. You'd still be able to stash 5k, you'd feel awesome about having something paid off, which you have been working for, and you'll free yourself from at least one payment for after baby.
Good work on knocking down that debt!

This sounds like a good plan to me. And when you get rid of that payment, that'll be money that you can put into savings every month.