Which debt should I try to eliminate first with extra cash?

Here is the situation: I have a surplus of savings (beyond emergency fund) in a basic savings account, which is due to recent promotions for my wife and myself in the past couple of years. We already do well with retirement contributions and both jobs have pension programs (teacher and local government employee). We have 2 items of debt: mortgage ($73,000 at 3.67% (20 years)) and students loans. The students loans on NelNet break down as the following:
$12,700 at 3.86%
$12,300 at 4.29%
$12,600 at 4.66%
$15,000 at 5.31%

Which debt should I attack first with this extra cash? Or should I make minimum payments and do some kind of investing? My gut says I would feel much better taking out some of the student loans, but my brain says investing would be better, but not sure how?
Advice? All critiques and advice welcome, obviously I’m an amateur, thanks!

I am not qualified to make a financial recommendation, but can address the emotional aspect. Wife said paying off the house and totally owning it, was the second happiest day of her life. I have pics of her happily holding the deed in her hand.


If you’re already doing OK with retirement contributions (but we don’t know how far you are from retirement, how old you are, how much you have saved for retirement, etc) then I would get rid of the student loans first. You can pick the lowest balance one first to focus on and pay minimums on the others, then when that one is paid off, go to the next lowest one and repeat until all gone.

You can also do the same process but attack the one with the highest interest rate first (that’s probably what I’d do, actually). In the end, it will make little difference in the total paid. So, get 'er done.

You have just over $50k in student loans. How long will that take you to pay off if you focused on it?

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True, I didn’t want to get into the retirement subject because we are secure with that, and I understand it is part of the whole equation. Thanks for asking.
In regards to the debt, I think it would take ~4 years to pay off the student debt at our current pace, but less if we attack it with savings.

Since “doing well with retirement contributions” can mean different things to different people, I’ll add that if it means anything less than $22,500 in each 403b (or whatever plans you have) and $6,500 in each Roth IRA, I’d do that first. If you’re doing that already, I’d work on paying down the highest rate loan and then move on to the next ones in turn. Once the student loans are paid, I’d switch to investing in something like VTSAX or VFIAX. Some people would prefer to pay off the mortgage before do that, and that’s fine, too.

Edit: aren’t student loan payments and interest still paused for everyone?

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Yes, and thank you for adding figures for the retirement contributions, that is correct.
Yes, they are paused, but are supposed to start within 6 months, so I’m trying to prepare for that.

I thought with the debt ceiling bill they start again August 1.

You can always park the “monthly payment” amount in a savings account until the real payments start again, and then pay one big lump sum then. It’s not a lot, but better than nothing. That helps you focus on the highest-rate loan first, because you can allot the entire monthly payment to that loan until regular payments start again. Or you can simply pay everything on the highest-rate loan as you go until regular payments resume, and forego the small amount of interest on the savings account (which you have to pay tax on anyway).

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Good point, I like those strategies. I may try that because my payments don’t start until November. I was ahead by a few months when the pause first went into effect.

Is any of the debt variable? Or is it all fixed?

I would payoff the mortgage last… 3.67% for the next 20 years is going to be hard to replace.

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An excellent tool to consider using for your debt repayment is powerpay.org from Utah State University. The site will calculate monthly payments for the both the option of paying the highest interest accounts first and also do the calculations for paying the lowest balance accounts first. Also the site will show how much lower overall interest you will pay by paying the highest interest accounts first.


GREAT suggestion!.. :+1:

The two methods for choosing which creditors to pay off first are

  1. pay of the small balances first, regardless of interest rate, and

  2. pay off the balances with the highest rates first, regardless of balance.

You can also do some hybrid of those.

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Don’t let perfect be the enemy of good. Everyone looks for the perfect play and nothing is perfect. I would tackle the student debt first. If it will make you feel good and will help you gain traction pay off the lowest amount. It always feels good to see progress and can provide motivation. If you have the patience and can stay on track the highest amount is the the one to do first as it has the highest interest rate. View the process as part of your short term savings plan. Saving 4-5% is like money in a savings, CD or money market. Good luck!


To have your cake and eat it too, why not just buy 2 to 5 year T-Notes and CDs to give you the flexibility?

If you do buy brokerage CDs make sure they’re non-callable and FDIC-Insured. A callable CD is when the issuer can buyback your CD prior to maturity

Student loans are top line deductions up to $2,500 while mortgages require you to itemize

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Student loan deduction phases out though, and mortgage interest does not. With two working spouses making enough to max retirement contributions, OP may well be over the limit for deducting student loan interest.

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Of course that means the student loan interest should be prioritized over the mortgage debt.

Of course it depends what % of their income they’re saving as if they’re saving a high % of their income they still might be under the income limit

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