I'm in my early twenties living at home, currently single, making about $3K a month, with around $1K/month in expenses. I have $30K in student loans to pay, and have saved up $36K cash. Currently contributing 3% to the company 401k (with matching company contribution). No investment accounts open as of now. Only other debt is a no-interest car payment and one credit card I pay off in full every month. If I pay off the entire loan, I'd still have enough cash for a 6 month emergency fund, but I'm a little hesitant to decrease my cash that quickly. Right now I'm leaning toward paying off all but the two 3.1% loans. Is this the right course of action?

Student loans:

6.5% - $1.9K
6.5% - $1.9K
4.4% - $5.4K
4.4% - $1.9K
4% - $5.4K
4% - $500
3.6% - $4.1K
3.6% - $2.3K
3.1% - $3.4K
3.1% - $3.4K

3 Answers 3


Would you borrow money at 3% just to leave it in a savings account? That's effectively what you're doing by not paying of your student loans. I would pay of all of the student loans, and consider putting a little toward the car loan. If you do run into an emergency you still have your $2K/month to help build your savings back up.


Do you have other things you might want to spend that cash on in the near future? (Like a down-payment on a house?) Beyond having emergency cash, the only reason to keep a pile of cash around is because you might need it for another purchase.

Unless you are going to have other expenses that will require higher-interest loans to cover them, there's no need to sit on a big pile of cash. As long as you are getting the full match on your 401(k), that's the free money that might be worth more than the interest you are paying on the loans. In any case, I suggest you aim for at least 10% into your 401(k) account moving forward in your life so that you can properly fund retirement. 15% would be even better.

It doesn't sound like you would be losing anything by paying the student loans, and you could then use the money freed from your loan payments to pay down your car faster.

  • I completely agree with @nathan-l. Betterment has a good blog on this topic that explains a strategy that I identify with, which essentially states that one should ensure they take advantage of employer retirement matches, pay off debt with higher interest than investment returns, have 6 mo of expenses saved, then invest. For example, my household has a car loan @ 3.25% that I only pay min payments on every month, the rest of our surplus income goes to our IRA.
    – butallmj
    Commented Feb 19, 2017 at 16:06

From a financial point of view: If your savings are 'free' (you don't expect to need it in the near future): pay off the loan completely.

You say you feel a little hesitant, and this I understand. "What if you unexpectedly do need that cash in the near future?" A simple solution is to pay off the loan in 4 or 6 steps, say each other month. This way you mitigate the risk of regret.

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