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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, June 22, 2008 Paying down debt always takes priority By Michelle Singletary Many college graduates will soon be wondering if they should aggressively pay off their student-loan debt or let it linger and make monthly payments for the next 10 years or even decades to come. Others will be wondering whether they should buy a home while they owe thousands of dollars in student-loan debt, or if it's wise to take on more debt to attend graduate school. If you're out of school and soon to be juggling student-loan debt, read my responses to questions submitted during a recent online discussion at www.washingtonpost.com. The first question came from a soldier deployed in Baghdad: Question: Should I buy a house or pay off part of my $52,000 adjustable-rate, 7 percent private student loan with the $25,000 bonus I will soon receive? I owe another $98,000 in federal student loans. This seems like a really good time to buy a house, but I would also like to pay down my debt. What is the best path to take? Answer: Put off buying a home for now. You have way too much debt to take on a home. As for the bonus, hold back just a bit for your emergency fund. Then I would use most of it to pay down the student loan debt. Get rid of all that debt and experience the freedom you deserve. Question: I'm a soon-to-be grad student with no debt -- student loans or otherwise -- and about $25,000 in the bank. I want to strike a wise balance between student debt and a little bit of savings. Do you recommend that I cover the $75,000 graduate school bill entirely with loans and hold on to the savings? Or should I apply the $25,000 over the course of graduate school to ease up the amount of loans I have to take on? Answer: I recommend you work awhile and save up the money to go to grad school. Or look for an employer who will help you pay. It's what I did -- my employer paid for my master's. And my husband and I saved up for his MBA. That $75,000 in loans scares me to death and it should scare you. I get an amazing amount of letters from folks who are deep in the hole because of graduate school loans. They aren't making nearly as much as they thought to pay down that debt and live the life they want. But if you are committed to going forward, hold back a little of the money for emergencies and use the savings to avoid taking on more debt than you have to. Question: I'm definitely going to one of the two cheaper law schools that I was accepted to, rather than my preferred but more expensive option. I'll be paying tuition with Stafford loans. However, my question is about what to do with my cash assets. I have about $11,000 in savings and do not own a house or make car payments. Do you think I should put my savings toward the tuition, use it for living expenses, or make a down payment on a house? I could buy a house in the $100,00 to $150,000 range. Answer: No house yet. You are taking on debt and don't need the extra debt burden. Put some of that $11,000 aside for an emergency, then use the rest for tuition and living expenses. Just try to take on as little debt as possible. You can live with a friend or relative, if you have one near the school you will attend. I know law school is tough but get a weekend part-time job. Just do whatever you can to reduce the amount of debt you take on. You will have time to get a home when you aren't in so much debt. Finally, here's a problem I hope many recent college graduates have soon: Question: I am a 26-year-old college graduate. I have a goal to retire in 40 years. I currently make $86,000 a year. I have bought a house and was wondering if it would be better to pay down my mortgage or take that money and put extra into my 401(k), which is valued at $35,000. Answer: Be sure you have an emergency fund. Also establish a life-happens fund to take care of things such as car repairs and so you don't deplete your emergency fund. Get rid of any consumer debt. Then aggressively save for retirement. Once you are sure you are putting away enough on a regular basis to retire when you want, then you certainly can begin to make extra mortgage payments. Washington Post Writers Group

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