Ask the Readers: How to Balance Debt and Retirement Saving?

The following article is from Melanie, our staff writer. Melanie is in the beginning phase of her journey to Financial Freedom and she’ll offer a refreshing point of view for us.

As Joe has mentioned, I’m at the beginning stage of my financial independence journey. The thing I love about writing for Retire By 40 is the wealth of knowledge the commentors possess. You guys are an engaged and intelligent crowd! Today, I’d like to put you in charge and ask for your advice. What would you do in my situation?

Some background…

balance debt and retirement savingAs you may or may not know, I accrued $81,000 in student loan debt obtaining two degrees…in the arts (yes, I realize this wasn’t the best decision).

After 7 years of paying off debt, and being serious about it for the past three, I’ve paid off $43,000 in debt.  I’m proud of myself because $30,000 of that was paid off in the past three years while living on after tax salaries of $16-$30k.

Being feverishly obsessed with paying off debt has its benefits. I have significantly lowered my daily interest and I’ve started to actually see some progress.  But in the midst of my serious debt payoff mode, I neglected nearly every other aspect of my financial life. I was adding a mere $20 a month to my emergency fund and retirement fund.

Now that I have made the leap to self-employment, which is going rather well, I’m trying to find financial balance, while continuing to focus on paying off debt.

I’m approaching 30 and I’ve realized that while I have paid off $43,000 in debt, I only have $2,000 saved for retirement – and I’m starting to panic. I’m kicking myself for not saving earlier and thinking that I was “so young” and that “I have so much time.”

My excuse was always my high interest rates. My graduate loans are currently at $31,000 with a mixed interest rate of 6.8% and 7.9%. Ouch (much better than the $58,000 original grad loan, though). My undergrad loans don’t bother me as much as they are sitting pretty at $7,000 at 2.5% interest.

While paying off debt is my number one goal, I want to make sure I am financially balanced in all aspects. I have learned that this also has helped with debt fatigue, which I’ve experienced on and off during this long journey.

So what is my new plan of action?

Now I put $100 a month into my retirement account, $200 in my emergency fund, $75 to targeted savings accounts like travel, 30% of my freelance income to a tax savings fund and the rest goes to my student loans.

I feel like I’ve made strides compared to my paltry $20/mo to retirement and my emergency fund. But I still feel like I could be doing so much more.

To give you some perspective, my self-employment income currently looks like my former nonprofit salary. I make between $2,000 – $3,000 before taxes on any given month. Granted, I’m still a new freelancer and hope to grow my income significantly, but I’m happy to report it’s in line with what I used to make.

I can live off half of my income and still live a decent life, full of some frugal adventures, while dedicating the other half to my financial wellness.

So, what would you do in my situation? I’m almost 30, have $2,000 saved in retirement, and $38,000 in student loans left to go. I should note that I have no desire to have children or a house and enjoy living minimally, so my main financial goals at this time are getting out of debt, funding my emergency fund, and saving for retirement.

I want to hear from you! What would you do differently? Do you have any advice to strengthen my financial wellbeing?

Author note: Please be nice! I know I haven’t made the wisest decisions regarding my education, but I’m genuinely interested in improving my financial situation and being balanced. Thanks!

Photo credit: Jagz Mario

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Melanie Lockert is a freelance writer currently living in Portland, Oregon. She is passionate about education, financial literacy, and empowering people to take control of their finances. She writes about breaking up with debt, freelancing, and side hustle adventures at Currently she puts more than 50% of her income towards debt, while living a frugal, fun life. In addition to her love of personal finance, art and music, she is also a karaoke master.

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65 thoughts on “Ask the Readers: How to Balance Debt and Retirement Saving?”

  1. thanks Joe. I jumped over here from her thread posted on October 20 — there was a link which landed me here.

    Interesting angle including the younger generation here. I do agree that student load debt is a huge burden. What is so disappointing is how misguided our youth were and how unrealistic they have been in terms of ability to afford eduction, future projected income post (pick your run of the mill liberal arts degree) and unwillingness to turn back from that path.

    i just coached a poor young lady over where i live – she makes about 32K/year as a school teacher and spent $108K to get that degree – crazy. She could have gone to the local community college for about 8K over the first 2 years, then gone to the local state university for another $12K/year and lived at home. Total cost $32K. But she insisted (or was more likely sold a bill of goods) that the degree from “expensive state school” l was so much more superior to the route I suggested.

    She failed to do her research, blindly took loans to pay for “expensive school” and now wonders if she will ever get out from under that mountain of debt paying it back at a rate of maybe $5K/year.

    It was just poor financial skills combined with poor life choices. She grew up in a single mom home, had little if any financial role models or coaching, and made some ignorant decisions….

    sadly we can’t save em all…

    My sister is a free-lancer in California, has been in that line of work for 25 years. Her good years are in the $80-$100K and bad years are in the $25-30K. It’s difficult line of work….feast or famine,usually at the mercy of broader (corporate) economic cycles…

    Not easy…it’s the cost of these poor decisions that ultimately american society/public will have to pay for…whether we want to or not…

  2. You’re 30 and “just getting started” meaning you’re only about 9 years behind the average college graduate. (deep breath…sigh!) You are sitting with a graduate degree making $30K / year after tax. (Sigh…. millenials)….

    First, you have an income issue and need to bring your income up in order to pay down your debt. You already live frugally so it’s not a spending issue. It’s an income issue.

    Step 1 – get a night job /go deliver pizzas / bar tend / wait tables – no, you dont need a masters degree for that line of work but you’ll make about what you are making now in tips / wages / over time and that will go a long way to getting your student debt paid off. You need to adopt the “i will do (almost) what ever it takes” attitude. It’s an income issue. Admit that, swallow some pride ms. masters degree, go get a second job, and the rest will fall in place.
    I just read in portland, the average panhandler makes about $11/hour – you could get out there and do some begging – just make your signage honest “Student in debt looking for next loan payment” or some such sign. Brown cardboard / black ink seems to work well…..

    Step 2 – Emergency fund – you need 3 to 6 months of emergency fund – as a freelancer, you will hit rough patches no matter how good you are – the economy tanks, you will lose clients, guaranteed. I’d recommend a fund of around $8K in that emergency fund.

    Step 3 – Average market return for the stock market historically is 7-8%. Presume you are not in a 401K or other “matching” retirement fund because you are self employed, so, investing in an IRA (pretax) in stocks versus putting money toward paying down your 8% student loans is about a wash. Given your negative net worth I would not yet save for retirement and instead put that back to getting out of debt. Student loan debt is not erasable by bankruptcy. So get it paid off as fast as you can. You might also investigate refinancing it. 8% is very high in today’s low interest rate environment.

    I dont mean to be a downer, but you’re approaching 30…you’re not a kid anymore. Be accountable to and for yourself and get debt free !!! You made some poor education choices and need to get back up to zero as fast as possible.

    • Melanie probably isn’t checking this thread anymore, but I can answer some of these.
      Step 1 – She has been working side jobs for years. I know she worked many late nights and you can see she is really worn out. I think she made the right choice to quit her low paying full time job and go for self employment.
      Step 2 – Not sure what’s her emergency fund is like. She lives with her boyfriend so they have a little safety net with 2 incomes.
      Step 3 – ?
      Thanks for your input! It seems like at this point she just need to increase her income. If her freelancing work out, then life should be much better for her.

  3. Hey Melanie,
    Keep plugging away at the loans. The number one rule of retirement savings is pay yourself first. Another key component of retirement/estate planning is life insurance.

  4. Dear Melanie,
    I wish you the best. I agree with many others that you should continue to pay the debt which is a guaranteed return – once you have a $1000 emergency fund (which it sounds like you have). Like another reader I too live on the Dave Ramsey program. Unlike the comment below about some of the baby steps not applying, I will tell you that by following the program strictly I became debt free I my early 30s with a salary not too far off from your’s. I cut up my credit cards, lived on cash out of envelopes, paid off my debt, then saved and invested everything afterward. Then, after a divorce in my mid-40s I had to start over. However, because I was debt free when that disaster hit I rebuilt from a debt free position. I was almost a millionaire when I paid out half my net worth in the divorce. Now, thanks to always being debt free (by following the Financial Peace program strictly since the mid-1990s), I have reached a million again. Without that program I would have nothing, so it speaks for itself. It can be done, but you have to get rid of that debt now, live on a budget and within your means, and then be intense on saving. I am now preparing to retire by 53, if not sooner (my target was 50 before the divorce – divorce is the most dreadfully expensive mistake you can make, worse than college loans, and still about 50% of people make it (including me) – I don’t know the answer but that is something to keep in mind). Believe me, it is a lot more fun to watch the balance on your net worth statements grow than it is to watch the balance on your credit card statements grow! And, I won’t miss any of that material junk I didn’t buy when I am retired and sitting on the beach.

  5. Lots of good advice here. I’ll offer something different. I’d read every word you can find that’s been written by Donna Freedman. She has been there/done that. Her is solid advice and she is an excellent writer, who provides for herself via freelance writing. It will be inspirational, I assure you. Best of luck to you!

  6. Hi Melanie, plenty of good advice already to pay off the debt and have some emergency funds, kudos to all of RB40’s smart engaged readers. I just put up a post where I speculate a bit if your student debt has influenced your decision to ‘not have a house or children in the future’. I’m a parent of an 11 and 8 year old now, and I’d love a comment either as a response to this comment or on my post if you have time to read it ( Thanks!

  7. So I have to say thank you for writing this post because it is a question I’ve need answered lately as I debate bumping up what I put into savings and my 401K even though I have a ton of debt(mostly from student loans). From reading the comments I think I’m on the right track and can stay where I’m at with contributing 5% directly to savings and meeting my company match for my 401k, crazy mountain of debt-I’m still coming for you full steam ahead.

  8. So I just had a I know this Melanie person moment, it took the picture to realize you were writing for RB40, even though I have read your articles before, I only drink coffee I swear!

    In your situation I think I would need to know more. How long will it take to pay off your student loans at your current salary? Do you own a home? Do you have any other investments? If you chose to do your investment strategy listed, how much investment money would you have when your student loan is paid off? I definitely think there needs to a balance, but these questions would help me answer how much or how little.

    An example would be if you told me you can pay off your debt in 1.5 years, I would probably tell you to invest the minimum of your 401K match program and assuming this is non applicable I would say to only build up an emergency fund to where you felt comfortable and really focus on that debt pay off.

  9. Melanie,

    Thanks for this article! This is really both a timely and important piece. As someone who conquered almost $45K of students (of which $16K were private student loans), I know how hard it is to focus on paying debt, building emergency savings and establishing retirement accounts. I graduated in 2003 just when college costs were really starting to spiral out of control. Tuition has gone up almost 40% at my alma mater since I graduated! Progress is a slow process so never beat yourself up. As I tell one of my good friends, each dollar saved is a step in the right direction. Since your low income backet, you may benefit from the Retirement Savings Credit.,-Employee/Retirement-Topics-Retirement-Savings-Contributions-Credit-(Saver%E2%80%99s-Credit)

  10. I also had similar salaries as yours for quite some time, I’m still in the non-profit field and if you switch around or become a manager you’d be surprised that some of the positions pay pretty well. Although, there are definitely higher monetary compensation and additional benefits (stock options, employee purchase plans, etc. that don’t exist for non-profit work).

    You did hear though about the 10 year repayment if you had kept at a government/non-profit job long ago with steady payments it would have absolved your federal loans? May be worth checking into – not quite sure on how it works, but I know it’s a good option for some with lots of loans/debts (but I also heard it doesn’t work on private loans?)

    I think I mostly agree with what is being said here – I know from my own experiences it was really hard to feel like I wasn’t saving money when I was paying for hefty expenses like home improvements/renovations or college education/housing/books/etc. But the good news is that it’s only temporary and before you know it once you’ve paid it off then hopefully you’ll have developed good habits and can avoid lifestyle inflation/creep and save the difference.

    Regarding real estate – I think there are some really amazing deals out there that may be worth checking out – first time homebuyer programs for low-income folks are amazing and can be worth missing out on a few payments on the loans to get an extra $10-20k down payment assistance or substantially lower your monthly rent payment. If you feel like there are no good deals in your area and you don’t want to move then there are also some great rental properties out of the area that come with property management companies (I haven’t tried these yet but it’s my plan to do so within the next year or two) – I’m not sure I’d recommend it for your first purchase especially as it would disqualify you from being able to access FHA loans and down payment assistance for most programs – but check out all your options: there are some affordable options here that may help your cash flow, not sure if the difference would be better than paying off your debt faster – but it’d maybe make you feel better and that you have some savings to assist with it.

    Also – I’m sure you probably already know this, but just in case you haven’t realized it – make sure you’re making quarterly estimated tax payments or at least setting aside a hefty amount for all the taxes that you will need to pay as taxes are not taken out for self-employment income.

  11. Honestly, I would try to make more money! Even if it meant an 8-5 job for a while (with a soulless corporation as opposed to a non-profit).

    If that’s impossible, then yeah, I would focus on that high interest debt before even starting the retirement savings, unless there’s some kind of match you’re missing or you think you’re going to be making enough in the short-term future to max out your allowed retirement savings (which seems unlikely given your current income and the amount of money you can put away in a SEPA or 401K these days). Like others have said, it is very unlikely that you’re going to beat 7.9% or even 6.8% in the market and given that that’s a sure payoff, rationally it doesn’t make sense even with the tax break and compounding to put money into the stock market until that’s all gone. (It does make sense to hold onto the smaller interest rate debt while saving for retirement.)

    Good job on the amount of debt repayment you’ve done so far given your circumstances!

  12. What is it about graduate loans that makes them higher interest rate – mine were about the same rate, with one loan at 2.5% (first undergraduate loan). It must have been the timing!
    Is there any benefit to you to save more for retirement like a match or better tax treatment? If not, I’d focus primarily on paying off debt, and any “extra” that you earn from side hustles or find in the couch to your retirement. The math points towards to getting rid of debt before saving for retirement.

    • Graduate PLUS loans were at a fixed rate in 2010 (I’m pretty sure). I know, that is such a jump from my undergrad loans! I have no match for retirement — not even when I was working a traditional job as it was always in the nonprofit sector.

  13. I would remove the savings for travel from your budget and retirement for now. The high interest..ouch. Free entertainment will have to do for now while you have debt. You’ve done a great job over the last three years hang in there.

    • Thanks Ginny! Traveling is my one vice. I love it and it is my biggest motivation to be debt free. In my younger years, I would travel abroad nearly one to two times a year. Now, my travel savings is mostly for going home for Xmas or professional conferences. I actually did just accrue enough miles to go to Europe through travel hacking, but then I’d need more money to spend while there, so that will probably be on hold.

  14. In your situation, I would continue to pay off as much debt as possible. I think being debt free will give you more possibilities for your future, especially if you don’t want children or to own a home. Think of the freedom you will have in your life. I can speak from experience bc I have also had what seemed like insurmountable debt (65k). I thought I was going to die before paying it off! Thankfully it will be paid off before I’m 40. But in your case, I think it really it depends on how much your debt causes you emotional stress. If it’s making you depressed or stressed out (like it has for me), just get rid of it ASAP. Then you can start fresh and not feel like you are shackled down by debt. Just pay it off as quickly as possible and try to save more once it’s paid off. If you think you can feel ok carrying it around a little longer, then maybe amp up the retirement savings for now. What I actually did was save a bunch toward retirement for a couple years so I had a nice chunk in there and felt good about it, then I turned my focus back to paying off the debt ASAP. It really depends on your comfort levels. Great job so far and keep it up!! (sorry if i rambled)

    • Haha you’re not rambling. I once wrote a post about the different debt payoff methods — avalanche, snowball, etc discussing which one was best. My thought? Do what makes you sleep best at night. Seriously. For me, that’s paying off high interest debt first and putting nearly everything to debt. I think I scared myself when I quit my job, but I’m doing pretty good and my risk is low: no kids, no house, no car, and I’m insured. I might lower the EF and retirement fund for a bit, and just go back and forth. It IS about energy. And glad you will be out of debt by 40!

  15. Melanie,

    First, what a great post to stir up and engage readers!

    I agree with Joe. Work on increasing your income. I’m completely confident that you will achieve your financial goals, because you’re holding yourself accountable publicly and you’re so motivated! I’ll bet in a few years, your blog will start to be a nice source of residual income.

    Stop worrying about funding retirement accounts, yet, especially if you’re looking at investing in index funds or mutual funds. Aren’t the markets at historical highs? Since this type of investing strategy depends heavily on appreciation, I stopped investing in the markets for now and am focusing on other sources of income (business, real estate rental income and peer-to-peer investing). I can’t time the market, but I know we’re due for a correction and dread seeing the “hit” my investment accounts will take.

    Continue to save $100/month for emergencies (including medical so just keep saving) and pay off your student loans ASAP in order of highest to lowest interest rates.

    Keep up the great posts! Although you’re writing from the perspective of a personal finance newbie, your content and writing style is awesome!

    • Darren — winner of best compliment ever 🙂 Joe has a great group of readers so I thought it would be great to get everyone’s opinion. I like your advice.

      Glad you enjoyed the post and my writing style — the weight of that comment means a lot to me as freelance writing is now 70% of my income!

  16. First, would like to congratulate you on making the huge effort to pay off the debt. My husband and I had quite a few financial challenges in our 20s and were flat broke at 30 (but no debt). From 31 to 55, we amassed savings of almost $1.5 million and also paid off our house. So still no debt and retired early. From 31 to 55 is 24 years. That’s a lot of time to save, so good that you are on your way. Keep it going steady, increase savings as soon as debt is paid and don’t get caught up in what others are doing (buying clothes, cars, expensive trips, etc) and you will be fine. There are many free things or cheaper things to do that are really fun. Be sure you choose friends with like plans so will not be a temptation to waiver.

      • Hi Melanie, I believe you are less behind than you think. My mantra is it is not how much you make, but how you spend it that makes the difference. I paid for college by working before, and all the way through it, and came out debt free. However, being married and having four children, I cut back my hours and felt very poor financially for about 10 years. It was well worth it as I have invested my time in my children and marriage. During that time, no matter how tight things were, I always maxed out my simple Ira and reaped the “free money” that my employer matched. I also always saved my weekend check, I work one Saturday per month. This check went into our emergency fund. Being savings minded, we lived below our means and as we have aged, and our income increased, we were in a position to begin saving very aggressively. It took us a while to get here, but we are on our way to a very comfortable retirement. Given your attitude, and willingness to live a simple lifestyle, it only makes sense to pay off the debt first, and then begin saving very aggressively as your income increases. Stay the course, and you will be fine. Congratulations on your perseverance, it is admirable. I am 42 and often come across people that are in debt, have not EF, and have no retirement plan. It is nice to see you taking it seriously. Nice job!

  17. Definitely pay off the high interest debt first. Makes very little sense to save at earn 3% or less when your debt is extra your savings. I’d argue reducing your emergency fund and use that money to pay off the debt.

  18. Assume your income at mid point, your annual income is 30k. I don’t know how much of it going to tax, assume 20%, you have 24k take home? Base on that, I will maximize your ROTH contribution, because US retirement saving quota cannot be carried over to future (unlike in Canada for example). You will want to get your money into tax defer accounts as soon as possible. Also, no one, even the government, can garnish your ROTH until you take them out, which will be 30 years away.

  19. I think you’re doing well in your given situation.
    The main thing is to focus on growing your income which is what you’re doing now. I’m sure you’ll be able to grow your income in the years to come. That will help tremendously.
    I also agree with paying off the high interest debt first.
    $100/month toward retirement is a good start for now. I hope it’s going into a Roth IRA.

  20. Striking the balance is really hard, but if you just look at the maths, you’ve got to go with clearing the debt first. It’s the only thing that makes sense. Jesse’s idea of buying a house to increase passive income is great too, and that would be good going forward, though there are sometimes unexpected bills to consider, and when you have vacancies you rapidly lose any profits / additional income.

  21. Well done thus far. Most people in similar situations have taken to complaining about “the system” and playing the victim, while you took the cards you were dealt and played your heart out.

    You’re on the right course. The decision between paying off debt and investing can be very complicated, but also simple: Invest if you can reasonably expect your investments to earn more than you are paying on debt service. In your case, when you owe interest at 6-8% (which is a GUARANTEED) savings, you are most likely better off to pay down debt rather than invest in a significant way.

    $20/month may seem small, but HABITS are the hardest thing to start & stop. Participating in a small way toward long-term savings while aggressively paying down debt is a great method.

    Perhaps think of your Net Worth from month to month rather than just the balance in your investment accounts. Paying off $100 in debt will have the same effect as investing $100 (assuming no change in value).

    At this point, you can see the finish line. I imagine you will feel like a super rich person once your debt is gone, and you have all this “extra money” each month. Even if you invest half of what you used to pay for debt, you’ll be in a great place by age 40.

    Keep on, keeping on.

    Good luck!

    • Haha I’ve already complained about the system and been depressed about it. I quickly realized that doing so wouldn’t change a thing. Action > complaining. I like your thought on thinking of debt repayment as a guaranteed investment. I also like the $20/mo to retirement, because habits are so hard to start.

  22. Great article. And, great job on paying down your debt. I’m age 78…so coming from a different place than some of the younger readers. I like the idea of first establishing an emergency fund (at least $1000). Then, paying off your debt with 80% of your available funds each month. With the remaining 20%, buy Dividend Paying Stocks to get your retirement funds moving. It’s the compounding that counts and what you have on your side is time. It’s going to take 20-30-40 years to mass enough money for a decent retirement…meaning a time in your life when you are free of the need to make money. Freedom!!! And…you may want to take on a second job to help pay your debt off faster.

    What the Dividend Paying Stocks do is provide an incentive to add more and pay off the debt faster. Good luck with paying down your debt!

  23. Hello Melanie,
    I’d increase your emergency fund since you are now on your own. I have a small
    Business myself ( which I highly reccomend) however that means your
    Income can flex more than the stable job. Since you Not getting a retirement match from your employer you must increase your safety net first. Then after you have minimum 6 months worth add that money back in to your retirement fund. I congratulate you thinking about your retirement find early. Keep paying on your loan too as much as you can.

  24. This probably won’t be popular advice with other commenters and perhaps Joe, but if I were you, I’d devote all of my surplus cash to paying off those loans a 6.8% and 7.9% and postpone putting money into retirement accounts until those are extinguished.

    Think of it this way: Every payment on a 7% loan is mathematically identical to making an investment with a guaranteed, risk-free return of 7%. Long-term historical stock returns are something like 7%, but stock investing is far from guaranteed and risk-free. Take the sure thing and feel great about reaping those big returns from ‘investing’ in your high-interest debt. Once those debts are paid off, you’ll have to move on to lower yielding investments!

    • This actually has been the popular advice! I’m surprised too. That’s what I was doing before, but felt weird about it. But now I have more of an EF and at least SOMETHING in retirement, so maybe I’ll scale back and try to ramp up the loans even more again. Thanks for your input, it means a lot to me.

  25. I think you’ve struck the right balance now. After 3 years of effectively foregoing retirement savings I’d be freaking out too. you’ve made amazing progress in those three years! In another year or two you’ll have the 7.9% loan paid off, then the 6.8% one a year or two after that. I don’t remember how Joe structures it, but I think your “employer” (you) can put the retirement funds into a solo 401k so it’s not taxed as income. That beats 7.9% in my books.

  26. I think it’s a really tough balance to strike between debt pay off, savings, and retirement planning. Obviously you’re making some serious progress and doing something right.

  27. I’m a fan of the Dave Ramsey Baby Steps method, which helped me out. I have my quibbles with the last four baby steps–and I bet most of this site’s readership do, too–but the first three steps are solid.

    The first baby step is to save a thousand dollar ($1,000) emergency fund. It’s enough to help you if you suddenly need to repair the car or pay for an emergency room visit.

    The second baby step is to put all extra money towards paying off debt. At this point, don’t worry about retirement savings. You have some savings, which is fine, but put it on hold for the moment. For all you know, the stock market could crash, and then you get a bigger crisis than your emergency fund can handle, and then you wind up dipping into your 401(k) and paying penalties. [This happened to a friend of mine who was maxing out his 401(k) in the boom years of 2005-2007–but then he got laid off. He’d thought that since his massive student loans were low interest, it made sense to invest for retirement. He was long-term unemployed and was forced to pay from his 401(k), which was a triple whammy: taxes, early withdrawal penalty, and the bear market of of 2008-09. Sallie Mae is ruthless and will extract money from you any way it can.] Paying off debt comes before retirement. Once you’re debt free, you’re ready for the next step.

    The third baby step is to get your emergency fund to the point where you could live off it for 3-6 months. Now that you’re debt free, you want to make sure that another crisis doesn’t push you back into debt.

    Finally, the fourth baby step is to start saving for retirement. Ramsey recommends 15% of your pay into savings; I’m pretty sure that most readers of this site agree that that’s far too low for most retirement, let alone early retirement. But once you’re debt free, you have the peace of mind to put a bigger chunk of money aside for retirement.

    • Well, I am at step 3 because I’m freelance, so to be able to sleep at night I have about 4 months worth of bare bones expenses. All of you are making me think I should stop putting $100/mo to retirement. Maybe I will just go back to the $20/mo…I think for me, I need to feel like I’m doing something, because hey even $20/mo is $240 a year.

  28. Are there any programs that could help you consolidate into a lower interest rate? City, state? At nearly 8.0% I would prioritize paying the loans down over saving for retirement. Long term you can expect to make the 7-8% each year on your retirement, but that is a long term average with ups and downs. Paying $1 of your high rate is a guaranteed 7.8% return.

    Do you know any person with the financial means to give you a personal loan at 1 to 2%?

    The best solution is to double your income. I know that is not easy. Can you get a 1 or 2 night a week extra side job? That money could go directly to debt. I know not an ideal solution either.

    You’ve made great progress. I’d love to see you blast through these loans. Once gone, your retirement savings will leap forward. Saving more will always trump long term compounding. I am rooting for you. Keep plugging ahead.

    • Thanks, Wade. I have looked into consolidation programs, but never liked any of the terms. I wish I knew someone that could give me a personal loan 🙂 But I don’t. My whole goal with freelancing is to make more money and I think by the end of the year, I will. I’m also looking into ways I can make my biz more scaleable.

  29. I’d get the debt paid off first. At your current rate of roughly $10K per year (and growing) you will most likely be debt free by 33. If by then you are contributing a round $1K a month to retirement, by age 59 with 8% returns you would have a million bucks. My guess is your income will increase substantially over your career, making it possible to contribute even more. You have plenty of time to save for retirement, especially with your frugal lifestyle.

  30. Melanie,

    I was in a similar situation. I graduated with 112k in debt, barely making enough to live off of much less pay it back after college. I guess it depends on your risk tolerance, location, etc.

    I figured that I had to lower other fixed expenses. So I took a risk, put my loans in forbearance and bought a house. I rented the empty bedrooms out, which ended up covering my home payments, my portion of the utilities and I had an extra $300/month that I could put on my school loans. Doing a quick calculation my “hourly pay” for the rental comes out to be just over $400. Can’t beat that.

    I’m glad to say that in the 5 years since graduation, I’m under $40k in school loans and I’m looking for other houses to buy to increase my income and starting a website on the side; even an extra $50/month starts adding up quickly.

    You’ve been doing great paying down your loans and saving for retirement. This is just my advise but I would look for more streams to passively increase your income, then separate that with the same percentages you are with your freelancing income. You would be amazed at how quickly you see a difference, maybe even enough so that you would make another account just for investments.

    Good luck

    • That’s a great idea, but I’m not sure if it will work in inner Portland. The home price is so high now and I doubt getting roomates will cancel out the mortgage. Maybe Melanie can research that and write about it in the future. She’d have to find a really great deal.
      In the suburb, it would be a slam dunk because the housing price is more reasonable.

    • Wow, what a great story! As appealing as it sounds, Joe is right — the housing market in Portland is crazy. Also, I just don’t see myself as a homeowner, even for a rental property. But this is a good reminder for me to look at other ways of creating income that might not be obvious to me. Congrats on your loans, you are doing an amazing job!

  31. Definitely pay off the debt. Have an emergency fund that will stave off disaster, but pay off that horrible ball and chain with any other spare money you have.

    Once it’s gone, your financial discipline will quickly replenish any lost saving opportunities 🙂

  32. I would pay off the 6.8% and 7.9%. It’s a guaranteed return vs the stock market. Yes your young and have a lot of time for your money to grow, but can you guarantee you will beat 7.9%?

    I would also look at ways to generate some more side income to help pay off debt. Perhaps you have a hobby you are really good at that may be of benefit to others.

    Can’t wait to see what ends up happening. I think when you pay off your student loans you won’t look back and say, “Oh I wish I didn’t pay these loans off and invested.” Best wishes!

    • Thank you! I want my loans gone as soon as possible and am interested in trying any and all side hustles to get there. I guess in a way I just feel sad and jealous for having so little in retirement/investments…I have hardly anything to show financially. But then when you see how much debt I’ve paid off, there is all my money! Thanks for your tips.

  33. Really, I would just focus on paying off the debts that are at interest rates of 6.8% and 7.9%.

    While you may grow your retirement savings and maybe see an average return of 7% per year for them, if you don’t pay off your debts, they will grow at 6.8% and 7.9% per year, guaranteed.

    I would pay off the debts (should take you another year or three) and after that go all out on retirement savings.


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