- Jill Schlesinger, a financial planner, said she doesn’t think a 30-something with $US104,000 in student-loan debt is ready to be a homeowner.
- On an episode of her “Jill on Money” podcast, Schlesinger suggested the woman prioritise paying off her highest-interest loans and building an emergency fund.
- She also said that to pay off the debt more quickly, the woman shouldn’t put money toward investments outside her retirement savings.
Linda, a 30-something Bay Area resident, is more than $US100,000 in debt from student loans, she told Jill Schlesinger, a certified financial planner, on an episode of her “Jill on Money” podcast.
Linda earns $US98,000 a year and recently moved back in with family to save money on rent, but she said she’s not sure what to do with the extra cash. She wants to buy a house, have kids, and solidify her emergency fund, she told Schlesinger.
“I would like to be financially secure and not have to worry about money in the future, and in my 30s I’m really just beginning to focus on getting to that point,” Linda said. “What order should I be doing this in? Should I put off the dreams for another five to 10 years?”
First off, Schlesinger said, prioritise having kids. “That biological clock, you can’t wait 10 years – you’ll be in your mid-40s,” she said.
As for becoming a homeowner, Schlesinger said she doesn’t think Linda is financially ready until she makes a dent in her $US104,000 student-loan balance.
“You are not buying a house right now. It will feel like you are drowning,” Schlesinger said. “To me, it’s too risky for you to take on this thing called a mortgage.”
Homes in the San Francisco metro area have a median selling price of $US773,800, according to Zillow. A 10% down payment on such a home would yield a monthly mortgage payment of between $US3,300 and $US3,700, according to SmartAsset’s mortgage-rates calculator.
Find out how much you could be paying monthly to own a home in your city:
Linda said she already had about $US124,000 saved for retirement, $US5,300 in cash reserves (her emergency fund), and about $US3,000 invested in stocks, so Schlesinger suggested focusing on debt repayment and building up the emergency fund to get her financial house in order.
“You should not be investing outside of retirement right now,” Schlesinger said. She advised taking the $US3,000 to “immediately pop that right down on your highest-interest school-loan debt.”
Paying off debts with the highest interest rates first is known as the “debt avalanche” method, whereas the “debt snowball” method prioritises paying off small debts first. Either debt strategy can make a difference in your financial situation.
By renting, Schlesinger said, “you’re not throwing money out the window – you’re buying flexibility, you’re buying opportunity.”
“That’s how you have to think about it,” she said.
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