Although due to volume, I can't personally answer all my mail, I occasionally pull together questions sent to me about recent columns. Here are my answers to readers on three topics I'm asked about frequently: student loans, veterans benefits, and the size of an emergency fund for someone who is retired.
Q: I have no consumer debt, do not own a house, and have about $24,000 of student loan debt remaining. I make about $80,000 gross per year. I want to be totally debt-free before looking to purchase a house. Would you recommend paying off the debt first?
A: During a recent online discussion, I advised a new college graduate to aggressively pay down his student loans. When I give such advice, someone always second-guesses me. On Twitter, one person said: "Only pay down the loans expeditiously if the net interest rate exceeds your rate of investment return #duh."
What the folks in the keep-the-debt camp don't take into account is risk. I view debt from the prism of a potential job loss, illness or some other disruption in income. What if you lose the money you are investing that instead could have been used to retire your education loans?
You'd have to figure out how to keep making the loan payments when you don't even have enough money to cover your expenses for essentials such as food, utilities or transportation. But if you have no debt, you can more easily weather the economic storm.
So when I answer the questions about aggressively paying off student loans, I generally say a big fat yes. And it doesn't matter to me what interest rate you have. If you don't have income, even a zero percent loan is still debt you can't afford. If you pay off your student loans as quickly as you can, you are removing risk from your balance sheet. It's a great and sensible goal to be debt-free before buying a home. And oh, what a feeling you will have to walk into your new home with that burden off your shoulders.