The property ended up not being delivered, and now – after almost 10 years – won a case in court and will recover almost 300% of the amount initially invested. Another detail is that I used public transportation until I was 30 years old, and only then bought a car – paying in cash. So, I saved on interest. The apartment where I live now was paid in part by fewer parents with bank financing. I managed to settle the debt using some of the money I’d saved, and this debt must be paid in 20 years.

In short, today I have a good financial reserve, which allows me to be calm and not depend on an employer, who could dismiss me at any time (and have people calling steady job security). According to my experience, I would give the following advice to young people:

- Maintain a simple lifestyle, and save as much as possible without giving up small pleasures. Enjoy the youth with caution;
- Do not buy a car if you are not able to afford to be seen. Use public transportation, and meanwhile save money to buy the car in future
- Do not enter into financing long (mainly property). If you can, invest in a property under construction, because they are cheaper and much faster value
- Do not waste your time watching TV programs or unnecessary spending their time idly. Enjoy all the free time to learn new skills that will bring more money.

Hugs
Alex Dantas

1. I paid off the $15k Student Loan 1 (6.5% interest)
2. I now have a reduced $10k in Emergency Savings
3. I established a Home Savings Fund
4. I did not take another $401k loan out to pay off the higher interest rate Student Loan 1; as I mentioned in #1, it was paid in part by my $30k savings. My rationale for potentially taking 401k loan to pay Student Loan was because the interest was higher on Student Loan and the interest on 401k loan goes to pay yourself. There are some notable consequences with doing this but I won’t elaborate.
5. I backed down my retirement contributions (we did max 401k, now we will only do 1/2 max 401k) to focus on: a) paying off the 401k debt, b) paying off Student Loan 2, and c) saving for home. This is touchy subject, but I did make the call to focus efforts on (c) home saving versus debt reduction, however my opinion might change. This is an tactical execution move that contradicts all out debt reduction, but it is right for us.
6. Our net income is significantly less than gross due to HSA funding, taxes, retirement, health/disability insurance, etc., but yes we should be able to put $4k toward goals.

I appreciate your comments and the zeal in which it was provided. Thanks guys and keep up the good work.

Mike

But, based on the information you’ve provided, here are my 2 cents. Since the only debt you’ve mentioned is the 401k loan and the student loans, I’m assuming these are the only debts you have (no loans for cars, boats, motorcycles, etc.). These are just my thoughts and are not necessarily my advice to situation. I’m just thinking out loud and trying to provide a different perspective.

You mentioned having $30k in savings, while about $5k is in HSA funds. Assuming the remaining $25k is liquid, let’s consider part of this your emergency fund.
But while you are paying off debt, you probably don’t need an emergency fund that large. Even if the emergency fund was only $15k until the debt was paid off, you would still have $5k/month for three months—or $2500/month for six months—in the event of an emergency. So, if you took $10k from the liquid savings and paid it toward the 401k loan at the beginning of next month, the balance would then be only $5k. You make enough money (grossing roughly $13k+ per month!) to make another payment ($5k) the following month to have the 401k loan completely paid off. These numbers are examples. Maybe you want to play it more safe by only putting $7,500 toward the loan on the first month keeping your emergency fund at about $17,500), then another $7,500 the second month. Not knowing what your other expenses are it’s hard for me to say what you would really need. But since your rent is only $1200/month, I can’t imagine your monthly expenses for rent and ACTUAL necessities is all that much. My rent payment is similar to yours and I have no other debt, so it’s easy for me to ballpark what amount I need in my emergency fund. But everyone’s situation is different. If you maintained an emergency fund of only $1000 while paying off debt (like Dave Ramsey suggests), you could pay off the 401k loan in one fell swoop and pay about $9k toward the student loans…leaving you with only $31k remaining.

The basic idea is this…Once loan #1 is paid off, the idea then is to combine the payment you were making on loan #1 with your payment you are making on loan #2 and pay loan #2 off faster than you were before. Then, combine payments from loans #1 & #2 to pay off loan #3, etc., etc.

When I read your post, I was curious why you would consider taking out an additional 401k loan to pay off an existing loan. I would absolutely AVOID taking out another loan. In every scenario (except maybe a mortgage, if you’re careful), the loan is the problem, not the solution.

Dave Ramsey teaches people how to make a plan to get out of debt and stay out of debt. So the immediate goal here is to get out of debt. Thereafter, the goal should be to build and maintain your emergency fund and stay out of debt by paying cash for everything. You and your wife are making a fantastic income together! It’s time to make your money work for you and not hand it over to the lender. The way I see your situation, you could be out of debt by June (including the student loans) and rebuild your emergency fund to a comfortable amount and still maximize your retirement contributions for you and your wife…all before the end of the year. You have the means to do so. You just need a plan! And you sound motivated; otherwise, you wouldn’t have posted your questions. It’s time to get excited about financial freedom!

Maybe you should take the Financial Peace University course. Me, I listened to all of Dave’s cd’s and I regularly listen to his podcasts which you can learn a lot from. The podcasts are free to listen to on his website and are updated almost daily. Once you and your wife sit down and make a plan to pay off the debt, which you both must agree on, you then just have to follow through. But paying off the loans will take a heck of a lot longer without a new plan/budget for financial freedom. So, start there and you can’t lose!

That said, if I were in a similar situation, I would focus on paying off the 401k loan first, as those can have negative ramifications if you don’t pay them off – such as taxes and penalties, as well as missed investment opportunity. Here is more information about 401k Plan Loans.

1. My wife and I have $40k in student loans ($25k at 3.25% and $15k at 6.5%)
2. I have a 401k loan of $15k at 3.25%
3. We have $30k in savings, $5k of which is in HSA accounts.
4. We have $185k in retirement funds (401ks, Roths, Rollovers)
5. We are both employed, grossing around $160k/yr.
6. We are renting on the cheap ($1,200/mo.) and desire a home as soon as possible.

There are 3 Questions I have:
1. Should we pay off the student loans and the 401k loan as #1 priority (like right NOW, as in some suggest post establishment of an emergency fund of $1k)
2. Should I simply let this debt ride (as others suggest since it is not “bad” debt)?
3. Do I take out another 401k loan at 3.25% to pay the higher rate student loan?

Your opinions in these areas to help me would be very much appreciated.

Thanks much,
Mike

Jessica