Dear Helaine: My husband and I are expecting our first child in November. Currently, our only debt includes his vehicle loan, our mortgage and his student loans. We both have healthy salaries and currently live comfortably while making our monthly payments.
My question is, when it comes to extra money we receive from bonuses, tax refunds, family and the like, should we put that money into savings or toward paying down our debt? Obviously, the liquidity of savings is nice, especially with a baby. I am estimating that with child care and making payments on the debt, there won't be much left over. And debt makes me CRAZY. Hence, no credit card debt for either of us.
Is the amount of debt we have "healthy," or should I be concerned and working to pay off these debts ASAP? -- Tired of Monthly Payments
Dear Tired of Monthly Payments: First, congratulations on the baby! She or he is going to change your life. A lot. Mostly for the better -- unless you count your personal finances, that is.
That number the federal government puts out, the one saying it costs more than $200,000 to raise a child in a middle-class family to the age of 18, is not a joke. Child care is just the start of the expenses. There are clothes and equipment to buy, and medical bills to pay, and birthday gifts to buy for all the parties your child will be invited to and so on. Moreover, that six-figure sum doesn't even include college.
My suggestion: Don't make any radical readjustments to your finances yet. See how you manage your money when you are out on maternity leave, and then when you return to work and need to pay for child care. I would hate to see you pay down some of these bills only to run up credit card debt.
As for whether you should tackle the debt if it turns out your finances are just fine with the new addition, if you have three months' emergency savings for a family of three set aside, and you and your husband are investing adequate money in your retirement accounts -- I mean at least 10% of each of your own gross incomes -- then yes, you can tackle this debt. I'd start with the highest-interest loan first and work your way down from there. Good luck!
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