Pay off Debt or Save for Retirement

by Andy Hough on January 13, 2008

This is what I’m deciding right now.   I’d like to max out my IRA contribution for 2006 but I’m not going to have enough money to do it.  Since I’ll be going to school all year this year and the max IRA contribution will increase $1000 for 2007 it is unlikely I’ll be able to max out my IRA for 2007 either.  I’d also like to pay off my Grad Plus loan that currently has an interest rate of 8.75%.  If I were able to pay this off all my student loans would be Stafford loans with a fixed interest rate.  Paying off the loan would require quite a bit more money than maxing out my IRA so I’m not going to be able to do that either.

I’m just wondering if I should concentrate on one and let the other slide for now.  If I pay off my student loans over 30 years I’ll be 71 when they are paid off.  Obviously I can’t wait to save for retirement until after my loans are paid.   I do plan on paying them off early but I don’t want to do so at the expense of my retirement savings.  I suppose my main problem right now is I just don’t have enough money to make significant headway on either goal. For now I’m going to continue making small contributions towards my IRA and use any extra money to pay down my debt.  Once I’m out of law school and making decent money I can make a better plan.

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