Between my husband and I, we have student loan payments and one car payment as our only debt.  We are both putting money away (TSP, IRA) for retirement and we are saving each month for our emergency savings. Each month we pay an additional $200-300 towards the student loan payment (on top of the minimum due). The car is a five year loan with a 1.99 interest rate and as of right now we are only paying the regular loan payment each month. The extra amount that we are applying towards the student loans, should we apply that towards the car payment to pay that off quicker than the five years? Eventually my husband is going to need a new car and our goal is to only have one car payment. I feel like the student loans will always be lingering!


Thank you in advance,

Sarah C.


What are the interest rates on your student loans? I am guessing they are likely higher than the car loan. If so, the best option numbers-wise would be to pay them off first.


That said, I would recommend considering used cars in the future and/or saving cash for the next car so that you don't have to have an auto loan in the future. We just paid off our car loan a few months ago and it feels so good. When talking about it we agreed that we didn't want to be carrying that type of debt around in the future, so personally our next car is going to be used. Let someone else pay for the first couple years of depreciation!

I would recommend reading The Total Money Makeover and/or attending Financial Peace University to get your answer to this question and others regarding how to effectively handle money.  Dave Ramsey teaches a stepwise approach that is effective and proven time and time again. Radically, changed our life as it relates to money. 
In a nutshell, stop your investtments.  Create an emergency fund of 3-6 months, pay off all your non-mortgage debts (smallest to largest), restart retirement savings, save for college, pay off your house.  All in that order. 

I listen to Clark Howard A LOT, and his first question would be... Are your student loans private or federal? If mostly federal, you should be able to take advantage of the government pay as you earn program. You pay student loans based on how much you make, and depending on your profession, you could be due for total loan forgiveness by your 10th or 20th year after graduation. So, by paying extra you are really paying down loans you may eventually be forgiven on. That being said, if your loans are private.... Forget everything I said and get those loans PAID ASAP!

As others have mentioned, paying off the highest interest rate is usually key, unless you have a loan or credit card bill that is closer to being totally paid. Sometimes the psychological wellbeing of knowing you have SOMETHING paid off completely is wonderful, and can push you to keep up on paying down the loans.