I'm a longtime lurker, and I'm very grateful for all of the knowledge I've gained from reading these boards. I know there are quite a few threads already on the topic of investing vs. paying down debt, but I'm still struggling with choosing the right course of action in my case. So with apologies for starting yet another thread on this topic, here's my basic financial info:
Emergency Funds: 6 months expenses
Debt: My student loans are slightly over $150,000 all at fixed rates ranging from 5% to 7.8%, with a weighted average of 7.6%. Spouse's student loans are nearly identical, so a total of $300,000 between the two of us. No car loans, no credit card debt, and we rent, so no mortgage.
Tax Filing Status: Married filing Jointly
Tax Rate: 33% Federal 6% State (It looks like we'll also be subject to AMT in 2012.)
Age: 28
Neither of our employers offer a 401k match.
My question is which of the following options would you recommend:
A) Each contribute the max $17,000 to our 401k's and put whatever is left over to the loans. If we do this, I estimate that we would pay off the loans in about 9-10 years.
B) Put everything we can toward the loans and skip retirement contributions entirely until the loans are paid off, which I estimate we could do in about 5 years.
I know that the standard advice is to pay off any high interest debt before starting to invest. But does that advice change if we're facing a 39% federal+state marginal tax rate? Just from a psychological point of view, my preference would be to pay off the loans as quickly as possible, but I'm also nervous about the idea of not starting to save for retirement until age 33 or later. There could also be an option C, which would be contributing a smaller amount to the 401k's (maybe $2,000-$5,000 each) and everything else toward the loans as a compromise.
Thank you in advance for any advice you can share.
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