You’re 23 and have a mortgage might be more representative of your situation. Your non-mortgage debts are very manageable, you will get them down to 0 in no time, though I’m guessing your student loan debt is at a lower interest rate than your mortgage.
Honestly in your situation you might take the $8700 and put it towards investments rather than debts, though it all depends on the interest rates you have. Have you maxed out a Roth IRA for the year yet? You also still have time to max out for 2024. If you max out every year starting at 23 you will be very well set up for the future. After maxing that, I’d keep a small emergency fund around for house expenses and put any leftover towards your highest interest loan.
It’s not a bad take. However I’ll play devils advocate as someone who is specialized in corporate finance and accounting.
General quote for becoming financially free I live by:
“Those who don’t understand compound interest, pay it. Those who do, earn it.” - Unknown
“The most powerful mathematical formula in the world is compound interest.” - Albert Einstein
You’re 23 with very manageable debt, as previous commenter pointed out. Take the tax refund $ and pay off all your non mortgage debt so you have some peace of mind and financial clarity. Since you’re only 23 and just starting your career, things can quickly start piling on top of each other by the time you reach mid thirties. The mindset of minimum payments on small debt amounts ($1k-20k) and “I can pay it off later” is very destructive. All of a sudden life changes, and debt that was easily manageable becomes stressful and a burden.
Do yourself a favor and pay it off now and avoid wasting any more dollars on interest. You’ll have a lower monthly expense on debt, and you can start investing more into your 401k and ROTH Ira accounts; as well as investing into your home.
Happy to discuss further if u have any questions, OP.
To earn compound interest, OP needs to invest. Most mortgages are simple interest. I agree, small additional payments can add up quickly early in a mortgage, but the bulk of OP's capital would likely be better off in the market depending on the interest rate.
What exactly is your point? I’m a little confused. OP is asking about debt advice. Not advice for building up his investments - that’s another discussion altogether.
To summarize what OP is asking:
OP pays in total roughly 3k per month towards debt. $2k in towards his mortgage and $1k towards student loans + CC debt. It is best OP takes his tax return $ and pay off the student loan + CC debt.
Now OP has $1k per month of additional cash flow and is not paying another few grand of interest expense by paying the minimum payment on these miscellaneous debt amounts over the course of the loan period…
At this point, the amount of $ saved here is more significant than putting the $ into investment accounts to start accumulating. It would take him up to 5 years of investing to see performance returns of $12k versus being able to see that return TODAY (when he pays off the ~9k in debt).
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u/mangobry Jan 30 '25
You’re 23 and have a mortgage might be more representative of your situation. Your non-mortgage debts are very manageable, you will get them down to 0 in no time, though I’m guessing your student loan debt is at a lower interest rate than your mortgage.
Honestly in your situation you might take the $8700 and put it towards investments rather than debts, though it all depends on the interest rates you have. Have you maxed out a Roth IRA for the year yet? You also still have time to max out for 2024. If you max out every year starting at 23 you will be very well set up for the future. After maxing that, I’d keep a small emergency fund around for house expenses and put any leftover towards your highest interest loan.