Save or pay off debt - What should we do?

We have one educational loan and a home loan at present. My husband is the sole earning member of the family. As such, the maximum portion of the income goes toward payment of the debt. So, we are thinking to stop making payments. This way, we will be able to save minimum $150,000 in the long run. We can contribute that money towards our retirement account. What do you say about this?

4 Answers

Save 150,000 in the long run?  Are you kidding?  Your thinking of wrecking your credit for that.  150k isn't enough to retire on anyway.  I don't know about educational loans, whether or not the creditor will come after you.  Regarding the mortgage, don't default unless you absolutely can't pay it or your house is worthless now.  If you let it go into foreclosure, the bank won't go after you, but in a short sale, there are ways they can, so don't do a short sale.  However, if you pay off the house, that's one huge burden you won't have in retirement, so don't default.  Furthermore, your house may make back its value in the next 10 years or so, so if your not retiring anytime soon, your house will be your most lucrative investment.

If you default, at minimum, your credit scores will drop and no one will give you credit.  Then you'll spend the next few years fighting off debt collectors.  Any credit cards you have, will be frozen or cancelled...not having a credit card is actually hard.  I make many purchases online and a credit card makes that possible.

Find ways to make more money AND not spend so much.  Maybe you could get a part time job that works with your schedules for extra money......and save it!

Is one of your debts a Student that what you mean by "educational loan?" Well.. (from experience) don't stop paying on the "educational loan. If it is a student loan, and you stop paying on it, then it will go into 'default'. I've had that happen to me...and it took almost the 'act of God' to get the loan out of default. Don't stop paying on your house payment, either. If you can, (I do this and it helps..) take 5%-10% of each paycheck (if you can) and put it in a savings account. That way it can grow. I know that doesn't seem very much, but, you'll be surprised. I'm a single parent, with low income..that REALLY helps me when I do that. Hope this advice helps a bit.

Both are important. The best option will be to make payments on debts and save money for meeting your short, medium and long term financial goals. So, I would suggest you learn good money management skills. Set a side a ceratin portion of the income for necessary expenses - grocery bills, utility bills, mortgage, debt, etc. Save the remaining amount. Another thing, you should start working. This will help to boost your income.

If your creditors sue you in the long run and obtain a judgment against you, they may garnish your bank account. Also think of the interest and other associated charges that are gonna get added with your original debt.

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