Q: I have a student loan balance of $3,500 at a 3% interest rate/$82 a month. My husband and I have over 10k in savings and are trying to decrease our monthly spending so I can become a stay-at-home mom. Should we pay off the loan in full or continue paying monthly?
Investing for your future is a critical life-task. It is your money and you should understand the decisions being made by your financial advisors. At CIA, we make every effort to educate our clients on our investment strategies and approaches so you believe in the ideas as much as your advisor does.
We typically would like for you to not decrease your savings below a 6 month cash reserve. A cash reserve can help you manage your financial needs during an unexpected crisis. This cash reserve is defined as 6 months of absolutely necessary living expenses including rent/mortgage, utilities, gas, car payments, insurance, food, etc. Once you determine what this 6 month number is, you can throw all additional cash and monthly cash flow towards the balance of the debt. To build your cash reserve, take advantage of smart cash management strategies like systematic saving. Divide your cash reserve into three tiers to achieve the right balance of return and liquidity. We would recommend that you continue working even just for a short while until you got your cash reserve to a reasonable level and then paid down this debt. Take a look at this savings hierarchy to give you some more of an idea:
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