A lot of the financial ‘people’ who give advice for this kind of stuff will generally advise an order of how to do things.
Dave Ramsey would say, keep a $1000 emergency fund, and then bust your butt to pay off every debt THEN you do your 6 month emergency fund.
Money Guy suggests, Put enough aside to hit all your deductibles, get your employer match for retirement, High Interest debt, THEN emergency funds.
So really the question boils down to interest rates. You’re paying about 4-5k in interest on that about loan, A calculator suggests that’s about 7% which is on the cusp of high interest loans where you should pay off first.
The thing is you’re capping your retirement growth at 7% for 5 years. Depending on how the market does if it goes up 30% then you’re stuck only getting 7% that you’re paying yourself back..
For perspective the last 5 years have been:
- 2018 -4.4%
- 2019 31.5%
- 2020 18.4%
- 2021 28.7%
- 2022 -18.1%
If you had taken this loan out 5 years ago, that’d be 3 years where you had lost a huge window of growth. (I pulled it up that 24k would be worth 38.136k today, whereas 475*60=28.5k that’s a loss of 10k of potential dollars) Obviously past performance does not guarantee future success.
Also, this traps you in your job until it’s paid off. If you get laid off or want to leave your job, you’re stuck until that loan is paid off.
I’m not a financial advisor and seeing one is important for big decisions, but if I were in your shoes as a random guy on facebook. I’d probably do something smaller like 1 month of expenses, attack the 403b loan, then build up your emergency fund.
Plus your Emergency fund is a CD is only going to get 4-5% while you’re losing 7%
The point of things like Ramsey’s plan of small emergency fund until you pay off debt is that you should be scared of having this debt over you, it traps you in your job until you pay it off. Now I don’t think rice and beans and 3 jobs until it’s paid off is a life I’d want to live, it is never-the-less effective.
