Originally Posted by bank5
This is the approach I'm taking:
1. Max out tax deferred accounts
2. Pay off debt
3. Invest in
BMW taxable accounts
I'm doing something similar, but a little different:
1. max out tax deferred accounts
2. made sure the emergency fund was increased to 12 months
3. splitting the rest more or less equally between:
(a) taxable investments and
(b) paying off debt (student loans and mortgage)
Brewer and the rest of the guys (and gals) advocating investing instead of paying down your 3% student loans or your 5.25% mortgage are more than likely correct from a financial perspective. But there's an emotional benefit to being debt-free that is different for different people, so I understand the desire to pay down your debt.
What I've done is basically hedged my bets and split my extra savings between debt repayment and taxable investments -- that way, no matter what the "right" answer is, I'm only half-wrong.
As to whether to repay the mortgage or the student loans first ...
Until recently I would have been in favor of paying down the mortgage first, because that's securing your home, presumably something you need and wouldn't want taken away from you. Also, the interest rate is higher.
However, given the way our government is manipulating the housing markets, and given the implosion in the value of housing, I'm much more skeptical that there is much benefit. After all, if you truly hit hard times you can look to Uncle Sam for a cramdown, bankruptcy protection, or if you're in the mood you can just quit paying your mortgage and live mortgage free for 2 years until the bank finally gets around to foreclosing on you. Home mortgages have become responsibility-free liabilities, courtesy of Uncle Sam. So I see little benefit is being a responsible sucker and paying it off early.
Student loans can never be discharged in bankruptcy and there is no government "cramdown" for a student loan (although, I hear lots of whinging out there, so stay tuned!).
So whatever funds I'm applying to debt repayment, I'm using to knock out the student loans for now.
Edited to add: I'm only actually paying down debt if the interest rate on the debt is higher than what I can get in a FDIC-insured savings account or CD. Given the very low interest rates available in savings accounts / CDs right now, I am in fact paying down debt. But previously, the money I've used for "debt repayment" has actually gone into a dedicated savings account / CD at a higher interest than the debt, i.e. a dedicated "loan payoff fund". So long as the loan payoff fund was earning more interest than the loan it was designated for, I left the money in there; but recently as interest rates have dropped, I actually started paying down the debt.