I'm 38 years old, and I've got $12,000 in student loans still hanging over my head. It's the only debt I have. I make $30,000 a year, and I've managed to save $12,000, but I'm also driving a junky, old car that will have to be replaced soon. Should I split the money I've saved and buy a $6,000 car while paying off $6,000 of the student loan?
If I'm in your shoes, I want that student loan out of my life as quickly as possible. At the same time, I don't want you living life without some money in the bank.
If you've followed me for very long, you know I teach the Baby Steps when it comes to getting out of debt and saving money. Baby Step 1 is to save a beginner emergency fund of $1,000. Baby Step 2 is to pay off all debt, except for your home, using the debt snowball method. The third Baby Step is to build a fully funded emergency fund of three to six months of expenses.
You don't have quite enough on hand for your idea and to have something left over. I recommend paying off $11,000 of the school loan now and then finishing it up as you go. It won't take much more time. Limp along in the beater for a little while longer and then, when you have no student loan debt, finish your emergency fund and start a car fund.
I talk to a lot of people your age who still have student loan debt. But you have the opportunity to punch its lights out in a hurry. If you pour on the coals, you should be able to save money and get a better car in just a few months!
Dave Ramsey is America's trusted voice on money and business, and CEO of Ramsey Solutions. He has authored seven best-selling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 12 million listeners each week on 575 radio stations and multiple digital platforms. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.