Should I Pay My Wife's Student Loan Debt

Should I Pay My Wife's Student Loan Debt

This month my fiancée and I are finally getting married! It's been a long time coming and I want to ensure we start off our new life on the right foot.

Neither of us have really been financially irresponsible so to speak. My fiancée has a significant amount of student loan debt but quite frankly it was the only way she could pay for her degree.

We both have decent paying jobs, she's a nurse at our local hospital and I am a federal employee.

The only other debt we have outside her student loan is one credit card. We have been using it to finance some of the wedding expenses we normally wouldn't occur on a monthly basis.

I'm excited for "her" and "my" money to become "our" money. I just want to make sure we're doing things the right way as we start out. Would it make sense for me to take out a TSP Loan in order to help out our financial situation?

Current Situation

TSP Portfolio Balance: $26,000

Debt: 

  • Student Loan - $40,000 | 4.75% (minimum payment = $258)
  • Credit Card 1 - $3,700 | 17.99% (minimum payment = $148)

Current Debt Total: $43,700

Current Monthly Payment Towards Debt: $406

  • Current debt payoff timeline: 20 years
  • Total Interest Paid: $24,207

Leftover Cash Monthly: $75

Is A TSP Loan Worth It?

The main argument against taking money from any retirement account to payoff debt is...

"By taking money out of your account you are now losing money in the stock market"

While this is a generalization, it is important to note it is a valid argument. We believe it's worth exploring a little more. The stock market averages between 8-10% annual returns. So hypothetically speaking, the money taken out of your TSP account in order to fund your TSP loan could have been earning 8-10%. Here's an example...

A TSP loan of $3,000 | 1.875 with a 12 month term will effectively have an opportunity loss of $240-$300.

Knowing this, the question then becomes "Does the debt payoff and total interest payments saved make good financial sense?"

Plan of Action

TSP Loan Recommendation: $3,700 | 1.875% (monthly payment = $225)

  • Payoff Credit Card 1
  • Loan Term = 17 Months
  • Total Interest + Fees = $100.75
  • Opportunity Loss In Stock Market = $419 - $524

The Benefit: TSP Loan | Current Situation

  • Total Interest & Fees: $100.75 vs. $2,091.63
  • Loan Term: 17 months vs. 121 months

Continue Paying:

  • Student Loan - $40,000 | 4.75% (minimum payment = $258)

Given this particular situation, using a TSP Loan makes complete financial sense.

By taking a TSP Loan you will eliminate $3,700 worth of debt in less than 2 years which will then allow you to free up $225/month to put towards your student loan debt.

Remember, it's an absolute necessity that you understand this process is neither quick or easy. A TSP Loan is not an easy way out of debt, it's simply a tool. If used correctly, it will help you accomplish your goals of being debt free quicker than traditional methods of paying off debt.

Develop your debt plan, execute, and stay fully committed.

Here's to our wealth!

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