Should I Pay Off My Future Fiancé's Student Loans? - Part 2

Dear CMR,

I have been dating my girlfriend for five years, and I’m getting ready to propose. She has taken out loans to pay for grad school, but I have a nest egg I can use to pay them off now. If we are getting married in 1.5 years, should I pay off her school loan now or wait until we are married?

Signed,

Avoiding Debt

Dear Avoiding Debt,

Just about every semester, I have a student tell me that they have a decision to make regarding their tuition. Usually it’s an unexpected inheritance, sale of an appreciated asset, or perhaps a work bonus that they have received where they have extra money. The students will almost always ask, "Do I pay off all of my debt now or do I save and invest some?" I will always suggest the following considerations.

First, create an emergency fund of at least $2,000. This fund can be used with those immediate emergencies that life seems to generate. I’m not talking about the great deal you found on eBay. I’m talking about the real emergencies that life seems to throw at us. You need to have some funds available so emergencies don’t automatically go on your credit cards or throw you into a tailspin.

Second, work to save at least a month’s expenses and preferably three to six months of expenses. This will ensure that when those big life changes happen you won’t be caught off guard.  As newlyweds you will want to be prepared for a successful marriage.

Third, you need to think carefully about the best use of your money. What are the interest rates of my debt vs what kind of a safe return can I get on the investment of my money. Most education loans have some of the lowest interest payments you can make so research loans and investments carefully. Please hear me, I’m not pro-debt and I believe that all of our debt should be paid off as quickly as possible so that when God calls us as stewards we are free to move! However, in this very unique season of low interest rates you should also consider the strategy behind paying off your debt. Can I make more in a secure investment (with regular debt payments) than paying off my debt all at once? You may be surprised at the answer to that question for you.      

Remember, when you get married, and I trust you will, the future is uncertain! Concerns and costs such as housing, jobs, geography, and the wedding itself are all elements that you can only project at this time. Be money-wise in the decisions that you make now. As a married couple, prepare for the future and you will both be happier in the long run.