How should we prioritize retirement savings, paying down debt, and saving for a house?
It all depends on your priorities, but if it were me I'd work to get rid of that debt as your first priority based on a few factors: I might shift towards the house if you think you can save enough to avoid PMI, as the total savings would probably be more in aggregate if you plan on buying a house anyway with less than 20% down. Of course, all this is lower priority than funding your retirement at least up to the tax advantaged and/or employer matched maximums, but it sounds like you have that covered. "The advice to pay off near-7% debt is tough to argue against. That said, I'd project out a few years to understand the home purchase. Will you plan for the 20% down John recommends? The Crazy Truth about PMI can't be ignored. The way the math works, if you put 15% down, the PMI costs you so much, it's nearly like paying 20% interest on that missing 5%.  If your answer is that you intend to save for the full downpayment, 20%, and can still knock off the student loan, by all means, go for it. I have to question the validity of ""we will definitely be in a higher tax bracket when we retire."" By definition, pretax deposits save tax at the marginal rate. i.e. If you are in the 25% bracket, a $1000 deposit saves you $250 in tax that year. But, withdrawals come at your average rate, i.e. your tax bill divided by gross income. There's the deductions for itemized deductions or the standard. Then 2 exemptions if you are married. Then the 10% bracket, etc.  Today, a couple grossing $100K may be in the 25% bracket, but their average rate is 12%.  I read this Q&A again and would add one more observation - Student Loans and Your First Mortgage is an article I wrote in response to a friend's similar question. With the OP having plan to buy a house, paying off the loan may be more costly in the long run. It may keep him from qualifying for the size mortgage he needs, or from having enough money to put 20% down, as I noted earlier.  With finance, there are very few issues that are simply black and white. It's important to understand all aspects of one's finances to make any decision. Even if thee faster payoff is the right thing, it's not a slam-dunk, the other points should be considered." Pay the debt down. Any kind of debt equals risk. No debt equals no risk and a better chance to have that money earn you income down the road once it's invested. That and you will sleep so much better knowing you have ZERO debt. You 6 month emergency fund is probably good. Remember to keep it at 6 months living expenses (restaurants don't count as living expenses).
Its very silly of you to have house savings while you have these debts.  Your total (listed) debt is 1657, with a savings of 2000, and a tax refund of 985.   I'd be done with the Apple loan and CC tomorrow.  Does that accomplish the goal of making a significant difference in your debt?  Yes it does. This will leave you with 1328.  I'd keep 500 or so in an emergency fund, and put the rest to the car.  Although 828 will not help much with the car it would probably knock a month off.   Next work like crazy to pay off the car.  Get a second job or work overtime. Then save a emergency fund of 3 to 6 months of expenses as if you already owned the house.  I would tend to go on the high side as I suspect you are single. Only then does it makes sense to save for a down payment.   Although it is an American institution, the book The Millionaire Next Door might be helpful for you.  Your most powerful wealth building tool is your income.  When one handicaps that tool with payments and exorbitant lifestyle choices you greatly reduce your ability to become wealthy. These amounts are so small, you should just knock them out. In general, saving money should be prioritized over extra debt payments. Every dollar that you spend paying down a debt will decrease the amount of principal owed; this will directly decrease the future interest payments you will make. However, as time goes on, you are dealing with a smaller and smaller set of principal; additionally, it is assumed that your income will grow (or at least keep pace with inflation), making the debt more bearable. On the other hand, every dollar you save (or invest) now will increase your future income - also making the future debt more bearable. Not only that, but the longer you save, the more value to you get from having saved, meaning you should save as early as possible. Finally, the benefits of paying down the mortgage early end when the mortgage is completely paid off, while the benefits of saving will continue (and even grow) after the house is owned free and clear.  That is, if you have an extra $100,000 to put into the mortgage during the life of the loan, you could sink that into the mortgage and see it disappear, or you could invest it, and reap the dividends for the rest of your life. Caveat emptor: behavior trumps numbers. This only works if you will actually be disciplined about saving the extra money rather than paying off debt. If you're the kind of person for whom money burns a hole in your pocket until you spend it, then use it on debt. But if you are able to save and invest that money, you will be better off in the long run. Here is another way to look at it. Does this debt enable you to buy more car than you can really afford, or more car than you need? If so, it's bad debt. Let's say you don't have the price of a new car, but you can buy a used car with the cash you have. You will have to repair the car occasionally, but this is generally a lot less than the payments on a new car. The value of your time may make sitting around waiting while your car is repaired very expensive (if, like me, you can earn money in fine grained amounts anywhere between 0 and 80 hours a week, and you don't get paid when you're at the mechanic's) in which case it's possible to argue that buying the new car saves you money overall. Debt incurred to save money overall can be good: compare your interest payments to the money you save. If you're ahead, great - and the fun or joy or showoff potential of your new car is simply gravy. Now let's say you can afford a $10,000 car cash - there are new cars out there at this price - but you want a $30,000 car and you can afford the payments on it. If there was no such thing as borrowing you wouldn't be able to get the larger/flashier car, and some people suggest that this is bad debt because it is helping you to waste your money. You may be getting some benefit (such as being able to get to a job that's not served by public transit, or being able to buy a cheaper house that is further from your job, or saving time every day) from the first $10,000 of expense, but the remaining $20,000 is purely for fun or for showing off and shouldn't be spent.  Certainly not by getting into debt. Well, that's a philosophical position, and it's one that may well lead to a secure retirement. Think about that and you may decide not to borrow and to buy the cheaper car. Finally, let's say the cash you have on hand is enough to pay for the car you want, and you're just trying to decide whether you should take their cheap loan or not. Generally, if you don't take the cheap loan you can push the price down. So before you decide that you can earn more interest elsewhere than you're paying here, make sure you're not paying $500 more for the car than you need to. Since your loan is from a bank rather than the car dealership, this may not apply. In addition to the money your cash could earn, consider also liquidity. If you need to repair something on your house, or deal with other emergency expenditures, and your money is all locked up in your car, you may have to borrow at a much higher rate (as much as 20% if you go to credit cards and can't get it paid off the same month) which will wipe out all this careful math about how you should just buy the car and not pay that 1.5% interest. More important than whether you borrow or not is not buying too much car. If the loan is letting you talk yourself into the more expensive car, I'd say it's a bad thing. Otherwise, it probably isn't. It's pretty simple. The 10% is any savings for retirement.  Preferably, it's in a retirement account, but that's not mandatory. It's great that you save for a vacation, computer, house deposit,etc, but that's not what these articles are referencing.  Edit (in response to the running comments on @BrenBarn's answer) The mortgage issue is worth further discussion. I'm saving toward a home purchase, it may be $50K saved. But that's not money for retirement, the house savings never is. I get the $200K mortgage, my balance sheet is net neutral (less fees, closing costs, of course) but my retirement savings again is unchanged. I put $10K toward principal, the balance sheet again is $10K better, but retirement account, unchanged. Last, I pay off the mortgage. Retirement account unchanged. But, my retirement budget requirement is $1000/mo less (The mortgage payment), and my 'number' drops by $300K or so. (This is based on the 4% rule. To withdraw $1000/mo requires $300K in retirement assets.) It may seem pedantic, but there's an important distinction to be made here. It's easy to distinguish retirement savings from all other wise financial transactions. Paying debt off is wise but not retirement savings. Any actions that reduce your ongoing expenses? Clearly, wise. And it reduces the number needed to cover your retirement budget, but it's distinct from 'retirement savings.' For those that enjoy the intellectual exercise of insisting there's always a grey area, I'll give it to you. The family with 3 kids, in the $1.2M 5 bedroom house. The parents know they will move into their paid off summer house upon retiring, and sell this family house. In his wisdom, hubby has planned for the mortgage to be paid in full well ahead of retirement, and for purposes of planning, only view the house as worth $900K. The house does have a relationship to the retirement savings. But the action of planning for Alice's retirement (the maid they will no longer need once they move) is not savings, but rather, an adjustment down in their retirement budget.  I think you'll find most conflicts regarding this issue resolved by understanding this distinction. "It can be difficult when all your disposable income is spoken for.  Your options depend on how good your credit is and how flexible your expenses are.  I don't have all the answers without more details (possibly not then).  However, couple of points of advice: Paying off that credit card debt (and not adding any more to it) is your #1 priority.  You should make minimum payments to every other debt until you have done that because the interest on it will kill you in the mean time.  It is always optimal to pay the maximum to your highest interest debt and minimum to all other debts. 11% doesn't sound very good on your house loan.  You may want to consider refinancing.  That is, if you can get a lower rate.  You may also want to get a longer term loan (if you have enough discipline to use the extra income to actually pay off your credit card and then the put it toward the house when the cards are paid off). Look at options to increase your income, at least temporarily.  Second jobs and such.  When your finances are more in order, you can back off. The debt ""trap"" is behavioral.  We humans tend to increase our spending until we can't any more.  But the reason we can't spend any more is that we have increased our debt until we have no flexible income.  Then we are stuck for a long time and have few options. The only way out (long term) is to change our habits so that we don't increase spending each time we pay down a debt or get an increase to our income.  Financial discipline is the only way to have financial security.  Almost always the first step is to pay off credit cards and stop maintaining a balance (always pay off every card at the end of each month).  Then start paying off other debts from highest interest rate to lowest. This is a hard challenge and one most of us face at some point in our lives.  Good luck!" I would personally look at consolidating your debt at a lower interest rate by refinancing your mortgage. I would leave any retirement funds alone unless it was absolutely necessary to touch it with no other avenues available. However, once you have consolidated your debt into the mortgage I would pay more than the minimum amount so that you don't take too long to pay it off. I would put about 50% of the freed-up cash flow back into the repayments, that way you will be paying more debt off quicker and you will have additional cash flow to help your monthly budget. Another good point would be to go through your monthly budget to see if there is any expenses you could reduce or eliminate. You work backwards. A top-down budget. i.e. 'bottom-up' is to list what you want, and perhaps find that there's nothing left for retirement savings, top-down divides from your gross income down to each expense. Say you make $60000/yr, $5000/mo. $1250 is about what you can spend on housing. You can go with the smallest apartment you can tolerate, a tiny 2 BR with roommate, or get the biggest apartment or house you can afford for this money.  In the end, this question may be closed as 'opinion-based.' It's not simple to answer and it's more about your own preferences. Quality of life is more than your house/apt size. I've known people who lived in tiny spaces, and used public transportation, but took 3 week-long trips each year. Others who lived in big houses, drove fancy cars, and somehow when their first kid entered high school, realized they had saved nothing for college.  Decide on your own priorities and tilt the budget to reflect that. IMO student loans are junk debt that should be dealt with as soon as possible.  Buying a house comes with risks and expenses (repairs, maintenance, etc) and dealing with a student loan at the same time just makes it tougher. Personally, I would try to pay off at least a few of the loans first.