The 68-year-old owns her own house. She owns her car. She doesn’t have a credit card. There are no personal loans. No mortgage.
Her only debt is a $40,000 parent-plus student loan she took out for her daughter, who never finished college.
In an interview with “The Ramsey Show,” Pat asked if it would make sense to cash out her entire retirement account to eliminate debt.
“I’m 68 years old,” Pat said. “I have $40,000 in student loan debt for my daughter, and my only retirement savings is $37,000 in an IRA.”
Don’t miss:
She is still working and earning about $78,000 a year. She recently started receiving $2,000 a month in Social Security benefits. But that $37,000 IRA is all she has saved for retirement.
The loan is a Parent PLUS loan in her name, with an interest rate of 7.9%. “The interest is almost $7 a day,” she said.
Her daughter never finished school and is now a stay-at-home mother with two young children. “She had no money,” Pat said. Her son-in-law works “on and off.”
co-host george carmel Very candid. “These parent-plus loans are really becoming like a cancer on society,” he said, noting that they often “destroy” family relationships.
Currently, she contributes 25% of her income to an IRA and contributes $600 per month to her loan. But since interest is close to 8%, most of the payment goes towards interest rather than principal.
“You’re trying to do two things at the same time and not making much progress on either one,” Carmel said.
Trending: Motley Fool analysts construct a new series of passive ETFs — Discover which “dumb” strategy is right for your investment goals.
Her idea was simple: cash out the IRA, pay off the loan, and be done with it, but Kamal refused.
“You spent every penny of your retirement paying off these Parent PLUS loans. Now you have nothing,” he said. “Now we rely on Social Security and you work until you can’t work anymore.”
While $37,000 is not enough to fully fund retirement, depleting that amount would leave her with a zero cushion.
Instead, Kamal suggests a temporary shift. Suspended pension contributions for about two years and aggressively tackled debt.
“We’re going to put this on hold and we’re going to start putting in three loans a month,” he said. “The more we throw it at the principal, the faster this thing goes away.”
See also: Designed for investors with strong market convictions, REX Shares builds ETFs for income, leverage and tactical positioning – explore the product lineup.
Combined with her income and Social Security, this approach could eliminate the loan in about 24 months. After that, she can start investing again for retirement without being burdened with 7.9% interest.
