What's the answer when values collide?
- Article by: CHRIS FARRELL
- January 8, 2011 - 10:04 PM
QDo I pay off my medical school loans ($137,000 at 0.6 percent interest ... not a typo) immediately OR over my scheduled 30-year plan ($650/month without any increases).
Problem: My fiancé and I are currently both fellows in internal medicine sub-specialties and will both graduate and become married this summer. She only has $10,000 in medical school loans and wants me to pay mine off as fast as possible. I disagree citing a higher rate of return in nearly any investment vehicle.
Background: We do not have credit card debt nor a house (yet). Between the both of us, we have $100,000 in a Roth IRA and $50,000 in pure cash. Any thoughts (even just a sentence) would help tremendously.
AI'm always amazed at the amount of debt it takes to get a medical degree these days. But with your professions it's clear that income isn't an issue. No, the discussion between you and your fiancé over how best to handle the large student loan debt illuminates when personal finance decisions are often the most difficult: when good values collide.
The easy personal finance questions to deal with are when an idea is wrong. For instance, someone in their mid-30s may insist they can take money out of their traditional IRA without penalty so long as it goes toward paying off credit card debt. But it isn't true. They'll pay the 10 percent penalty, plus ordinary income tax on the withdrawal. Similarly, the commonly held notion that the mortgage interest deduction is so valuable that it's a mistake to accelerate home loan payments is misplaced. The math on interest saved from paying off a mortgage fast is compelling.
No, the truly troublesome finance decisions are when both people are right, or, to put it more accurately, when values collide. The late philosopher Sir Isaiah Berlin eloquently argued that in society the truly difficult choices we face are when values conflict, such as liberty and equality. All serious political choices involve the genuine sacrifice of desirable ends.
How do we deal with the clash of values? We compromise. What does compromise mean in a relationship with two good ideas about money? I can imagine several different paths. Probably the simplest is agreeing to pay off the loan in say, 10 or 12 years, instead of 30. There's nothing magic about 10 years, but it's a time frame that might allow for additional investments (your goal) and eliminating the debt within a reasonable time frame (your fiancé's goal). Alternatively, you could decide to slash the loans by some percent and then adopt a slower repayment schedule with the remaining debt.
The key is for you and your fiancé to feel that both your concerns and insights have been considered and addressed. The conversation and the solution will hold you in good stead over time.
Chris Farrell is economics editor for "Marketplace Money." Send questions to firstname.lastname@example.org.
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