Is it Worth it to Pay 0% interest debt?

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Over the last three years, my husband and I have been working diligently to pay off $45,000 of debt that we had when we first got married. The debt was a combination of a car loan, credit cards, and student loans.

After working hard to pay it off, we have $1000 left of the original debt, and another $5,500 that we acquired this past year when my husband decided to go back to school.

The situation is that this $6500 in debt is all at a 0% interest rate. The larger loan is interest free as long as my husband remains in school full-time (he is currently working full-time and taking a full course load as well). Payments are not scheduled to begin until December 2014.

The other loan will always be interest-free and it is at a monthly payment right now of $52. Very manageable.

As much as we would like to be debt free by the end of this year, we are also in the midst of saving up for a house, saving up for a car, and thinking about expanding our family in the next couple of years.

We have a few options:

Leave money in bank

The first option is to keep making the minimum payments and leave any extra money in the bank that doesn’t have to go toward the debt. This will allow us to keep making 1% interest on the money while it sits in the bank. At the same time, the debt—due to inflation—will most likely be worth less in December 2014.

Pro: gaining interest, having cash on hand

Con: still have debt

Pay off debt

We could pay off the debt by the end of the year, and proudly be able to say we’re debt free. This would bring down our savings for other items, such as house and car.

Pro: being debt free

Con: losing interest

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It seems that in this case, the decision to pay off 0% interest debt is purely an emotional one. Is it personally worth it to you to pay off 0% interest debt?  I honestly can’t decide. A part of me does want to pay it off and just be done with it. The other part of me doesn’t see the point. We could definitely use the money to save for other things that are really taking precedence in my life right now.

I am really leaning toward simply continue to make the payments. Perhaps when we get down to a manageable chunk on either loan, we will just pay it off for the sake of paying it off. But at this point, I think our priorities are saving rather than being debt free for the sake of being debt free.

What do you think? Is paying off 0% interest debt worth it?