Tackling your STUDENT LOAN DEBT

How to decide if you should pay off your student loans early

Let’s first look at the reasons it might be best to pay off student loans as soon as possible.

For one thing, not only would you be able to ditch those pesky monthly payments, but you also wouldn’t have to stress about what would happen to your debt if a financial crisis came up. And just think about all that interest you could save each month without student loans.

1. Look at the big picture

Student loans are just one part of your financial situation. While it may seem like it makes sense to pay them off early, there are other things in your life that might take precedence.

For example, do you have an emergency fund? Even a basic emergency fund of $1,000 can be helpful. You can’t plan for every contingency, and in life’s full scope of irony, emergencies typically hit at the most inopportune time.

It’s also important to consider any other debt you have, aside from student loans. If you have a High interest credit card, for example, it makes sense to focus on paying that down first.

At the same time, look closely at what repaying student loans early might do to your quality of life. Most of us can sacrifice a bit to pay off debt, but it’s probably not worth bending over backward to pay back your student loans early if it means you must struggle to pay other bills and eat, or have to forgo basic necessities like health insurance.

2. Examine your goals

Knocking off your student loans early means that you will inevitably be paying more than the minimum toward your debt. This will divert money from other areas of your financial life, but that’s fine if your goal is to become debt-free as soon as possible. what if you want to quit your job and start your own business? What if you want to travel? Or buy a house? Maybe you’re starting to plan for a wedding or having a child. All these factors should inform your decision.

3. Compare interest rates

After you look at your personal and financial goals, it’s time to compare interest rates. Your interest rates can help you decide whether paying off student loans early is right for you — or whether you should jump-start your savings goals or begin to invest.

While it’s hard to predict what kind of return you can expect from an investment, comparing estimates can be a worthwhile exercise as you decide on your financial strategy.

4. Evaluate your repayment plan

In most cases, paying off student loans early makes sense if you can afford it, especially since you’ll save money on interest. But under certain repayment plans, it may not be so beneficial.

What if you want to pay off your student loans early?

If you decide that, yes, you should pay off your student loans early, then you’ll want to have a solid plan of attack. Here are a few ideas to best jump-start the process:

Start repayment during the grace period. You usually have six months after you graduate to start making payments on your student loans. But if you’re school now (or just recently finished) and can afford to pay something — even a little — toward your loans, you can get ahead of the game and often avoid some interest.
Pay more if you can. If you can make larger payments each month, then obviously, you can get your debt down faster. Just make sure that your lender applies those payments directly to the principal.
Get a side job. If you have the time, a side hustle can help bring in some extra cash that you can use toward your student loan balance. Working a few extra hours at your current job or on a weekend now and then can go a long way toward helping your finances.
Refinance your student loan. If you (or a cosigner) can qualify for refinancing, you could potentially score a lower interest rate and save a bundle, as well as consolidate your student debt into a single loan to make repayment simpler.
Seek out forgiveness and repayment assistance. There’s a wide variety of forgiveness and loan repayment assistance programs out there, and some employers even offer their own student loan repayment benefits.

Bottom line

Paying student loans off early is a personal decision and one that should reflect your goals and values.