“Should I pay my student loan early?” This is a common question among graduates that have just entered the job market.
How do you treat a student loan? There are those that consider a student loan as a huge plaque which must be taken off their back soonest while others treat it as a normal loan.
So, what is the best thing to do? The answer to this question usually comes down to a few factors that one must seriously consider.
Factors to consider when determining whether to pay your student loan early
Goals in life
We all have dreams and goals in life to fulfill and in most cases, they require money to make them happen. A good example is when you want to quit your job and start a business. You might also be planning a wedding and starting to have a family. All these goals must be factored when determining to pay your loan.
When you pay for a loan early, it simply means paying more than the minimum repayment required per month. This will directly affect the other sides of your financial life. You might not be able to start that business you ever wanted because all the money went towards a student loan.
The choice usually comes down to your goals in life. If you want to be debt free fast and have no major commitments in life, then paying your loan right away makes sense. Create a balance and get what works best for you. However, focusing on the most important goals that will enable you to generate more money should come first. This way, you can even pay the loan without any financial constraints in the future.
Compare the Interest Rates
The next step after looking at your goals in life is to consider the interest rates. How much will you save by paying your loan early as compared to paying later in life? What are the interest rates on your loan? Interests of more than 5 percent can greatly increase your repayments and make the paying period longer.
If the rates seem too high, you might consider refinancing with a loan with better terms. There are several online companies that offer excellent student loans refinancing options. Read reviews for LendingKey to see how you can easily refinance your student loan.
Look at the Big Picture
Student loans are part of your financial life and will affect you one way or the other whether you pay them now or later. There are several variables in your financial life that should always come first. It is only after these variables are settled that you can give your student loan the priority it requires.
A good example is the emergency fund. Do you have some money saved for emergencies? An emergency fund even of $1000 can be quite helpful when disaster strikes. You never know when a disaster will hit you and you will require some emergency fund. If you don’t have an emergency fund, then paying for the loan early does not make sense. You might end up into more debt in your life as such emergencies will require you to borrow more at even higher interest rates.
You also need to consider other loans that you owe creditors. How are their interests? If they have high interest rates, then make sure you pay them first before paying the student loan.
Evaluate the Repayment plans
Sometimes just paying your student loan early makes sense, but only if you can afford it. This will also help you save money on interest that could have accrued.
However, if you don’t have the money, there is no need to rush paying. Stick with your repayment plans and check to see if you qualify for student loan forgiveness. Don’t be stuck with your repayment plan when you can have your student loan forgiven.
The most important thing is to do what you can afford without neglecting the other aspects of your life that require funds. Don’t rush to pay your student loans just because you know a friend that cleared his. Paying student loans is a personal decision that will affect your goals and dreams in life.
Make sure you look at the bigger picture and a date in mind when you will be debt free. Whether you plan to pay early or take your time, having a plan and sticking with it can help you a long way.