How quickly should I pay off my student loans?
After college, it can be very stressful for young adults to figure out how to best allocate their money. One of the most common questions we receive is how quickly borrowers should pay off their student loans.
After graduation, young adults are often faced with a host of new responsibilities and expenses: rent, utilities, car payments, and of course, student loans. While they’re trying to pay their bills on an often-meager entry-level salary, they’re also being told to save for retirement and put aside money for emergencies.
What should you do–pay off your student loans as quickly as possible, or make lower payments and put the rest toward savings, investments, or other expenses? Unfortunately, there’s no right answer for everyone.
When you enter repayment, it’s extremely important to set up a budget and figure out how much money it makes sense for you to be putting toward your student loans each month. Some borrowers will only be able to make low monthly payments, and that’s fine, provided they have arranged for an alternative repayment plan with their lender. However, for other students, it may make more sense to stick with standard repayment or even pay more than the minimum payment each month in order to reduce future interest and pay off the loan faster.
Here are some questions you can ask yourself as you make your budget and figure out your student loan repayment schedule:
- What is my current job? How secure is it? Do I expect my salary to increase over time, and how quickly?
- Where will I be in 5 years? Will I be making more money than I am now and feel more comfortable making high student loan payments?
- What big purchases do I have planned for the future? Do I want to get married or purchase a home or car within the next couple of years? What is my budget for that purchase?
- How much money do I need to keep in savings to feel adequately prepared for the unexpected (car breaking down, a funeral, etc.)?
- How much should I be putting toward retirement (knowing that I will not be able to access this money in an emergency without significant financial penalties)?
- Does investing make sense for my situation? What are the rates of return on possible investments vs. my student loan interest rates?
- How frugally do I want to to live? For how long?
The decision over how much money to put toward your student loans vs. savings and other expenses is a personal one. No one’s situation is exactly the same, and there is not a single student loan repayment strategy that works for everyone.
If you’re interested in learning more about alternative repayment plans and what makes sense for your situation, we’d be happy to chat. Give us a call at 1-888-234-3907, tweet us @CFGCollege, or send us a message.