Paying off Student Loans early may seem like the logical option if you have been struggling to repay debt for some time and have the extra funds available to do so. Although student loans usually carry lower interest rates than other forms of debt, doing so too quickly may prevent other financial goals such as purchasing a home from being met. Take into consideration your overall financial situation and goals before deciding if early pay off of Student Debt is the right move – early payment may come with certain drawbacks but could still be the most suitable decision for some borrowers
Should College Students Repay Their Student Loans?
Your individual situation will play an integral part in deciding if and when you should pay off student loans early. While making such a statement is indeed impressive, early repayment should not come at the cost of meeting other important financial objectives.
Establish an emergency fund, contribute at least the required match-required contribution amount to your employer’s retirement plan, and focus on paying down any high-interest debt before taking on student loans.
Here are some advantages of repaying your debt early.
Paying off student loans earlier can save you money over the lifetime of their loans since interest charges accrue on most forms of debt; since less time passes for accrual of this interest to accumulate, your total payments should reduce over time.
Make strides toward other financial goals: By paying off student loans early, you’ll free up funds that would otherwise go toward paying them off to be put towards other purposes – like saving for home ownership or retirement savings accounts or paying down mortgage debt, or even taking an affordable vacation.
Reducing large monthly payments may help your debt-to-income ratio, one of the main criteria lenders consider when assessing eligibility for credit. A better debt-to-income ratio may lead to lower interest rates on credit cards, mortgages and loans.
How To Fast Pay Off Students Loan
Here are a few effective strategies to pay off student loans early if this is what’s best for you:
Make larger payments than required minimum: Making larger payments can help reduce principal balance faster and speed up loan pay-off timeframe. A student loan calculator can assist with this calculation if you want to know just how much time can be saved through increased payments.
Start a Side Business: Explore ways of earning extra income that could help offset college loan repayment costs, such as babysitting jobs, Uber/Lyft driving opportunities, selling used clothing online or giving plasma.
Make a lump sum payment: If you have received any extra funds through tax returns or gifts of cash, consider applying it towards student loan repayment.
While paying off student debt early may feel liberating, make sure it is the appropriate solution for your circumstances before making your decision. With low-interest student loans typically being the priority over more costly obligations.
At our firm, we do not advise sacrificing retirement and emergency funds in order to pay off school loans early; however, doing so could make sense if a sound financial strategy already exists.