For others the act of having any debt, even potentially profitable debt, drives them insane. It becomes an overwhelming stress and the need to eradicate becomes necessary.
I personally fall more into this second bucket of people.
Then comes the topic of student loan debt. This can be a hard debt to determine whether to pay off early or not. With so many difference choices of repayment, potential student loan forgiveness, student loan refinancing, and more, there are just so many choices and options. Depending on your specific circumstances now may or may not be the best time to do so.
Should You Pay Off Your Student Loan Debt Early?
While it might be tempting to start pouring all of your extra dollars into paying off your student loans, it’s not always the right choice.
Here are some of the things you should do before completely paying off your student loan debt:
- Have an emergency fund of at least $1,000, but shoot for 3 to 6 months of expenses
- Pay off any other high interest debt (If you have high interest debt like credit cards at 30% interest you MUST pay this off before tackling student loans.)
- Determine whether it makes better sense for you to put extra money toward investments verses paying off your loans early. Remember, financial balance is key, and you can't get back your 20s to start investing.
There’s no one-size-fits-all approach. You need to take your own circumstances into consideration. However, if you have other things in place (like an emergency fund) and aren’t dealing with high interest debt, it might be the time to chip away at it.
If you are ready to conquer your student loans once and for all your next step is to figure out the most efficient way to do so.
How to Figure Out the BEST Way to Pay Off Student Loans
I recently discovered a pretty cool calculator that can help you determine the best way to pay off student loans. This calculator is from Fidelity and allows you to put in your real-life student loan info so that you can get results specific to you.
With this calculator you’ll create a Fidelity account (free if you don’t already have one) and then you’ll be prompted to upload your federal or private student loans from the National Student Loan Data System. You can also add in your loans manually. It sounds complicated, but it's really not.
After that, Fidelity will run all the numbers and determine if there’s a way for you to refinance to a lower rate, what different payment options will look like for you and different pay off methods that will work with your loans and your life!
There are many useful features in this calculator that can help you determine what’s best for your specific situation. And that’s what I really like about it – it’s specific to you. What's different than most calculators is that Fidelity's can look at both Federal and private loans, which is helpful if you're considering something like student loan refinancing.
(Since this calculator is still in its beginning stages it doesn’t work for all student loan situations. For example if you are currently on an IBR plan, this calculator won’t work for you.)
If you only have Federal loans, the Student Loan Repayment Estimator from the Department of Education is also another great tool. You can login with your FSA ID, or simply input your information manually.
The Power of Small Extra Payments
One thing I particularly like is seeing how much small extra monthly payments can knock off on the life a student loan.
If you have a $28,000 ten year student loan at 6% interest and pay the following extra on a monthly basis……..
- $25/month will knock almost 1 year off of your loan
- $50/month will knock 1 year 9 months off of your loan
- $100/month will knock 3 years off of your loan
- $200/month will knock 4 years 7 months off of your loan
You might think that $100/month is not achievable today. But I'm a strong believer that everyone has the potential to earn an extra $100 per month if they try hard for it. I have a list of over 50 different side income ideas that can help you achieve this goal, and nobody who has put the work in has failed to make $100 per month.
With this type of information, you can pick a pay-off date that suits you but still allows you enough room in your budget for the other important things in your life.
Sometimes You Want A Little Help
I realize that sometimes you want a little personalized help for your student loan debt situation. We have options to help you.
If you want customized assistance for your situation, join our online coaching program – The Student Loan Freedom Program. It reopens soon and we only take the first 100 people per session. Join the waitlist here: Student Loan Freedom Program.
Check out our Student Loan Debt Forum. It won't be personalized help, but maybe your question has already been answered: Student Loan Debt Forum.
Read all the free resources we have on student loans. Your question has likely been answered, but you'll have to sort through it yourself: Escape Student Loan Debt
Paying off student loans is a worthy feat but shouldn’t take precedence over everything else. Prioritize your financial situation to see what’s actually best. Remember, with most Federal loans you have options to balance your payments so that you can focus on multiple priorities.
If you do think paying off student loans is the way to go, run your numbers to see the most efficient ways to get those loans paid off early. And don't forget to ask for help if you need it!
Are you prioritizing early student loan pay-off?
Photo Credit: jirkaejc / 123RF Stock Photo