You should only pay off your student loans sooner if you’ve built a solid financial foundation by:
Save at least a month of basic expenses for emergencies.
Set up automatic contributions to a retirement account such as a 401 (k) or Roth IRA.
Pay off any debt (usually credit cards) that has a higher interest rate than your student loans.
If you are looking forward to repay student loans quickly, pay a little extra while pursuing your savings and investment goals. Here’s why it’s important to meet these goals first, and how to pay off student loans sooner if you are already financially strong.
Start your emergency fund
An emergency fund is essential when you need to replace your tires or get unexpected dental treatment. If you’ve earmarked all the money available for your student loans, you may need to record those expenses on a credit card, costing you more money over time.
Ideally, your emergency fund should include three to six months of expenses. But it can seem as daunting as paying off student debt. Instead, try to save enough money that you feel comfortable, but not so much that it pushes your other goals down the road.
If all you can afford to set aside right now is $ 500, that will get you out of a lot of common traffic jams; add more once you are in a better financial position.
Invest for upcoming retirement
Get the company’s correspondence on a 401 (k) if you have one. If not, save as much as possible 10% of your income in an individual retirement account. (Here is our guide to opening an IRA.)
If you have a 401 (k) with matching dollars, that equates to a guaranteed return on your own contributions. Even if your federal loans are at 6.8% – the highest rate for undergraduates in recent years – or if you have even higher private loans, get this match before you start paying off larger student loans. early.
Once you are on your way to retirement, you are free to pay as much as you want on these student loans. Check your progress with a retirement calculator.
Lower your student loan payments
Get pre-qualified for refinancing to compare actual rates and see what you could save each month.
Prepaying Student Loans – the Smart Way
Get rid of credit card and personal loan debt before you focus on student loans. These types of debt generally charge more interest.
When it’s time to focus on college debt, there’s no prepayment penalty, so you won’t be charged if you pay off your student loans early. Here are five options if you want to pay more than what you are required to pay each month:
Make bi-weekly payments. You can also make bi-weekly payments manually online, which will help you stick to a disciplined schedule.
Take advantage of your employer’s generosity. Some companies repay student loans as a benefit in the workplace. Ask your HR representative if this is available to you and sign up as soon as you are eligible.
Refinance student loans. You can also shorten your repayment schedule by refinance student loans. With good credit and stable income, you may be eligible for a new loan at a lower interest rate from a private lender. Many lenders offer a loan term of five years; you can also pay extra and get rid of the loan sooner.