Making a Plan to Pay Off Your Student Loan
There are two schools of thought regarding how to deal with student loans. Some people believe that you should repay these loans as quickly as possible. Other people, however, believe that you should simply make your minimum monthly loan payments, thus freeing you up to apply the bulk of your monthly earnings towards paying other debts you may have, as well as all the other expenses that normally need to be dealt with in life.
Since student loans have a lower interest rate than other types of debt, it might make sense for you to repay any other debts you may have before tackling your student loan. At the same time, the average student leaves school with a debt of almost $28,000, which brings about significant interest payments, no matter what the attached interest rate might be. In the end, it is up to each individual student to come up with a repayment plan that fits into their budget.
Paying It Off Quickly
If you want to escape your student loan debt quickly, you will have to make cuts to your spending habits. A good way to repay your loan at a faster pace is to double your monthly payments. Under this plan, you will not only repay your loan more rapidly, but will cut the amount of interest that you will pay over the life of the loan. Just by staying in on occasional weekends or eating meals at home, you can make the necessary cuts in a hurry. This is a good strategy if you find that you are struggling to make your current payments, since that probably means that you are spending too much on other things.
Another way to repay your student loan quickly is to put any extra money that you have towards your loan at the end of the month. This, once again, will require some budgeting, but it will be worth it when you have paid your loan off years earlier than expected.
Paying It Off Slowly
Those who advise you to pay off your loan at a slower pace often do so because student loan interest rates are lower than what you will find on other items. For example, these people would say that the extra money that you are putting towards your student loan would be better off being put towards your credit card debt or your car payments, since these debts will usually have higher rates. As a result of doing this reallocation, you will save money in the process, while still making your minimum student loan payments.
Even if you do not have other debts, you can still take extra money that you might be tempted to put towards your student loan and instead use it in a different and perhaps wiser way. For example, you can put it into a retirement fund, where the the money will earn more for you than what you would save through repaying your loan early.
Making Your Decision
The speed at which you repay your student loan is entirely based on your financial situation. If you do not have any other debts and can afford to double your payments, it may make sense to do so. It also may make sense to make larger payments if you are stressed out about your debt, since peace of mind is definitely worth something.
No matter what you choose to do, it is likely that student loan repayment will be a somewhat taxing process for you to undertake. However, you can always take some solace in the fact that there is over $1 trillion worth of student debt in the country, which means that it has outpaced credit card debt and that you are far from being alone in your situation.