Paying Back Student Loans
It’s funny…when we were all in school, sitting in class, stressing over tests, hanging on the weekends…we racked up all that student loan debt thinking “it’s no big deal, my first job will pay well and I’ll have these loans taken care of within a year or two.” For some of us that ended up being true, but for others it didn’t quite work out that way. But let’s not think about the negative side of things. You’re out of school now, you’re working (let’s hope) and you’ve got to pay back student loans for the next ten to fifteen years.
That is unless you get on some kind of accelerated debt repayment program. Well, actually let’s back up one step. Hopefully when you got out of school your first step was to go through the proper student loan consolidation process that got your interest rate down to 2 to 3%. I think the interest rate on my loans is somewhere in the neighborhood of 2%, and my monthly payment is about $97 on total loans of around $15,000. I’m not crazy about that debt, but my $97 payment isn’t exactly crushing me.
So once you’ve consolidated, what’s the fastest and best way to get those loans paid down?
Maybe the first question we should be asking is whether it paying down student loans more quickly even makes sense. Think about it – if you do in fact have yourself locked in at an interest rate of 2% or lower, it’s likely that you could earn more than 2% on a savings account. In other words, you’re earning more interest than you’re paying. As long as that’s true? Why lose money by paying back your student loans more quickly?
There are a couple of schools of thought here. On the one side you have the hard core believers in ‘leverage.’ In other words, why would you pay off your loans early when you’re earning more interest than you’re paying, as we just discussed. On the other side you have the debt-haters who say that people who believe in leverage are usually just people who live their lives buried in monthly payments and losing sleep as they stress over those payments.
Five years ago, I was in group one. Five years later, I’m much more in group two. I hate monthly payments with a passion. They do nothing but stress you out and rob you of your peace of mind and creativity. I’ve never met a person who regretted being completely debt free, but I’ve met plenty of people who wish they had no debt. Pretty simple, right? I guess my point is that you should set up a system that disciplines you and gives you help paying back student loans early. You might have to sacrifice some extra money for a few years, but when you’re payment free you’ll feel like the smartest person in the world.