There has been so much talk about people keeping around their old student loan debt because of it’s low interest rate and it’s “good debt” classification. The truth is that debt, no matter how low the interest rate, is still stealing our hard earned money month after month. However, if that doesn’t give you the motivation you need to pay off your student loans early, maybe these reasons will.
Less Interest Paid
Many people justify keeping around their student loans because of the low interest rate. What they fail to see is that if they simply paid off their student loan early they would be paying significantly less in interest. Even just applying an extra $100 a month can save thousands of dollars over the life of your loan. So why keep this debt around simply because the amount you are paying in interest is less than it would be on a credit card?
Guaranteed Rate of Return
What if I told you that you could get a guaranteed rate of return on your money with almost no risk? You can. Every extra dollar that you pay toward your student loan will essentially give you back the mount you typically pay in interest. You are going to have to pay off your student loan debt at some point, so why not save yourself a guaranteed 6% or more. If you really do not want that money in your pocket, you can always put it in a savings account and earn interest on it.
More Money for Emergencies
Once your student loans are paid off you will have more money to save toward emergencies. Since you will no longer be paying hundreds of dollars a month toward an old debt, you can then put that money in a savings account for a rainy day. Too many people do not have money set aside for emergencies because they are paying every dollar they make to a creditor. With one more debt paid off, you will be able to secure yourself against a real emergency. Not only will you be ready when something unexpected happens but those savings will keep you from relying on credit cards in a pinch.
More Money for Retirement
After you have 3-6 months of expenses in your emergency fund, you can then start putting your old student loan payment toward investing for retirement. If you still have 20 years to go until retirement and you can save $300 a month at 6%, you will have an additional $132,428 when you retire. That is money you would have lost out on if you just kept your student loan around because of the low interest rate.
Improves Your Credit Score
If you have a large amount of debt in your name, it is likely hurting your credit score. By paying off a large debt like a student loan your credit score could improve significantly. Having an improved credit score can give you the opportunity to reduce your current interest rates and save you a lot of money in the long run.
Will Free up Credit for Other Things
People seem to forget that debt of any kind will take away money that you could use toward the things you really want. Traveling, home improvements and other things that get put off because the money simply isn’t there could become possible when you are not making monthly payments to Sally Mae.
So if you are sick and tired of paying month after month for the education you got years ago, it is time to do something about it. Start finding extra money in your budget and pay off your debt so you can start enjoying the money that you earn. You will be glad you did when that financial obligation is no longer in your life.