Guest Post: We have a guest post today from Lauren Davidson, she’s a freelance writer who is slated to graduate from the University of Pennsylvania this May. She’s trying to get her side hustle started before starting her new job – all in an effort to repay her student loan debt! You can check out her website here.
Student loan debt is at an all-time high in the United States with about 43 million borrowers owing a total of over $1.4 trillion nationally. With the average borrower racking up tens of thousands of debt, many borrowers who have graduated from undergrad or graduate school find themselves struggling to pay off their loans once they enter their workforce.
This may be because of a low (or nonexistent) income, high monthly payments, or too many other expenses – or an ugly combination of the three. Though it may be hard for these borrowers to justify paying even more towards their student debt each month, it is actually one of the best moves they can make.
Why should borrowers try to pay extra on their loans each month?
The answer is simple: paying just a little bit more on your student loans each month will save you quite a bit of money. Not only will you get out of debt faster (potentially a LOT faster, depending on how much you throw at those loans), you can save a significant amount of money by putting some extra money towards your student loans each month. So if you can spare some money each month, here are some reasons why it simply makes sense for you to max out your student loan payments.
You’ll Pay Less on Your Student Loans
When you first took out your student loans, you were likely 17 or 18 years old, and probably didn’t fully understand what you were signing — including how the interest on those loans meant that the amount you borrowed could substantially increase by the time that you graduated. As an adult, you now (hopefully) understand that the interest on your student loans is the real killer. Student loan interest is the reason why paying extra makes so much sense. As you make extra payments, you reduce your principal balance, and the next subsequent interest charge will be lower.
If you can scrape together an extra $100 a month or more (through smart budgeting, a side hustle, or even by asking for a raise) you could reduce the amount of interest that you owe on your student loans by thousands of dollars. Think of it this way: you’ll be paying this amount regardless, but by paying it in advance, you will essentially get a discount on your loans because you will not be paying interest for several years, which brings us to the next reason why you should max out your student loan payments…
You’ll Pay Off Your Student Loans Sooner
The math on this one is pretty simple: if you pay more towards your debt, you’ll pay it off more quickly. And so any amount that you put towards your student loans that is above your minimum payment will ultimately result in a shorter loan term — which will help you get out of debt faster – which is very, very rewarding…trust me. Even without switching off of the Standard 10-Year Repayment Plan, it is possible to pay off your student loans in less time.
Paying off your student loans is a huge accomplishment, and can make it easier for you to buy a house or car, pay down other kinds of debt, and even allow you to start thinking about other important milestones in your life such as marriage. It also can ease your financial stress, and help free up room in your budget for other items.
Most importantly, when you pay off your student loans before the scheduled loan term, you will likely save thousands of dollars in interest payments. It simply makes good financial sense to put any extra money that you have towards your student loans each month. Even though it may be hard to justify putting even more money towards your student loans, you will be ecstatic that you did so in the future. You have to consider the future rewards of your current sacrifices.
You’ll Free Up Money for Other Financial Goals
Without student loans looming over your head, you can set — and hopefully achieve — your other financial goals. This can be almost anything, from saving for retirement, to buying a house, to going on a vacation. Whatever your ultimate dream is, not having student loan payments can make it a lot easier to achieve. A relatively short-term sacrifice of $100 or so each month can help you get there a lot more quickly. If you can afford to contribute more, by all means go for it! A great way to free up more money is to get a promotion.
Once you have paid off your student loans, you could easily transfer those payments to your retirement savings — ensuring that you meet your retirement goals without noticing much of a change in your budget, since you are already used to making those payments. It’s a relatively simple way to ensure your future financial stability and comfort.
The financial skills you develop when repaying students loans are easily transferable to your next goals. Though there is plenty of finance jargon out there, most products share a few basic principles and are very related. Whether you are hoping to start building credit, pay off a mortgage or auto loan, or almost anything else – you are sure to think back to your student loan repayment days when figuring out new personal finance strategies.
Maxing out your student loan payments may seem like a challenging prospect, but the potential rewards are huge — and well worth it for anyone with student loans. Though it may be hard to skip that happy hour with your coworkers or to purchase chicken instead of filet mignon at the grocery store, in a few years when you have paid off your student loans early and saved yourself thousands of dollars, you won’t miss those drinks or juicy steaks one bit.
Max: We managed to pay off $100K in student loan debt in 5 years, which freed up $800/Month in cash flow that was used to improve our Net Worth. Granted the interest rates we were paying were fairly high compared to today’s rates, but the psychological boost from eliminating that debt has been priceless.
Readers, are you trying to pay off your student loans early? do you agree that this is a good idea? do you have any other tips ways to max out your student loan payments? Share your thoughts and comments below!