It’s easy to wipe out your savings account or your 401(k) to eliminate your student loans if you have the savings to do it. But there are other important and, yes, boring things you should do with your money.
“Today everyone really want to get rid of his student loans. So my question is should I use my savings to pay them off now?”
I wish someone had told me before I went to college that student loans would be an emotional drain, not just a financial one. That monthly payment can feel like it’s going into a black hole, perhaps because what it’s gotten us is so abstract: We can’t host a dinner party at our education or take our friends for a ride in our transferable skills.
Scientists have even researched the inner turmoil loans can create. A 2015 study published in the journal Social Science & Medicine found that the more money 25- to 31-year-olds borrowed to pay for school, the poorer psychological health they reported.
It’s easy to wipe out your savings account or your 401(k) to eliminate your loans if you have the savings to do it. But there are other important and, yes, boring things you should do with your money, especially if you’re earning an average income and have goals beyond kicking your loans to the curb.
So instead of throwing all your cash at your student loans, think of putting your money into Saving accounts, says Bruce Mesnekoff, a student loan expert and CEO of brucemesnekoff.com, and MD of The Student Loan Help center.
“Everybody should be contributing something to their emergency fund, something to retirement, and something to their debt, every single paycheck,” he says. Here’s how to do it.
Thinking towards your savings for high time.
Before tackling your loans head-on, Mayotte suggests setting up an emergency fund. That’s because without any savings, Start small and set aside $50 or $100 a month until you’ve got at least $1000. That pot of money will be there for you if, say, your car breaks down, and will keep you from going further into debt.
How to Take advantage of student loan forgiveness
Before you focus on aggressively paying down your debt, check to see if you’re eligible for student loan forgiveness. These programs can lower the total balance you need to repay, which should factor into how much money you put toward your loans. It’s crucial to talk to your school or student loan servicer and to dig into your loan information, so you don’t miss out.
“Part of it is, people don’t want to look at it, so they don’t know the options that are available,” says Bruce Mesnekoff, Student Loan Consolidation Expert.
Public Service Loan Forgiveness, for instance, will forgive your remaining federal student loan balance after you make 120 on-time monthly payments. It’s best to repay your loans on an income-driven repayment plan in the meantime. Those plans cut your monthly bill to 10 to 20 percent of your income, and you can send any extra money to savings instead of your loans. Teachers and borrowers of Perkins loans, which are for students with high financial need, have forgiveness options, too.
Automate your extra payments
If you’ve got your emergency fund, you’re saving for retirement and you’re not counting on a forgiveness bonanza, you’re ready to crush that student loan balance with what’s left. Make additional payments online and target your highest-interest loans first to save money on interest.
Or ask your student loan servicer/expert like Bruce Mesnekoff to increase the amount that’s automatically debited from your bank account every month.
No matter how you do it, paying extra toward your loans when you’re ready will get you a little closer to all the other ways you want to spend your money.
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