You may be thinking in the back of your head right now that there cannot be any real reason to wait to pay off your federal or private student loans, right? You are probably thinking about the interest stacking up, late payments, being free from debt, and similar situations. Nevertheless, before you panic about your loans and rush to make a payment, we will go over some reasons it can be beneficial to wait to pay off your student loans.
Pros of Waiting to Pay Off Your Student Loans
1. Avoid Higher Fees on Other Debt
If you want to pay off your student loans fast, but you have other outstanding debt with a higher interest rate, it would be wise for you to wait to pay off your student loans. Now, you should always make the minimum payment needed until you can pay off the student loan, but waiting to pay it off can benefit you.
For example, if you have a credit card with a 15% interest rate and your student loan is at 4.5% interest rate, then the obvious answer is to pay down the credit card first as you will save more money in the end.
2. Tax Deductible Interest
When it comes to your student loans, if you pay them off early, you will miss out on any tax
3. Installment Debt
When looking at your credit report, debt is debt, but not all debt is bad debt. Student loan debt is considered installment debt, which means that you pay a specific number of payments at a set amount. Revolving debt, such as credit cards, is considered bad debt and negatively affects your credit report.
As mentioned above, you should pay off your credit cards first, because having fewer revolving accounts with a balance will help boost your credit score overall.
Although student loan debt is not necessarily considered bad, if you do miss payments, it will negatively affect your credit score and potentially cause problems later on down the road.
4. Don’t Drain Your Account
If paying off your student loan early means that you must drain your entire emergency fund or savings account, then it is not wise to do. Yes, you will be free from that debt, but what happens if your vehicle breaks down and needs a major repair? You should set aside a modest amount, keep that in your savings account, and then work on paying down your student loan debt.
Pros of Paying Off Your Student Loans
Of course, just as there are some pros to waiting to pay off your student loan debt, there are some pros to paying it off early.
1. Save Money
If you pay your student loans off early, you will save yourself a good chunk of change. This is because you will not have to worry about the interest rate on your student loans, which means you only pay for essentially the amount you borrowed.
2. More Money on Hand
Once your student loan is paid off, you no longer have to worry about making a monthly payment. You will now have that extra money in your pocket and you can use it toward another bill or something nice for yourself.
3. Reduced Debt
When looking at your credit report, you will have a lower debt to income ratio once your student loan debt is paid off. You will find that it is much easier to secure a loan when you need one and you will not have to worry about student loans looming over your head.
Do What Works for You
It is important that you do what works for you when it comes time to pay off your student loans. There are pros to both paying the loans off early and waiting to pay them off. Before you make a decision, consider all of the points that were covered and then decide which option works the best for you at this point in time.
Author: Jeff Gitlen
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