My student loan payment is $350 each month. According to a budget guide, I should put $200 into savings each month as well.
Or would I be better off paying $550 on my loans each month?
My student loan payment is $350 each month. According to a budget guide, I should put $200 into savings each month as well.
Or would I be better off paying $550 on my loans each month?
{ 11 comments… read them below or add one }
Each person has given one or two different answers, and they are all about the same. Let me give you something to think about.
A short-term emergency fund, any money market or savings account will do, this will help pay for the brakes that need to be replaced, a new battery, tv blows up…and so on…you get the point….you are insuring yourself for small financial emergencies.
Once that is in place, and regardless of interest rates and tax savings…and yes..student loan interest is tax deductible right off the top on the first page of the 1040. To that, I say big deal…and here is why. Let’s assume that you have 1000 in interest that some have indicated is a good reason you should keep your debt. That 1000 deduction is only going to save you 250 in federal tax…….on average…of course it varies with your own personal effective tax rate. So, does it make sense to pay $1,000 in interest to a bank so you won’t have to pay $250 to IRS? Of course not, and don’t blame others for giving bad advice…they are doing, or repeating what they learned….right or wrong.
Now that you have anywhere from a minimum of $1,000 on up to ……here is where you fill in the blank…….what if you lose your job…could you easily replace your current income…or would it take you some time to find another job? If it might take you a while…then you need to continue saving up so that you have 3 months living expenses set aside in that money-market/savings account….now you really are becoming self-insured…and self-reliant.
It is always better to be out of debt than to be in debt…..but you do need this cushion. I’m all about being out of debt….I’ve never met a good debt yet….and yes this is a matter of personal opinion….other financial advisors, of which I am one, may very well tell you something different.
Lastly, once you have your emergency fund in place, pay off your debts as quick as you can…..imagine life without any payments…..a person could really save a lot at that point….for a home, auto..retirement and so on.
I do wish you well with your decision.
Some people will tell you to pay off your debt first. It really depends on two things. 1. How much interest are you paying on your debt? 2. How much interest are you earning on your investments (potential)?
If the interest you are paying outweighes the interest you are earning then pay off your debt first. Otherwise start investing now. I can show you how to earn 24% interest on your money.
Hands down loan thats all ive got to say.
If the interest on your student loan is higher than the interest you would earn in a savings account, then pay off the student loan.
You should strive to build a fairly liquid savings account that has 3 to 4 months living expenses in it. This is your safety net, in case something unforseen happens. After this has been built, the best bang for your buck depends on what the interest rate is on the loan versus the interest rate you expect to receive from the $200 investment. If you are talking about a savings account that pulls in less then 1% as most currently do, you are better off paying off the student loan early. If you have access to a stock fund where your money would earn more then the student loan, then that is the better option.
Always pay bills off first.. Then put some money into savings…
I would put the 200 in savings as the interest on a student loan is a tax deduction or pay just a little extra on the principal…
generally student loan interest is fairly low. As long as the savings account is earning more than the interest rate of your loan, then you are better off to put the difference in the savings.
Depends on the interest rate.
If you’re paying them 8% interest on the loan and only making 3% interest on your savings then you’d want to pay down the loan first.
You can always split the difference and pay more on the loan and still put some into savings.
SIMPLE ANSWER:
If you have enough money saved up for “emergencies” or “what if’s”…and have no outstanding “non-deductible” debt…then pay the extra towards the student loan.
If you do NOT have any reasonable “nest egg” to cover an “emergency” or “what if”… then put the $200 into a savings account….ideally one that earns a decent amount of interest with little or no fees for doing so.
It depends on the rates of each. Your savings rate should be close* to your loan rate.One advantage of a student loan is the interest is tax deductable so that lowers the effective rate on the loan. So do your calculations.
*The savings rate can be a bit lower and you still opt to save because you need to have some cash on hand for emergencies. You need 4 to 6 months of cash to cover all of your monthly bills/necessities. Once you have that, then back to what rate is higher.
Your savings APY should be 5.00% or better. There are a few places you can get that. Links below.