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It could be a good idea to start paying off your students loans early when you’re financially secure and have few other debts — if any. You could benefit the most from early repayment after you’ve met the following financial goals:
Before you start making extra repayments on your student loans, make sure you have money saved up to cover unexpected expenses. Most experts recommend that you have enough money set aside to cover between three and six months of basic personal expenses, such as rent, utilities and food. Some like Suze Orman recommend you have between eight and 12 months if you really want to feel secure.
An emergency fund protects you if you lose your job, have a medical emergency or another unexpected expense crops up. Paying off your student loans before you have an emergency fund could backfire. You might end up putting these emergency expenses on a credit card or personal loan, both of which usually have higher interest rates than student loans.
The sooner you start saving for retirement, the better. Not only will you build your nest egg faster, but there’s also more time for capital gains, interest or dividends to add up. Many employers also match your contributions — further increasing how much you’re able to put away.
Most experts recommend putting 10% to 15% of your income toward retirement in a 401(k), IRA or other plan. If you’ve got extra money left over after making this kind of contribution, you could benefit from paying off your student loans early.
Student loans tend to come with lower interest rates than other types of debt, especially credit cards. Paying off high-interest debts first saves you more in the long run. If you’ve handled all other debts — or never had any to begin with — you can benefit from paying off your student loans early.
You might want to hold off on making extra repayments on your student loans in the following situations:
Should you pay… | |
---|---|
Student loans or mortgage first? | Read more |
Student loans or buy a house? | Read more |
Student loans or invest in retirement? | Read more |
Student loans or car loan first? | Read more |
Student loans or medical bills first? | Read more |
Student loans or credit cards first? | Read more |
Student loans or save for an emergency fund first? | Read more |
Not sure paying off your student loans early is worth it? Here’s why you might want to consider it:
You have a few options to help you get out of student debt faster, including:
15 tips to pay off your student loans ahead of schedule
Paying off your student loans early can set you up to meet other financial milestones — like buying a home. But you might not want to treat it as a priority if you don’t have an emergency fund, retirement savings or have other debts with higher interest rates.
You can learn more about how it all works by checking out our guide to student loans.
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