Many Americans ask themselves whether they should pay off their student loans early or use their extra income to invest. On the one hand, it seems like a good idea to get rid of student debt early in life to free up money for other things. However, there are other ways to spend that extra money that might bring more financial benefits.
Student loan debt can be a low priority
Most financial experts agree that some financial obligations should be a priority over student loan debt. The reason for this is because most student loans have a low-interest rate, especially those subsidized by the federal government.
Also, student loan repayment terms are set over a long period of time, usually 20 years, so the monthly payments can be quite small compared to other debts. That’s why any extra money should go toward other more pressing financial goals at first. Student loan interest is also tax deductible, where interest for other debt may not be.
Financial priorities in early adulthood
Young Americans should only pay off their student loans early after they’ve put money into the building blocks of a solid financial foundation in other areas. It’s considered much more important to save up some money to cover emergencies, usually three to six months’ worth of expenses.
Another financial priority facing Americans is credit card debt. Interest rates for credit cards are much higher than the interest rates for student loan debts. Getting rid of credit card debt should be a priority over student loan debt. Putting some money toward retirement early in life gives it a chance to grow over the decades.
When paying student loans early makes sense
Once those more urgent financial obligations are met, young Americans can then focus on paying their student loans off early. If lower interest rates are available, it’s a good idea to refinance student loans. People should also check with their employer to see if the company offers any assistance in paying off student loans.
Finally, being debt-free is an excellent financial goal and paying off student loans brings Americans one step closer. By putting their extra earnings in the right places, they can engineer a more secure financial future.