This post is by our regular Wednesday contributor, Erin.
Do you ever think the hype around paying off your student loan debt is a bit, well, unnecessary?
Or are you in the camp of getting rid of them ASAP so you can move on to bigger and better things?
A few weeks ago, I wrote about the reasons I’ve prioritized paying off my student loan debt. Namely, that it’s the only form of debt I have, and I just want it gone so I can move on.
That’s not unreasonable, is it?
I also linked to D.C.’s article, where he takes the opposite stance – there’s really no rush to pay off student loans, especially when they’re at a low interest rate.
I wanted to take another look at the situation, as I can appreciate both sides of the story. Plus, there have been a few times I’ve asked myself if I’m in a rush to pay off my loans for no reason.
What’s Your Interest Rate?
Clearly, the biggest factor when asking ourselves if we should be rushing to pay off our student loan debt is our interest rate.
Mine happen to fall in the middle of the road – they range from 4.5% to 6.8%. However, on my larger loan, that means around $44 a month is accruing in interest. Ick.
I know, that probably doesn’t sound like a lot, but I like to take the long view approach. I’ve been paying off my loans for two years now, so the interest rate was probably a bit more when I first started, as my balance was larger.
For simplicity’s sake, let’s say I pay $44 a month in interest for the year. That’s $528. Over two years? $1,056. And my minimum payment is small – $136. Most people are looking at more than that.
However, if your interest rate is lower and your loans aren’t accruing much interest, then it’s wiser to invest your money, assuming you actually do so.
With that issue out of the way, let’s explore some other reasons why young adults are putting off paying their student loan debt down, and why some are prioritizing it.
Should Marriage Wait?
This is one I’ve been guilty of. I personally wasn’t interested in starting married life off with a bunch of debt. My fiance and I both have around $25k combined in student loans. That’s a bit overwhelming.
Add saving for a wedding on top of that, and things can get hairy.
Wouldn’t it make sense to cut back on student loan payments?
If you’ve been paying extra, sure. The one “good” thing about aggressively paying off debt is that you’ve probably already cut your expenses and made room in the budget for it. This can easily translate to saving money.
Some people don’t want to wait around for another 5 years to get married, especially if their student loan debt is on the larger side.
What About Starting a Family?
Unfortunately, the clock is ticking on this one, so in some cases, it really makes sense to focus on saving for a family instead of focusing on your student loans.
After all, once things calm down, you can always switch your focus back to paying off your loans.
When you look back on your life, are you going to regret not starting a family sooner, or are you going to regret not paying your student loans off sooner?
For most people, I’m willing to bet it’s the former.
However, there is the small argument to be made that saving for a baby and dealing with those expenses might be easier without debt in the way. Again, it’s situational.
Or Saving for a House?
As you can see, focusing on your student loan debt often means making sacrifices for the bigger events in life, such as getting married, having children, or buying a house.
All of these events typically have a large cost associated with them. A cost made easier when paying the minimum on your debt.
Saving for a down payment is no different. In most cases, you’re required to save 20% of the purchase price of the home for a down payment if you want to avoid private mortgage insurance. That amount can be overwhelming!
Many young adults are also experiencing difficulty finding good paying jobs – they have limited funds to work with. It’s important to reflect on what you want in life to know where your money should go.
It’s All Situational
I talk a lot about values because many times, they’re the deciding factors in situations like this.
What are my values? I already said I don’t mind waiting on marriage, I don’t want kids, and I have no desire to buy a house (maybe investment property, but not a house for myself).
Therefore, what reason do I have not to focus on my loans?
A few of you pointed out in the last post that putting off saving for retirement isn’t great. I generally agree with that, and I’m working on earning more so I can start contributing regularly, because I do feel guilty about it.
Unfortunately, that’s one sacrifice some young adults seem to make when focusing on student loan debt.
Anyway, I realize that my values are, of course, different than yours. And that’s okay! I truly believe that when it comes to paying off debt, there’s no right or wrong way to do it, as long as you’re at least making the minimum payment.
I don’t believe in casting judgment on the decision of others, because I can’t claim to know what’s right for anyone but myself.
What’s the Verdict?
So are people who are gung-ho about paying off their student loans rushing for nothing? The answer, of course, is that it depends. It depends on their values, and what their goals are.
It’s understandable wanting to get married sooner rather than later. To start the next chapter of your life as soon as you can. As long as you’re being financially responsible, it’s your choice.
I know friends getting married who are still in debt. I know couples buying houses together before getting married (who still have debt). And there are plenty more starting families in spite of being in student loan debt.
As long as they’re happy, that’s all that matters.
_________________________
I think the bottom line is, paying off your student loans quickly might be overrated for those who are content with their financial situation. Some people don’t view debt as an emergency, and we can’t make them see it as such (and sometimes, 2% interest rates don’t translate to an emergency).
For others, like myself, debt freedom is important. We might value it more than our other goals. That’s okay, too. It’s all about using your money in a way that’s responsible, but brings you joy.
Check out DC’s new book Hustle Away Debt to learn everything you wanted to know about making money through side hustles!
What’s your stance on the matter? Do you think it’s foolish to rush paying off student loan debt while putting off other life goals? Or are you all about getting rid of debt to move on?
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We were in a rush to pay off our loans even though they were at 3.75 and 3.25. We just got tired of making the payments and were ready to move on! I don’t regret it at all.
I have a number of clients who want to pay off their loans ASAP but some of those loans are the size of a mortgage and many people never say they want to pay off their mortgage ASAP, they plan for a minimum of 15 years to pay it off and I think that should be the expectation of student loan debt depending on how much you have. I have seen clients get into credit card troubles because they use most of their cash to pay down student loan debt and I would rather them have debt at 3.75 rather than 16% on a credit card. But like you said, it’s all situational and as long as you are meeting your near and midterm financial goals, then you should pay what you want.
I think it totally depends on the situation and what is going on, or what you see in the near to mid-term as happening. I was in a hurry to pay my loans off, but that largely went back to me just wanting to be done with the debt. If you have a number of different things you’re needing to attack I think you need to look at prioritizing them, and assuming your rate is low enough, consider working towards those at the same time.
When I saw the title of this post, I figured it was DC writing it. I am with him on this issue in that if you have low interest debt, then you should prioritize investing. I am not in any rush to pay off 2% interest loans. But you’re right that it does depend. If you don’t prioritize paying off the loans, but don’t invest it either, then that’s no good. And there is something to be said for doing what helps you sleep at night. If paying off your debt is important to you and will motivate you to continue putting money towards that goal, then that’s probably the best choice.
Holly at ClubThrifty I think being ready to move on or being tired of the payments is probably the most common reason most of us choose to pay them back quickly, regardless of the interest!
blonde_finance Oh yeah, I would never recommend someone pay extra on their student loans when they simply can’t afford to. Getting into credit card debt is definitely not worth it! That’s why sometimes I’m a fan of the “snowflake” method of paying extra when you actually receive the extra funds to do so. It can be tricky to fit in extra payments some months!
FrugalRules Agreed! It can be really difficult to balance and prioritize paying off debt and saving, which I tackled in a separate post, but gaining that clarity and focus can be priceless. In the end, even if someone decides to focus on something else for a year or so, that doesn’t mean they can’t have a change of heart and switch gears later on. It’s all about adapting to your situation, which is bound to change from time to time!
Andrew LivingRichCheaply That’s a good point about the motivation factor. Saving and paying off debt are typically both long-term goals and endeavors, and it takes a lot of momentum and dedication to keep at it. If you’re not motivated to pay off your student loans, but are really motivated to save for a down payment on a house because it’s what you want, then you’ll probably have better luck focusing on the latter!
The interest rate on my student loans were too high for me, so I decided to pay them off quickly. I love that they are completely gone now and I wouldn’t have it any other way!
I’m all for paying on my loans so that I can move to other things. My interest is in the mid range but my loan amount is pretty high. The sooner I pay them off, the better things will be.
If student loans are keeping you from achieving goals or moving forward with life (whether the barrier is mental or real), then I would say put every cent towards those debts no matter what the interest rate- just kill the debt.
I think the biggest reason that I advocate killing debt quickly in most circumstances (even with low interest and low monthly payments) is that your interest in reducing your income needs might happen to you suddenly through unplanned circumstances instead of following through on circumstances where income continues to rise in perpetuity.
It’s all a matter of what makes your soul content. That feeling of contentment acts as such a driving force when making certain financial decisions.
I’m in favor of getting my loans paid off and out of the way. I have Federal loans and my interest rate is fairly low, but they are accumulating $60/month or about $720/year. This may or may not sound like much but I don’t even want to calculate how much interest I would pay if I took 8-10 years to pay back my loans. I’m also hesitant to move forward with getting married because my bf and I have about $50,000 in combined debt. Yikes!
Debt freedom would be the issue for me. I don’t think you necessarily have to wait to get married, but if it’s only a matter of an extra year or so… why not? And it seems dangerous to me to have kids while you still owe tens of thousands.
But in the end, everyone has to make that choice for him- or herself, I guess.
I was on the pay them off at all costs bandwagon for a long time, but I’m kind of in the middle now. I am paying my high interest loans off as quick as I can, but I think I’ll just pay the minimums on my low interest ones and invest the difference, especially if the student loan interest deduction sticks around.
thebrokeprof I think that’s a great approach to take, especially for those with varied interest rates. I really only have one loan that accrues a lot of interest each month compared to the rest, so I’m focusing on that one for now.
AbigailP That’s really what it comes down to. I know there are a few couples who said children were the wake up call they needed to get serious about debt repayment, but I know I wouldn’t feel comfortable with it (if I wanted kids).
Chonce I hear you! Mine are accruing around the same, and even though it doesn’t seem like much, it can definitely add up. There’s definitely nothing wrong with getting engaged and then waiting it out. =)
Anum I tend to agree – there are a lot of financial issues that can give us anxiety and cause us to lose sleep. We have to do what feels right, even if that goes against the math.
Hannah UnplannedFinance That’s the side I tend to take – that feeling of having something holding you back isn’t worth it (to me). Very true that income can fluctuate unexpectedly due to any number of things. That’s why I always try to keep my expenses low, and not having debt would help!
Jason @ The Butler Journal Sounds like a lot of us are sick of owing and are ready to move on! It’s good we’re taking the necessary action to get there.
SenseofCents Your story definitely played a large part in me realizing I could accelerate my payments and get rid of my loans! And it seems like you’re enjoying more freedom than ever without them holding you down. =)
Debt freedom is definitely important to me, too. And I was totally gung-ho about entering marriage with debt (my fiance’s debt free). But we’ve talked about it and agreed that debt freedom will come, and we will reach it together, so there’s really no rush to pay off my student loans. My credit card debt is a different story though ;)
LisaVsTheLoans I like that you both agreed you’ll reach debt freedom together. It’s so important to be a team and on the same page in those circumstances!
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