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If one has student loans and has some money left over at the end of each month, is one better off saving that money or using it to pay down the loans more quickly? Say the loans aren't outrageous- 20k or so- and the individual in question already has sufficient (but not huge) savings for emergencies.
With the limited info above, I would suggest adding to saving.
Questions: What rate is the loan at? Does the person have a job? How stable is the job? Will he/she be moving soon? Are there other major expences comming up soon? Car? Does the person have health ins?
There are a lot of details we don't have here but you are obligated to pay back the student loans. That's what you pledged when you signed up for them. Any excess money above living and a little cushion should go toward paying back the money YOU borrowed. (You being the borrower)
There are a lot of details we don't have here but you are obligated to pay back the student loans. That's what you pledged when you signed up for them. Any excess money above living and a little cushion should go toward paying back the money YOU borrowed. (You being the borrower)
I wasn't implying that the person would not be making their required payments otherwise.
Quote:
Originally Posted by flyonpa
With the limited info above, I would suggest adding to saving.
Questions: What rate is the loan at? Does the person have a job? How stable is the job? Will he/she be moving soon? Are there other major expences comming up soon? Car? Does the person have health ins?
I was looking for a more general answer I guess, since I'm sure my own situation will change, too, and I know many others in similar situations. Personally I have 16.5k in loans right now. Most of it is at 6.8%, but about 5k of it is at 5%. I have a stable job, health insurance and a used car with no payments (but its older and could potentially have problems). I have some expenses coming up but I've already budgeted for them. I'm probably going to have 800-1,000 extra a month (after making the minimum 300/month loan payment I'm required to make) and I'm not sure if I should add to savings or pay more toward my loans. I have 6k in savings.
Could you divide the extra between savings and paying off extra on the loans? Its good to be saving and its also good to be paying down the loans quicker. Or do some sort of split with the extra money- 60/40, 70/30, etc - btw loans and savings.
With Just 6K in saving i would put more into saving, You sould have at least 6month of normal expences in saving, Since your car might need work I would add extra for that. Your rates are not that high on your loans, Do you have any credit card debt? pay that off 1st. Once you have a good savings built up then start paying down the loans the 6.8% 1st.
If one has student loans and has some money left over at the end of each month, is one better off saving that money or using it to pay down the loans more quickly? Say the loans aren't outrageous- 20k or so- and the individual in question already has sufficient (but not huge) savings for emergencies.
Savings accounts net you about 2/3rds of 1% interest right now. Student loans are generally 3% - 7%.
Keep in mind... Once a higher payment is made to the loan (even at 6.5%) vs .75% in savings you can't get the money back, and emergency replacement money (Credit cards) will come at 16-2x% rate. Also the 6.5% may be tax deductable. Tax Topics - Topic 456 Student Loan Interest Deduction there by lower the rate from 6.5 to effective rate around 4%. But the Credit Card are not.
Keep in mind... Once a higher payment is made to the loan (even at 6.5%) vs .75% in savings you can't get the money back, and emergency replacement money (Credit cards) will come at 16-2x% rate. Also the 6.5% may be tax deductable. Tax Topics - Topic 456 Student Loan Interest Deduction there by lower the rate from 6.5 to effective rate around 4%. But the Credit Card are not.
It's true that credit cards charge a higher rate, but that's not what this thread is about.
The sad truth is that we're being lulled into thinking that having debt is actually a good thing, when it isn't. Investment indebtedness is one thing. Not paying off existing debt is not such a good thing.
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