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7 Reasons to Pay Your Student Loans Off Fast

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Do you have student loan debt? Since many of you have an incredibly low interest rate of 3.4%, I often get the question as to whether or not you should pay it back quickly, or just make the minimum payments until it’s gone in 10 years (the typical term of the loan). Most of the time, adults will advise you to just keep the loan and invest your extra money. After all, you could earn more than 3.4% in the market with your eyes closed. Don’t believe them boys and girls. While this could be true in some instances, many times it is a myth. Here are seven great reasons to pay your student loans off fast:

1) Guaranteed Interest Savings

$20,000 student loan figures
$20,000 student loan figures

While 3.4% sounds minuscule, it can still add up over the course of 10 years. I took the liberty of calculating the overall cost of a $20,000 loan. Take a look at the figures to the right. After your 120 payments of $196.84, you will have actually paid $23,620 for your loans, not $20k. Think of what you could do with that extra $3,620. Heck, that’s probably enough to buy a second car!

2) Investing Elsewhere Could Lose You Money

There are so many people that think they can earn so much money in the market, but I have news for you, the market isn’t all that good these days. Do the math: the Dow Jones is near it’s all-time high and our nation is continually facing government shut-downs because we have more debt as a nation than we will ever pay off. What are the odds that you will earn thousands of dollars in the long term by investing in the market? I say they are incredibly slim. Avoiding $3,620 of student loan interest payments suddenly sounds pretty good doesn’t it?

3) It’s Easier to Maintain Your Lifestyle than Lower it

Most students don’t want to stretch out those loan payments for the full 10 years, but they just aren’t certain that they want to start paying them off aggressively right now. Let me tell you, the best time is now. If you decide that you want to buy a nice car and a house before you start putting extra money toward your loans, you have pretty much guaranteed that you’ll be paying that $196 for the full term. If, however, you decide to start paying on them right away, it won’t feel that bad because you were used to living as a broke college student before anyway. If you just keep living the way you did those first four years, you could have that loan paid off in 12 months, not 120.

4) It’s Better For Your Future Relationship

If your future spouse has absolutely no loans whatsoever and you have $20,000, that difference will definitely come up in a future argument. No doubt about it. If you both start your new life together with no debt, life will be so much more blissful.

5) Improve Your Future Cash Flow

If you ever have a chance to talk with a panel of millionaires and ask them what one of the most important steps is to becoming wealthy, they will tell you to get yourself out of debt, hands down. The main reason is not necessarily to save money in interest (although that is part of it). It’s to free up your cash for future investments. If, instead of making $196 payments each month, you put that toward an investment that yields 10% compound interest, you’ll have $1.1 million dollars in 40 years. Simple as that. It’s definitely better to free up your money for those future investments – you never know when the next Bill Gates could be knocking on your door.

6) Improve Your Credit

It is a well known fact that those that are aggressively paying down their loans are much more likely to pay their bills on time than those that are making the minimum payments. It just makes sense doesn’t it? When paying down your debt is a major focus, you’re going to remember to pay the bills before that due date arrives. And, by making this payment on time, your credit score will likely increase.

7) It Just Feels Good

I remember when my high school Spanish teacher walked into the room with a big smile on her face. She announced to the class, “I just made the last payment on my student loans!” I remember my first reaction being, “You’re still making student loan payments? You’re like, 40 years old!” Thankfully, I was smart enough to internalize that thought instead of blurting it out, but it just goes to show you that emotion plays a huge role in debt repayment as well. We feel great when we no longer owe anyone that monthly payment that has been hounding us for so long. Pay off that loan and you won’t regret it.

Do you have student loans? Are you paying them off quickly?

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AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

20 Comments

  1. Derek- I completely agree with paying off student loans fast!

    I paid mine off this year (finally!) after YEARS of paying the minimum payment and not a penny more. I finally realized (with some help from Dave Ramsey) that I need to get this paid off. I’m so glad that I did and it’s allowed me to finally stop living paycheck to paycheck.

    • Dave Ramsey got me going too. While I don’t agree with everything he says, he does speak the truth and most of it is spot on. Congrats on paying off your student loans by the way!

  2. If we had fixed rate student loan debt at 3.4% or less and it wasn’t a large burden I would rather invest for retirement. Your early years offer the most compounding time. However, since my wife had $80k in loans with variable or higher fixed interest rates we decided to destory her debt. Keep in mind that interest you pay will also be with inflated dollars that are worth less than today’s dollars.

    • What would you invest in Lance? Just out of curiosity.

  3. We paid off the student loans quickly. Much better for us because I hated those monthly payments!

    • I hate the monthly payments too. Right now, I just have my $700 house payment. I’d like to get rid of that soon too!

  4. Great advice! I share the same sentiment, it’s best to get yourself out of debt to make life easier for you in the future, you can also focus your energy and finances on investments if you don’t have debts to worry about.

    • Thanks for the kudos Robert! Did you ever have college debt?

  5. I am very lucky in that my student loan rate and my mortgage rate are both close to 3%, but the student loan is almost a full percentage point lower. As such I typically pay extra to my mortgage rather than my student loan despite the tax benefits of the mortgage, simply because the balance is higher and it’s easier to do one off payments.

    • As long as you’re working to pay down something, I’m ok with that. Thanks for the comment Jack!

  6. I paid mine of this year and I’m like, 39 years old! I should have followed those tips when I got out of school, but wanted to buy things I thought I needed or deserved. Dumb idea.

    • Well you can’t change the past now can you? Time to look into the future and find out how you can improve it with your decisions today! Thanks for the comment Kim.

  7. I think the biggest reason would be that you never know what life throws at you. Any debt is still something that drags you down and can mess up your finances in case you cannot work or something else happens to you. Being debt free as fast as possible allows you to save money for emergency and the future, not to mention that any ‘blow’ you might receive won’t be that hard to handle.

    • Great point dojo! I just saw an ad on craigslist yesterday, “Looking for someone to take over my car lease payments. Life has thrown me a curve and I need to get rid of it.” When you take on too many payments, life can more easily be disrupted by an unforeseen event!

  8. I am also in favor of paying student loan fast. A year ago I paid off the last of my 23k in student loans 3 years after I graduated and fit a wedding in there too.

    • Nice job Jon! It’s not always easy to pay it off, but once you do you never regret it!

  9. I’m with you!
    My husband and I have about 50k combined in student loan debt and we’re on track to have a lump sum to pay off both by the end of next year. Just in time for when we want to start trying for children!

    • That’s awesome Laura! You will never regret it. Keep me posted on your success. I love hearing from my readers as they pay down their debt. 🙂

  10. I’m in the pay them off ASAP camp. You never know where life is going to lead you. You might have a great opportunity come your way that you cannot take advantage of because you are stuck with a monthly payment. Get them paid off and enjoy being debt free.

    • Having as much cash flow as possible is the key to growing your wealth. And, the best way to do this is to reduce your debt and get rid of those monthly payments. When you have an extra $2,000 a month, suddenly opportunities just seem to come your way. 🙂 Thanks for the comment Jon.


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