Pay off Loan: A lot of students carry student loan debt with monthly payments and total outstanding balances. Repaying student loans, whether they are federal or private loans, is a common goal. However, most borrowers also have other financial objectives they want to achieve.
The article explains in details, how to use the calculator. It also highlights some of the strategies in making decision on your student loan.
How to Use the Calculator
The pay off student loans or invest calculator below can offer some guidance on which to prioritize. That is when it comes to investing or paying off student debt based on your specific financial circumstances.
First, input your details surrounding current student loan balances, the interest rate on those loans, and the remaining repayment term you have.
Next, input your current retirement savings balance, the annual rate of return you expect to generate, and how many years are left for contributing to the account.
You may also input additional monthly contributions based on your budget, either allocated toward paying off your student loan debt faster or investing extra money into your retirement savings.
Once these details are input into the calculator, you can see the results of your selected strategy. Your monthly student loan payment changes based on the options you selected, showing savings and the potential interest reduction. It can also show a reduction in years or total repayment according to the selections you make.
Deciding Whether to Pay Off Student Loans or Invest
Always Pay the Minimum
When you are making a decision about adding monthly contributions to student loan debt balances or retirement savings or other investments, it is crucial to know what you can and cannot do.
Always account for the minimum payments you need to make toward your student loans before diverting money elsewhere.
This will ensure you are staying on track for repayment, even if you don’t add extra funds toward your debt each month. Taking this small step also allows you to know how much extra you may have on a monthly basis before you decide how to put it to best use.
Build an Emergency Fund
In addition to understanding and meeting your minimum monthly payment requirements, you have to consider your need for an emergency fund.
Building up savings is an essential part of any financial plan. It allows you to cover financial emergencies, like medical bills, car repairs, or other large, unexpected expenses, without having to run to debt.
If you feel like you have extra cash flow each month but no emergency savings exists, focus your attention there before moving funds to investments or extra payments on loans.
Early Debt Repayment Versus Investing
Another consideration when thinking about whether to pay down student loan debt versus investing is the type of debt you have.
Borrowers who have federal loans with a relatively low interest rate may be better served by continuing monthly payments as planned and investing in a retirement savings account that generates more of a return.
However, those who have high-interest private student loans may want to consider paying off those balances to reduce the total amount of interest.
The Emotional Element
Having extra money each month can feel like you’ve won the lottery of personal finance, especially when you have debt you want or need to pay off or investments you want to make.
However, you must consider the emotional element of taking either approach before doing so. Some people experience a high level of anxiety when they have outstanding debt, regardless of what the interest rate or minimum monthly payment may be.
Strategies to Know if to Pay Off Student Loans or Invest?
One of the questions many young adults face is whether it’s better to pay off student loan, save, or invest.
So when it comes to determining where to put your hard-earned resources, what should you do? You don’t have to think of it as choosing between one goal and another. With some strategic thinking and careful planning for your financial future, you could do all three;
– Making a Budget. A good first step to any financial conundrum is to fully evaluate the situation. Start by gathering all of your financial documents. Then, list out all of your monthly expenses—fixed expenses, like rent, and variable, like dining out. Now, tally up all sources of income and list out your savings.
– Making Payments on Your Loans. Regardless of what your financial goals are; you probably don’t want to forget about your loans and the payments due on them.
– Revising Your Loan Repayment Plan. If you are having difficulty making monthly payments on your loan due to temporary financial issues. Then you could consider putting the loan into deferment or forbearance.
– Paying Off High-Interest Debt.
– Building Your Emergency Fund
– Saving for Your Retirement
The Bottom Line
You may not have to choose between the two. Keep in mind that circumstances change, and what is impossible now may be possible in a year or two. Re-evaluate your situation as needed and be prepared to alter your plans as necessary. But keep investing and don’t lose sight of your set goals!