Pay Off My Student Loans In Full or Make Monthly Payments?

[whitecat5000]

I have the ability to pay off my student loans completely now and be done with it. It would almost completely wipe out my savings, but I would be debt free. Also I would save about $8,000 in the 20 years if I paid it off in full now. Just asking for feedback.

I hear three main theories from friends/family.

1. Keep paying the loans as is because it will show a good credit history, and it's very important to have savings in the bank.

2. Pay them off because you never know what will happen in the future and no debt is good debt.

3. Pay off extra each month. That way there's credit history and also savings on interest and in the bank.

The hospital I work for does not offer loan repayment contracts. So that option is out. And I'm financially lucky enough where I don't qualify for almost all loan forgiveness/help from third parties. What do you all think? Any feedback?

[Pets to People]

Absolutely pay them off if you have the opportunity. You can build credit in so many other ways and yes you need a cash cushion of about 3 to 6 months worth of expenses as an emergency fund, but you can take what you would be paying into your student loans every month and put that away in your savings and you will have your emergency fund in no time.

Just think of all the money you will be saving by not having to pay all that interest, it adds up quick.

There is nothing better than having the peace of mind that comes with not having debt, believe me, I know and I wish I could get that piece of mind, but I will have to wait quite a few more years.

[Whispera, MSN, RN]

You said you'd save $8000 over 20 years if you pay off now. That's $400 per year or ~$33 per month. Hmmm...

Is the interest you pay deductible on your taxes? If so, that would mean it's costing you less than ~$33 per month to have the loan (not counting the principal you would have to pay each month). Does that make a difference?

Suze Orman, a financial guru, says people should have enough money in savings/checking so they could pay their expenses for 8 months. After you have that cushion you can do other things. I don't think anyone should avoid having a financial safety net.

One thing on the other side though...if you run into hard times, student loans can't be part of a bankruptcy. Once you have them, they're yours until paid off. Suze says pay them before you pay charge cards that can be part of a bankruptcy.

It's nice to be debt-free, I would think. To be debt-free without enough in savings/checking for emergencies can be downright dangerous!

[caliotter3]

I would pay off extra each month in order to build the credit history and I would definitely commit to a schedule that would allow you to get them paid way, way early.

[Multicollinearity, BSN, RN]

I'm a big believer in having at least one year of living expenses in a savings account. Doing this recently let me quit a toxic job without having another one lined up.

I'd strike a balance between paying the debt and keeping your cash in savings. If you have one student loan account that is high interest, you want to pay that one first. I'd increase your monthly payments to pay down principal, but keep most of that cash cushion. You never know if and when you'll need it.

[klone, MSN, RN]

I would keep a $500 starter emergency fund in your savings account, then pay of your student loans ASAP (as well as any other consumer debt you might have) then work on rebuilding 4-6 months of savings again as soon as possible. But yes, I think you should pay off your loan in full, if you have the money to do so.

[Piglet08]

I think you're asking the wrong people. Find a financial adviser, or get some books on the topic. How do you know any of us know what we're doing with money?

[llg, PhD, RN]

I think you're asking the wrong people. Find a financial adviser, or get some books on the topic. How do you know any of us know what we're doing with money?

I definitely agree -- and should have said that above. But it's hard to find a financial advisor you can trust, and hearing what other people have done is not a bad thing. Just don't put all your trust in strangers on the internet.

[cally527, RN]

How about doing a little bit of all 3 options? Use a chunk of your savings to pay off 1/2 of your current student loan debt. Then pay more than the monthly minimum every month until they are completely paid. This way you can still have a good amount in savings for emergencies, your loans will show on your credit report in a positive way, plus you are paying the loans off in less than half the time it would take if you just pay the minimum monthly, saving you interest.

Also, once you make your final payment, increase the amount of your saving by adding the money you normally would spend on your monthly loan payment to a savings or retirement account. Most banks allow you to set up automatic transfers for things such as this.

[CrunchRN, ADN, RN]

Pay them half off so you have some savings and pay double payments every month. That way you will pay them off quickly and have emergency funds.

[Mulan]

I'd pay them off and save $8000.00.

You may as well throw that $8000.00 in the trash if you are going to pay it in interest charges.

The freedom of not having that debt will be priceless.

If an emergency does come up, which it very well may not, I'm sure you will have another way of financing it.

[OCNRN63, RN]

be smart now and pay it off. you can build it back up better without having a monthly student loan looming over your head. why pay off all that interest when you don't have to.

all that interest is like free money for the loan company. i agree; pay it off. without those loans you'll be able to substantially build up your savings and be in a better position to take out a loan for something like a car or house.

[hiddencatRN, BSN, RN]

I would caution against completely wiping out savings. Why not make a large payment that leaves a solid emergency fund and then make larger monthly payments to get rid of the rest of it quickly? You'd still save on interest but gave the security of savings for unexpected things.