- April 22, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Financial Situation: Private Student Loans vs Savings
I am currently grappling with the decision of whether to pay off my remaining private student loan balance or to continue making overpayments on a monthly basis. As of now, I have $32.5k in private student loans and $20k in savings. I have been consistently overpaying on my loans, allocating an extra $1k every month towards them.
## Decision Dilemma: Paying off Debt vs Building Savings
Given my current financial status, I am contemplating whether it would be more beneficial to utilize my entire savings of $20k to pay off the remaining balance of my student loan. By doing so, I would free up an additional $1k per month that I am currently allocating towards loan repayments. Alternatively, I could wait until my savings reach around $10k before deciding to eliminate the loan altogether. This way, I would still have a safety net of savings in case of emergency expenses.
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I’d figure out what amount I want as an emergency fund and pay the loan off whenever I have enough for loan+that size of emergency fund left over.
No. You need savings for emergencies
https://www.reddit.com/r/personalfinance/wiki/commontopics
Figure out what 3-6 months of expenses are to keep in savings in case you lose your income. Anything above that you can consider throwing at the student loans to accelerate getting rid of them.
If you don’t have any other debt and your needs are being met it would make sense to pay them off unless your interest rates are super low.
It depends a lot on the interest rate
What are the interest rates and amounts of each loan? That is what matters.
But no, don’t use all of your savings. Maybe use a bit to pay off the highest interest rate loans. And make sure that your overpayment is directed only at the highest interest rate loans, not distributed over all of the loans.
Here’s what I’d recommend:
1. Figure out what you want in your savings that covers minimum expenses (including loans) for 3-6 months. That is your ‘do not go below’ line.
2. What you have left over you can allocate to loans…or something else
3. If you have high interest rate loans, it’s worth paying those off. If they’re low, then you might be better off to invest what is left over – if the return on the investment >> rate on the loans, then invest. Otherwise, pay.
Good job saving up some money.
Kill off the $15k, 8.625% loan with your savings. Pay minimum on the 6.25% until you feel comfortable that you have enough emergency fund, then start paying the max you can afford on it every month. From the sounds of it, you could have it all knocked out in around a year or so.
I don’t know your financial situation entirely but personally, I would throw 3-6 months of emergency expenses in a HYSA (Marcus by Goldman Sachs is a solid one), and then annihilate the student loans, starting with the highest interest, highest principal first. Then, continue with attacking the loans with the highest rates.