Should I Pay Off My Student Loans Early?

TL;DR

A listener asks whether they should pay off their student loans now or make aggressive payments over the next few years.

Transcript

Alison Southwick: The next question comes from Ricky. "I graduated college almost four years ago and still have about $25,000 in student loan debt. Knowing it would not be wise to touch my home equity or 401(k) account yet [I just turned 26], I finally reached the point where I could empty my brokerage account and emergency savings and completely p... Read More

Key Insights

• ☠️ Consider the interest rate on your student loan debt before making a decision.
• 🧑‍🎓 Don't drain your emergency fund to pay off student loans unless it's a strategic decision.
• 👋 Not all debt is bad; mortgages can be considered good debt.
• 🤑 Paying off a 0% loan early may not be necessary if the money can be better invested elsewhere.
• 😘 Long-term investing may provide better returns than paying off low-interest student loans.
• ⚾ Financial decisions should be based on individual circumstances and risk tolerance.
• ❓ Paying off debt can provide emotional relief.

Questions & Answers

Q: Should I drain my emergency fund to pay off my student loans?

No, the emergency fund is meant for unexpected financial emergencies. Paying off student loans is a strategic decision, not an emergency.

Q: What should I consider when deciding whether to pay off my student loans?

The interest rate on the student loan debt is crucial. If it's under 5%, it's better to focus on long-term investing. If it's over 7%, it's recommended to pay off the debt.

Q: Is all debt bad?

No, not all debt is bad. Mortgages, for example, can be considered good debt because they enable you to own a home at a lower cost than long-term investments would provide.

Q: Would it be wise to pay off a 0% car loan early?

It depends on your financial situation and investment opportunities. If the loan doesn't cost you anything, it may be more beneficial to keep the money invested elsewhere.

Summary & Key Takeaways

• A listener asks whether they should pay off their student loans or continue making aggressive payments for several years.

• The advice given is to not drain the emergency fund and to consider the interest rate on the student loan debt.

• If the interest rate is under 5%, it is recommended to keep the debt and focus on long-term investing. If the interest rate is over 7%, it is advised to pay off the debt.