Should you pay off your student loans right away? | Wall Street Oasis

These days unless you?re going to the University of Phoenix, most people end up with about $25k in student loans after graduating. Tack on credit card, car payments, and living expenses, and you?re staring down the barrel of endless debt and very little saving. With comp day right around the corner, that little voice of reason might be telling you to pay off your student loan in its entirety. But before you do, take a second, should you really pay off your student loans quickly? Well that depends...

Before I continue, let me preface this by saying that I am Hispanic and went to an Ivy league school and graduated with less than 10k in student loans (affirmative action!). I have yet to pay this off, and heres why, it is the cheapest debt I have. My loan interest rate hovers around 5% and making payments that are more than the monthly minimum without my killing my bank account is just enough for me to pay it off in a reasonable amount of time. Besides I have more pressing things to pay off (insert jokes in the comment section about my being mexican and having 50 kids).

Based on my conversations with other people, my case is rare, and most people graduate with at least 25k in debt which would stress even the most chill bro out. So here are a few things to think about when considering paying off your loans:

Federal vs Private loans
Always pay off your private loans frst. THese typically have hirer, variable interest rates that you do not want to leave waiting around. Federal loans are more lenient with around 5% interest and grace periods

Credit Cards / Car notes / mortagages
If you have any serious long term, high interest rate debt, student loans should not be at the top of your debt list. Especially, with credit card debt. It is the most expensive and damaging form of debt so if you have it, definitely take care of that before tackling any other debt.

Early withdrawal from your IRA
The simple answer is NO. The long answer is: Don?t do an early withdrawal from your retirement account. You might be tempted. Its ?free? money, that you could use to easily clear out some debt. But, it doesn?t make financial sense. WIth all the early withdrawal fees you pay and the long term loss of compiled interest on the original balance in the account far outweighs, the immediate short-term gains you?d get.

Smaller Contributions to your 401k
Again, the simple answer here is NO. The long answer is don?t reduce your 401k contributions. Especially if your company is matching your contributions. Max this out early on while you can afford to. Later on when you have a family and a home, you will likely have to scale this back so don?t start now.

The main takeaway is If you?re serious about getting rid of debt, the key is to carefully look at where your money is going. You don?t have to get fancy and put together a budget plan. Use something mike mint.com to show you where your money is going. Even putting aside an extra $50 bucks a week will help. Oce you get into the habit of saving and getting rid of unnecessary expenses, it won?t seem like a burden anymore and you?ll be better able to manage your debt. Maybe I should take my own advice and pay off my last 6k...

Source: http://www.wallstreetoasis.com/blog/should-you-pay-off-your-student-loans-right-away

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