Guestpost by Erika of Newlyweds on a Budget
When I graduated college in 2006, I had $30,000+ in student loans. That’s about the norm, considering students today are graduating with $25,000 in loans, according to CNN Money.
After graduation, I went on my merry way, never thinking much about paying off my student loans. I had to first worry about saving enough money to move out of my parents’ house. I also needed to buy a car to get to and from work (southern California isn’t exactly known for its public transportation service). And in between working four jobs to pay for all my bills, I thought I deserved to spend hundreds a month on nights out with my friends because frankly, I was working very hard and of course, I deserved it.
About four years later, I finally woke up to my disastrous ways. I realized in order to ever feel free from the shackles of debt, I would have to pay off my student loans. Steadily began my plan to become debt free. I spent the first year and a half of my paying-off-debt journey on paying off credit cards and car loans. After a couple of bumps along the way, we paid off all our debt except for student loans in March 2012.
Now what remains is a little over $20,000 in student loans. Here are three reasons to pay off student loans now, not later:
Paying thousands in interest
After a year and a half of semi-deprivation in order to pay off our other debt, there’s a little part of me that sort of feels like I’m done or I should be done with trying to pay off debt. After all, it’s student loans—it’s good debt, right?
The truth is, these loans will cost me thousands in interest the longer I wait to pay them off. According to a student loan calculator, if I kept paying the minimum on a $25,000 student loan with a 5.9% interest rate and a $150 monthly payment, I would pay $27,350 in interest over the life of the loan. That’s more than the original loan amount itself!
Shave years off your loans
In addition to paying more than $27,000 in interest, I’d be paying these loans for almost 30 years. 30 years is a long time.
Conversely, by doubling the minimum payment of $150 to $300, you could pay off the loan in 9 years, shaving off more than 20 years of payments! Talk about a wake-up call.
I’d rather just hunker down and pay them off within the next three years.
In addition to saving thousands of dollars in interest and shaving off years from student loan payments, paying off your student loans is the path to financial freedom. $150 to $300 may not seem like a lot, but you could be contributing this amount of money toward retirement, which is worth hundreds of thousands of dollars the longer you have to compound interest.
Any money spent on paying off debt is keeping you from building wealth. Paying off student loans now, not later, is a key step toward financial freedom.