Why accelerated student loan repayment may not work
Are you burdened with your student loan debt? Student loan is one of burdens that millennials graduates battle with nowadays. No one is happy with debts. That is why an average person will try everything he could to quickly get out of student debts. Some people will not mind adopting accelerated repayment in order to ensure that they pay off their student loans as fast as possible. This may require that they increase their monthly payments, pay a lump sum, get a different repayment plan or consolidate their student loans with other loans. While student loan accelerated repayment can be a good idea, it may not be a perfect plan for everybody. Below are two reasons why accelerated repayment may not be a nice idea.
You have credit card debts: Interest rates on credit cards are usually higher than that of student loans. If you have high interest credit card debts, it is better to direct your efforts towards paying off the credit card debts first while you pay the possible minimum amount on your student loans. After you have finished paying off the credit card debts, you can now decide to accelerate your payments on your student loans. One problem with high interest debts is that, you may be making payment every month but the loan balance may not change significantly. This is because, a large part of your payments may just be going towards servicing the interest element of the debts while the still principal remains.
Read Also: Income Based Repayment: How to Pay Student Loans
You don’t have emergency fund: Whether you believe it or not, you still need to attend to other things besides your student loans. While paying off your student loans is nice, you still need money to meet other obligations. Apart from your normal routine expenses, there will be times that you will need to quickly make unexpected payments such as medical expenses, unplanned trips and burial expenses. If you use all your money to pay student loans and leave nothing for emergency, you may resort to borrowing when the needs arise. AS you know, money is most expensive when it is needed.
Therefore, before you use all your available cash to pay off your student loans, you need to consider your other obligations.