At the end of last year, I sat down and drafted my 2008 financial resolution. The goal was to pay back $10,000 of my student loan debt by the end of this year. This would require approximately $834 per month. After the first four months of this year, I’m still on track to meet my goal by the end of the year.
However, I’ve recently been reevaluating my situation, and I’m thinking about altering my resolution for the remainder of the year. Instead of aggressively paying back my student loans, I’m planning on reducing my student loan payments and using that money to invest in my retirement accounts and increase my emergency fund. I know this probably seems hypocritical coming from someone who has written about how to quickly pay off your student loans, but here is why I’m planning to do this.
- Low interest rate - My student loan debt is consolidated at a low fixed rate of 3%. Based on the expected return on the investments in my Roth IRA and Roth 401(k) in the long run, it makes more sense to pay back less debt now and invest that money instead, especially since I’m still in my mid-twenties. By reducing my monthly loan payment from $834 to $200, I’ll be able to contribute an extra $4000 to $5000 into my Roth 401(k) this year.
- Unexpected expenses - A recent trip to the dentist reminded me of how important it is to have an emergency fund to cover unpredictable expenses. While I was expecting to have to pay for some fillings, I didn’t realize that I would also need a crown, which is a lot more expensive. Fortunately, I’ve been building up an emergency fund, so I was prepared. Reducing my student loan payments will help me replenish my emergency fund.
Has anyone else been in a similar situation before? Do you think I’m making the right decision?
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Sounds like a good plan…I’m currently paying approx. $500/month on two sets of loans, one of which I’m paying the minimum and the other I’m paying about twice the minimum. I work for a non-profit so my salary isn’t that much - I guess I should be happy that I’m paying the minimums! As far as setting aside the equal amount of monthly funds you owe into a savings account - I did the same and am very happy that my emergency fund was established fairly quickly!
I just posted this on another blog, but it helped me out big time & I wanted to share.
I was in a similar situation not too long ago. I was referred to a company called Canada Debt Settlements and they saved my life, almost literally. I was extremely stressed and on the verge of a break down. As dramatic as that reads, and it was my own doings, it’s the truth. I don’t know exactly how they do it, but their website is informative. http://www.canadadebtsettlements.com
I just know that they compressed all of my debts and settled them out for thousands of dollars that I owed and only charged me a fee after they did their job.
Hope this post could be of help.
Correction. they settled them out for thousands of dollars LESS than what I originally owed
Sorry about that!
And to add, now I am debt free & building up my credit quickly. I was looking into Credit Counselling & Bankruptcy etc. and this was the best option that I stand by and couldn’t be more happy!
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