Many college students graduate with student loan debt and carry that debt with them throughout adulthood. But that student loan debt may be hurting you. You may be wondering if you should include your student loans in your debt payment plan or if you should worry about paying off your student loans early. The truth is that you should pay off your student loans as quickly as possible.
Here are five reasons you should focus on paying off your student loans.
- Your Debt -to-Income Ratio
One good reason to pay off your student loans is that it will lower your debt-to-income ratio. That means that you have more money available to you when it is time to buy a house or to borrow money for a car. If you pay off your student loans, you will not only be free of those monthly payments, you’ll also be able to reach your other financial goals more easily. Plus, you’ll have the opportunity to invest the money you’d otherwise be sinking into your student loans. Then you’ll really be able to focus on building wealth.
- The Tax Break Isn’t That Great
One common misconception about student loans is that you should keep them for the tax break. This may be enough reason to put the student loans at the end of your debt snowball, but you should realize that you can only deduct $2,500 off your taxable income. This amount is nominal and you’ll likely pay much more in interest than you’d save via the tax break over the life of your loans. It’s better to be rid of the student loans rather than hanging on to them for a tax break.
- It’s Costing You
Even if you take advantage of the student loan tax break, you should consider how much money you are losing each month due to both your student loan payment and interest. Depending on the amount of student loan debt you have, your payment may take up a sizeable chunk of your budget. If you pay off your student loans, you will be able to save up more quickly for other financial goals, such as saving up for a down payment on your first home, taking a European trip, starting an investment portfolio, or opening your own business.
- It’s Virtually Unescapable
Many people who are overwhelmed by student loan debt hope that bankruptcy may offer a solution to their problem. However, if you declare bankruptcy, you still must pay your student loans back. One of the only ways you can get out of paying your student loans is in the event of your death, or if you qualify for certain student loan forgiveness programs. That’s why you should focus on paying off your student loans. There’s really no getting out of it. Once you make that very last payment on your student loan debt, you will be much better off financially.
- Get Rid of Financial Worry
If you want to reduce your financial stress, you should work on paying off your student loans. Even if your student loans are at the end of your debt payment plan, you can benefit by working on getting out of debt and reducing the amount that you owe. You should include your private student loans in with paying off your consumer debt like credit cards since they are not eligible for the tax breaks and likely have a high APR.
Getting on a budget, and making a debt payment plan can help you clear up your debt and make it possible for you to stop worrying about money. It should be part of your plan when you first graduate from college.