The Pros and Cons of Paying Off Student Loans Early

Have you ever thought, “I should see if I can pay down my student loans,” but then never get around to it because paying them off feels impossible? 

If you’ve had this thought, then you need to know that there are definite pros and cons to paying off student loans early, and it’s something you need to consider when building your wealth.

Student loan debt has become a normal part of life in the U.S. (for now), and when the average federal student in the U.S. owes $37,113, it’s a financial strain that hinders anyone’s ability to save.

Choosing a repayment plan is hard, too. Student loans aren’t one-size-fits-all because not everyone has the same balance (or interest rate). 

Student debt isn’t just a problem to have when you just leave college. It’s also a big problem down the road when you’re deciding between paying off your student loan debt or sacrificing the cash for a new car, wedding, or buying a house. 

If you’re looking at your student loans and asking “What now?” you should evaluate the pros and cons of paying them off early.

The Pros Every Borrower Should Know

It can be hard to save money on an early professional’s salary, but paying off your student loans earlier can offer some beneficial outcomes.

With an early payoff, you’ll have more money to spend on necessities, and you can take a big step toward securing your financial nest egg.

1. Devotion Matters

Let’s consider that your bank account is healthy enough to pay off your loans. Congrats, friend! Freeing yourself from your student loans is probably making you feel spontaneous with your finances and over control of them, too. 

But now is the time to put on the brakes and look into ways you can make smart money decisions by investing. Have you ever wanted to invest in Bitcoin? Invest money to grow your retirement? Or even invest money in art? Now is the perfect time to begin to set yourself up for financial success by just thinking about these investing decisions.

Editor’s Note: Have you ever wanted to become an investor in the stock market? This guide will tell you all you need to know to get started.

Just look at investing in terms of buying tacos. Instead of splurging for your friend’s party and buying, perhaps, 80 tacos, consider the 160 tacos you can get later after you’ve smartly invested and multiplied your money after paying off your debt. More tacos = more love.

2. Tax-Advantaged Retirement

Here’s another big pro: Paying off student debt lets you devote money toward your 401(k), retirement plans, or your overall general savings for retirement. Paying off this money gives you better peace of mind and should address stressors like the thought, “Will I have enough money to live on?”

3. Build Your Emergency Fund

With your student loans out of the way, you can spend some time rebuilding your financial system. Now is the time to recalculate how much you can put into your savings, brokerage account, and emergency fund.

Your emergency fund should have at least 3 to 6 months worth of savings. We’re talking about being able to cover rent, car payments, food, medical surprises, electricity, and whatever else Murphy’s Law throws at you.

With student loans out of the picture, you can figure out what portions you can devote to your emergency fund.

4. Emotional Payout

Need I say more? Your blood pressure will drop, your mind will clear, and it’s always a great feeling to make the final payment. Find a few ways to treat yourself that won’t break the bank.

The Cons of Early Payoff

When weighing the pros and cons of paying off student loans earlier, if paying them off early leaves you struggling to maintain a financial situation, not only is paying them off impractical in some cases, but it could also end up being detrimental in the long run.

In this case, paying off your loans early might not be a good short-term or long-term decision.

1. Consider The Odds

Consider your monthly expenses. Do you have a car payment? Rent? Credit card debt? If you can’t take the financial hit, today might not be the right time to put a chunk of change toward your student loans. 

Although paying off your loans sooner could save you some money, it’s better to be prepared for emergencies. Sometimes carrying the boulder of burden now is better than carrying two later.

2. Nice And Easy Does It

First, never extend your loan longer because you think it’ll help your credit score. 

Why? Building credit is a slow and steady race that comes from multiple sources. A big portion of building your credit comes from the amount of credit that you use each month. A good guideline to follow is to use 30% of this limit every month. The lower you can keep this number the better it will be for you.

There are other factors to building your credit including paying your bills on time, disputing credit report errors, and even getting credit for rent and utility payments.  

It’s not unusual to hear stories about people who’ve paid off their debt to only have their credit take a hit. You may find yourself riding the same dip. Your credit score will recover, but factor in whether that will change any of your financial goals for the year.

All this goes to say, don’t hinge on your student loans for giving you an immediate credit score bump. 

3. Forgiveness And Reducing Your Total Loan Cost

If you are struggling with your loans, you might want to see if any help is available to reduce or forgive your loan before throwing money at your balance. 

For example, if you are a teacher, public service worker, disabled, have Perkins loans, or you think you have any other qualifiers for aid, read the Federal Student Aid site to see if you can qualify.

What Paying Off Student Loans Really Looks Like

Paying off your student loans is about self-discipline, smart spending habits, a little bit of price comparison, and knowing what financial aid might be out there for you. 

Instead of getting drinks every Tuesday with friends, perhaps consider going out every other Tuesday or once a month. 

Instead of justifying that you need that graphics card, maybe you could get by on what you have for now unless it’s detrimental to performance and studies. 

Making these seemingly small decisions and alternatives can greatly impact your wallet. Your wallet cannot govern itself – you have to be the one to call the financial shots.

Whether or not you can pay off your student loans early, weighing the pros and cons of paying off student loans early is important. Plus, the promise of your financial independence is the real payoff and is definitely worth working toward.