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Should You Make Extra Payments to Your Student Loans or Your Mortgage? Actual Answer Provided.

I have googled this so many times in the last several years and never get a proper response. That’s probably a good thing because it has forced me to do my own analysis, and my conclusion is (drum roll!) to pay off the student loans.

Photo by Tim Gouw on Unsplash

Before I explain why, here’s a summary of all the other articles I have read on similar topics:

  • Pay off higher-interest debt like credit card debt first
  • Student Loans and Mortgages are considered “good debt”
  • Investing your “extra” income can yield higher earnings than the interest savings from paying off either of these debts early

If you don’t understand any of the points I just made, read this first. It’s helpful to consider all the above points and others made in this article before you commit to paying off your student loans or mortgage.

If you do understand all of this, and you already have an emergency fund, a budget, retirement plan, and a certain amount you can use to pay off one of these debts, let me explain why you should pay off the student loan debt.

This is my personal opinion based on my circumstances and beliefs and the following should not be considered financial advice. The following is simply a list of my opinions and reasons why I am aggressively paying off my student loans.

Higher Interest Rate

This one is simple. In my case, the student loans were higher interest rate than my mortgages. Yes, I have more than one. Without doing the math, I believe I can save more by paying the higher interest rate debts.

Lower Balances

I really hope this is true for you as it is for me. Luckily, my student loan debt was smaller than my mortgages, so it felt like something manageable I could create a plan for and pay off.

They Never Go Away (You Can’t Sell Them)

Psychologically, this was a big motivator for me. Not bankruptcy, not death (Actually I think there are some loans or circumstances that will cancel a debt). But it’s best for my motivation to believe nothing will make this go away. As a person who has had life insurance since I was 23, I believe in being prepared for the future and leaving loved ones with the support they need, not a debt.

Another scenario that we hope never happens (but does) is losing a job. Unlike my house or possessions that I can sell, the student loans cannot be sold. You can put them in forbearance, but the interest still continues to accrue. Please note, my houses are worth more than my mortgage loan, so this helps me weigh or understand the option to sell my house in the case of a financial hardship.

As a person seeking financial freedom, I don’t like the thought of a debt that can’t be sold or forgotten. What if I want to quit my job, sell my possessions, and travel the seas or live with monks. I don’t want to right now, but just theoretically I couldn’t because I would still have my student loan debts.

Photo by Fuu J on Unsplash

No Loan Forgiveness Mindset

It’s 2019 and society and politicians are finally understanding how bad the student loan situation is… thankfully. We have candidates talking about loan forgiveness. There’s also loan forgiveness programs out there, but they require certain loans, years of commitment, and potentially a job change. Check out requirements here, but also read about rejections here.

I feel like there’s hope, but I also have been actively trying to get out of the “somebody or something is going to save me” mentality. You might think you don’t have that mentality (I didn’t think so), but when you think that “you’ll be happier when” that is essentially looking at that thing, person, or situation as your savior. So, stop that. Save yourself and create a plan to get to where you need to be.

I do believe we need some policy change, and I hope for loan forgiveness especially to those who deserve it and have followed the protocol to receive it, but I personally can’t sit around and wait for it. Not when I’m looking to be financially free as soon as possible.

My suggestion is to pretend this is not an option if you don’t actually qualify for the existing programs. I hope more programs are created, but we have no idea when that will be or what will be the fine print or requirements. If you are reading this, it is likely you have extra income and are able to make the extra payments. This is obviously for someone searching for information about where to put their “extra” income.

I’m Not Investing The Extra Money, Anyway

A reason I didn’t make big payments on my student loans after graduating was because I read that if I invest, I would earn around 8% interest or more! That sounded great, so I didn’t payoff my loans. Fast-forward 5 years later and I’m starting grad school. I got nervous about the additional amount of money I was going to borrow.

I started doing the math, and then I retracted my steps a bit. Why did I still have so much debt from my undergrad years? If I had made more payments which was completely do-able, I wouldn’t have any student loan debt going into grad school. That really pissed me off. I told myself I wouldn’t let the “invest your money” thing prevent me from paying off my loans once I finished school. Just to clarify, I was investing in 401k and doing a bit of stock market, but not enough to justify my lack of extra principal payments to my loans. If I’m honest, my money was truly going to shopping, bars, eating out, and travel.

It is true that you can make more money investing, but are you an experienced investor? Do you know what you’re doing in the stock market? Do you have a business in mind? When are you actually going to start? Be honest with yourself. If you don’t know, make the extra payments now until you figure it out. I believe in investments if they are educated, calculated, and actually happening. As mentioned before, this should be after 401K matching and an emergency fund is established.

Conclusion

Those were basically my reasons and motivations for choosing to pay off my student loans. Think about your case specifically to determine what makes sense. I really wasn’t so aggressive until I wantched this YouTube video. This girl paid off $85K in debt in 7 months. She was making $10K payments a month to her loans which I was like “Woah! I can’t do that”, but it did get me thinking what I could do. The other interesting thing is that she is still renting and all, but it shows you the different mentalities on money, spending, and debt.

In summary, student loans just suck. While a house is your home. If you move or don’t want it, you can sell it. Student loans are like baggage. They were used already, and you’re now just paying for it. Try to get rid of it as soon as you can. I believe in you.

Published by Mayra Leen

www.MayraLeen.com

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