There are many ways to prioritize your loans, and it depends on a variety of factors. You’ll obviously have to pay the minimum monthly payments on your loans, but should you pay more to get closer to that final payment or save more for your future?
When to Pay Debt Before Saving
Building a large reserve in a savings account might offer comfort, but it can come at a low return and a high cost. In general, simple math suggests you pay off the debt as soon as possible and then focus on saving up.
It is also important to pay attention to your interest rate. If your loans have rates at 6% or higher, then an accelerated payoff plan would be recommended.
When to save Before Paying Debt
It is important to note that not all loans are made equal. The rate at which you should pay depends on how much you owe, whether your loans are public or private, and their interest rates.
Especially if you interest is very low and your emergency fund is minimal, it may make sense to save up first. If your interest is at 3% or less, then financial planners suggest there is no rush to pay your loans off early.
An Ideal Solution
In general, it is in your best interest to quickly pay off your loans before building a large savings—but you don’t want to be without some savings. The best solution is to find a balance between paying off debt and adding to your savings. Remember to keep in mind the sooner you pay off your loans, the sooner you will have a huge weight lifted off your shoulders!
Courtesy Off: CNN Money
