It is very common to graduate with student loans. Many people carry the student loan debt with them, even when they do not have any other debt. You may be wondering if you should include your student loans in your debt payment plan or if you should pay your student loans off early. You should pay off your student loans as quickly as possible.
1. Lower Your Debt to Income Ratio
One good reason to pay off your student loans is that it will lower your debt to income ratio. This means that you have more money available to you when it is time to buy a house or make other decisions. You will not have the commitment to make that additional payment every month. This frees up your money, and you have the opportunity to invest it and really begin to make money.
2. What About the Tax Break?
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 that only $2500.00 of the interest can be deducted each year. Additionally the amount starts to phase out if you make more than $65,000.00 a year, if you are single. Finally, you will still end up paying money either to interest or to taxes.
3. How Much is the Student Loan Costing You?
Even if you can deduct the majority of interest you are paying on your student loan, you should consider how much money you are losing each month because you have the payment. If you invest it in a mutual fund, you can be earning high interest rates on your investment. Even if you are not paying interest, you are losing the earning potential of the amount of your payment each month.
4. Student Loan Debt is 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. The only way to avoid this is become permanently disabled or to die. If you hit a spell of bad luck, it is that much harder to get back on top of things with student loan payments. Once you pay your student loans off early, you will be much better equipped to deal with financial crises in your life.
