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I graduated with $ 19,000 in student loan debt, which looks like a drop in the bucket compared to the rest of some other students reaching six digits or more. However, a $ 19,000 note was enough to terrify any recent graduate.
Getting student loans was a necessity for me to go to college. My family otherwise could not afford to attend a public school a few hours away from home. In the beginning, my goal was to get rid of this debt as soon as possible. I would consistently make monthly payments above the required minimum amount, in an effort to achieve this goal.
In fact, I was so aggressive about not being charged that a financial developer I spoke to actually told me that I did not have to struggle to pay the rest so quickly. As he put it, my interest rate was low, so it was good to prioritize other things.
At the time, however, I felt extremely uncomfortable with the idea of carrying debts and could not wait for the day I would make my last student loan payment and close my account. Her words did not carry much weight with me – I still believed that I would feel more secure financially by paying off my debt quickly.
Over time, however, instead of wanting to pay off my balance within a year, I decided I was in a better position to pursue other goals. And while the low interest rate was a factor in my choice, I had some other, stronger, awareness that eventually stabilized my decision.
My federal loans have a low interest rate
Federal student loan rates change every school year and have been declining over the last decade, however, there have been some years where interest rates have actually risen. If you made a subsidy student loans for the school year 2009-2010, for example, you may have received a fixed interest rate of 5.60%. However, if you had received a subsidized federal student loan for the 2015-2016 school year, the interest rate could have been around 4.29%. The 2020-2021 school year actually saw the lowest fixed interest rate on subsidized federal student loans: 2.75%.
The interest rate on my federal loans is about 3.7%. And because I have already paid off most of my balance since I graduated, my interest charges are quite manageable. Therefore, I feel comfortable just making monthly payments that are slightly above the required minimum amount as opposed to throwing a lot more money into debt.
I have no other forms of debt
I was carrying credit card debt and there have been a few cases where I have come very close to maximizing my credit card, but since then I have dominated my spending and repaid my balance. Now, if I make purchases with my credit card, I make sure to pay it off every month. Having no credit card balance makes it easier to manage other aspects of my financial life, including my student loans.
My student loan debt is really the only big debt I carry. I do not have a mortgage, car loan or personal loan. Having less debt on my own allows me to devote my time to repaying this low-interest loan so I can redirect my remaining income elsewhere – such as to investments that could help me build wealth.
I became more comfortable carrying debts
Growing up, I knew debt was a real pain in the ass for my family. And as a college graduate, I wanted to get out of debt as quickly as possible. For many, having a monthly payment on the balance they owe feels like an emotional and financial anchor they need to keep dragging with them. Often, high debt levels can actually hinder a person’s ability to spend money on other goals or expenses.
But not having any other forms of debt really helped me to feel more comfortable with paying off my student loans over a longer period of time. If I had other loans to repay, I would probably feel heavier than the number of payments I made each month. I would feel more willing to get rid of one as soon as possible.
I could have a better return on my investment
I once made monthly payments that were much higher than my minimum, in an effort to get out of debt faster. But I realized that throwing extra money into my student loan debt instead of investing opportunities, I was getting faster debt relief, but I was not building my assets faster. And seeing that I want to be first millionaire in my family, it was important for me to start investing more.
I really had an experience where I made a pretty large student loan payment (well above the required minimum amount) and realized too late that if I invested that extra money in a stock I was looking for and thinking of buying, I would have tripled the money more than a year later (note that tripling your money in less than a year is not uncommon).
I follow a long-term investment strategy, however, I know that every year makes a difference when you try to build your wealth. And seeing that I never knew before how to save for retirement and build wealth or why any of this was important, I felt I had to start earning as soon as possible. I started dynamically with my brokerage account and the Roth IRA faithfulness (and track my progress with Mint app) but I still have a long way to go. So I decided that what I really needed to do was learn how to pay off my student loan debt if it meant I could increase my investment much faster.
I intend to invest my money as long as I pay off my student loan debt, however, I will not make the loan payments as aggressively as before.
The fact that my loans have a low interest rate and I have no other forms of debt puts me in a position to feel emotionally and financially comfortable carrying my debt longer. Now, I’re going to redirect extra money that I would use to make bigger payments to my investment goals.
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