There are different reasons students collect loans and that’s not a bad idea. The challenge only arises when it is time to pay back. There is a major conflict between whether to pay back now (all at once), little by little, or to pay the entire thing later. However, the choice is not that straightforward. For example, some financial advisors will opine that students should hold back on payment if they don’t have enough saved up or if there are other debts involved. However, this article will show you some important benefits you’ll gather if you close your eyes and pay off your student loan early.
Why You Should Pay Off Student Loan Early
The earlier you pay, the cheaper it is:
Yes, it might look like that $$$ is a little thick at the moment but the sad truth is that it increases over time. For those that might seem confused, this is how it works. A student loan – almost all loan types come with a percentage increase referred to as interest. This interest accrues with a balance (positive or negative). When you owe, it increases with a negative balance and vices versa for when you don’t owe. So the earlier you pay, the easier it would be to pay off the interest too.
It will quickly be out of the list of things to do:
This is a little more straightforward. When you pay off a debt, you’ll have lesser things to worry about. You will also be able to place your money on other more profitable investments like college (or if you are already in college), a university of your choice, a master’s, or even something out of the academic line like a vacation.
Your debt-to-income ratio will improve positively:
A debt-to-income ratio can also be seen as a credit score or ‘improving/worsening your credit’. When you have a good credit score, it means that you have a good history of paying off your debts quickly. This means that lenders (or whatever institution loan money) trust you and would be happy to give you better interest rates next time you need to loan. Having a bad credit score (or increased debt-to-income ratio) means that you usually allow the interest to accumulate too long before paying and so lenders find it hard to trust you with honoring your loan agreement. In the long term, a good credit score will serve you.
You would save more money:
Similar to the first point, when you get rid of student loans on time, you end up saving more money. This is a common mistake students make – they wait till the end of the repayment term before they start making repayments. By this time, not only would you have accumulated too many interest charges, but you’ll also lose a lot of money. But by paying off early (or increasing how much to pay off monthly), you can save hundreds or even thousands in interest charges that you can (again) use for other things.
Financial stress will be eradicated or lessened:
What is financial stress? It’s when the source of your anxiety is lack or insufficiency of money/finances. Waiting till the last moment to pay off your student loan will put financial stress on you no matter how financially stable you are/were before then. It is usually a debt that starts small and ‘payable’ until the interests pile up over time to become this huge debt that’s a pain in the neck. Paying it off while it’s still young will save you financial stress in the future.
Though at first, it might be difficult to pay off loans due to the thoughts that ‘the money isn’t enough or that there are other investments. But one of the worst mistakes to make with debt is thinking that the debt can wait. Yes, it will wait but at the same time, interest charges are accruing waiting for when it will shower you with big-time financial stress. Save yourself the hassle and pay it off while it’s still cheap. You can start slowly as soon as possible and before you know it, it’s all paid off. Good luck!