Key to Paying off Law School Debt: Target Your Bar Loan First
There are countless things you'd probably never like to do again. Two likely contenders:
1. Live through the awkwardness of middle school
2. Study for the bar
Thankfully, both of them are in the past. Of course, like that mortifying 8th grade photo (the one with head gear and crooked bangs) your mom tagged you in on Facebook, some things leave a lasting mark. And you have the loan bills to prove it.
Why you should pay your bar loan first
Maybe you didn't take out the full $15,000 most banks allow for a bar loan, but chances are, you're paying a relatively high interest rate on at least a few thousand dollars.
That may be a small portion of your total loan balance—most law school graduates have an average $112,776 in student loans—but that doesn't mean it's inconsequential.
Most bar loans have variable interest rates, ranging from around 4.8% to almost 12%. So even if your payments started off small, they could balloon at any time. That's especially true right now because interest rates are expected to rise throughout this year.
However, you're not completely stuck.
Refinancing your bar study loans can allow you to secure a lower interest rate, especially if you've improved your financial situation—by getting a job, paying off debt, or increasing your credit score—since you took out the original loan.
With refinancing rates starting as low as 2.56%, you may walk away with a lower interest rate than when you started. And that lower rate translates to paying less over the life of the loan. That means you could continue making your current monthly payments but pay the loan off significantly sooner. #adultingwin
Build payoff momentum
So now maybe you're wondering—how can paying off my bar loan help me pay down my law school loans faster? The two loans aren't even from the same lender.
The truth is you could pay off your bar loan and then keep on doing exactly what you're doing with your law school loans, and you won't pay them off any faster. But a savvy borrower might decide to take the dollars they were putting toward a monthly bar loan payment and apply them to their law school loans.
Let's say you were paying $150 a month for your bar loan after refinancing. You pay that loan off in five years, and now you have an extra $150 in your budget. Instead of updating your wardrobe or buying a venti latte everyday, you add that cash to your monthly student loan payment. Now, instead of paying $610 a month on your $80,000 in loans, you're paying $760 a month (with money you won't miss because you were already using it for loan payments).
The loan that would have taken 20 years to pay off will now be completely behind you in 14 years. That's SIX YEARS of financial freedom you just got back—not to mention the almost $25,000 in cash you won't be paying in interest.
We can't always keep the things we'd like to forget in the past, but refinancing your bar loans is a great way to say goodbye for good to those months of outlines and flash cards.
Then use the savings to pay off your student loans faster. See how much you could save by refinancing your bar loans.