The Zen of Student Loan Debt: When Aggressive Payments are a Bad Idea

Sara Lindberg Updated on May 19, 2019

Paying off your student loans early might seem like a great idea, especially when you consider all of the interest charges you could save. 

But if paying making extra payments means that the rest of your finances take a back seat while you OD on stress, it might not be the best strategy. Learning how to find some peace of mind when it comes to your student loans can help you minimize money anxiety and make smarter financial decisions. 

Why it's ok to take a holistic approach

It may sound counter-intuitive, but you actually don't need to pressure yourself to pay off your loans immediately if you're not in a financial position to do so. And if that's the case, you should also stop feeling bad about having those loans hanging over your head.

The reality is, it might be smarter to pay off other debt first while you put your student loans on autopilot. (We'll talk about some smart strategies for doing that in a moment.)

Yes, your student loan balance is probably one of the biggest debts you have. However, it's important to take a holistic view of your finances when determining your debt-payoff plan.

When you take a more balanced approach to your debt, you give yourself the freedom to plan for other financial goals. You also give yourself a break from the emotional toll that might be weighing you down.

Plus, it's important to remember that when you make your monthly student loan payments on-time for 10+ years, you’re building a long history of payments — which can have a positive impact on your credit score.

Prioritize your payoffs

Credit cards usually have the highest interest rate of any other debt — often between 15% and 20%. This debt is likely to cost you a lot more over the long run.

Stay on schedule with your student loan payments, but use any extra cash you have to pay down your credit card bills first.

Once you have those balances under control, then you can use any excess cash to make more aggressive payments on your student loans.

Invest in your retirement

One question that comes up often is: “Should I pay off student loans or save for retirement?” The good news is you can do both. This doesn’t have to be an either/or type of situation.

Depending on the retirement plan you’re eligible for, the contributions you make could be matched by your company, come with tax breaks, or see a significant growth due to compounding interest.

When it comes to retirement savings, it's hard to make up for lost time later, so don't put yourself in the position of having to do so.

See also: Pay Off Student Loans or Buy a House?

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Be strategic with your student loans

Refinancing is an extremely effective strategy for whittling away at your student loan debt. Reducing your interest rate by even 1% can yield thousands of dollars in savings.

That's because when you refinance your student loans, you can save money over the life of the loan. In fact, many people who refinance save over $16,000.

By swapping out your existing loan for a new one with a lower interest rate, you’ll be able to direct more of your monthly payment towards the principal and hopefully, pay down your debt faster.

You can also opt to lower monthly payment, which allow you to direct more money towards your retirement or build up your savings faster.

Check out this Student Loan Refinancing Calculator to find out how much you could save. 

Published in: Paying Off, Student Loan Debt

About the Author
Sara Lindberg

Sara Lindberg, B.S., M.Ed., is a freelance writer specializing in business, finance, health, and wellness. She holds a Bachelor's of Science degree in Exercise Science and a Master's Degree in Counseling. When she’s not writing, Sara can be found at the gym lifting weights, running the back roads to train for her next half-marathon, and spending time with her husband and two children. Read more by Sara Lindberg

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