Q. I have $ 30,000 in student loans and no other debt. I saved in my emergency fund and it is now about $ 25,000. Does it make sense to repay part of the loans? What if some are forgiven later?
– Graduate who saves
A. It’s great that you have saved in an emergency fund.
But we know that having student loans is pretty unattractive for many.
So let’s start with the cornerstone of your financial stability.
A good emergency fund should have at least three to six months of spending so you can access funds for unforeseen expenses such as a car problem, medical emergency or job loss, said Jody D’Agostini, certified financial planner at Equitable Advisors / The Falcon Financial Group in Morristown.
If the $ 25,000 is enough to fund those needs, then you can start earmarking additional monthly income for debt reduction, D’Agostini said, noting that it can save you a lot of money over time. because you will pay less interest on the debt.
It also depends on the interest rate on those loans, she said.
“You might want consolidate and refinance has a lower interest rate so that your monthly payment is reduced or more is applied to the principal, which allows you to pay off the debt sooner, âshe said. âThere is generally no early repayment penalty for early retirement on student debt. “
Just be aware that if you refinance government loans from a private lender, you may lose. the protections of the repayment plan.
Another question to consider is whether you have credit card debt that has a higher interest rate. If that’s the case, you should try to eliminate that as soon as possible while paying off your monthly student loan, D’Agostini said. Once that is accomplished, you can start to apply further for your student loans, she said.
Another idea is to try not to ignore your other financial goals such as home ownership, eventual retirement, and perhaps children’s education costs.
These goals should also be priorities, she said.
âThe power to invest early and consistently with the compound effect is real and will reduce the increase over time,â she said.
First, create a budget and figure out how much discretionary income you have. I would distribute this money for all of your goals based on your priorities.
You want to start building your net worth by having a disciplined savings and investing strategy, she said.
And finally, we don’t yet know what, if anything, will happen with student loan forgiveness. You may want keep an eye on Congress to see if anything is progressing before taking a big step on the loan repayment.
Email your questions to [email protected].
Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com‘s weekly electronic newsletter.