Financial experts advise that your retirement savings should come before student loan debt is repaid. However, you will need to establish financial stability in your life before you attempt to tackle student loans, even if they have a high total or interest rate.
So, here are some tips for both so you can decide which is more important to you.
Paying Off Your Student Loans
The quicker repayment of your student loans has additional benefits that go beyond financial viability: no longer having monthly student loans can be mentally liberating. You will no longer have debt hanging over your head for years at a time.
If you speed up your payments, your student loans will be offset faster, and you can free up money for other goals. Paying off your debts early can also help improve your credit rating which will be very beneficial when it comes to trying to apply for credit or take big life steps such as getting a house.
If your student loans have a smaller interest rate, you may be able to invest your money in a different way that would add more money over time. Many experts advise you not only to consider investment planning but also to save money and set up an emergency fund before making additional payments for student loans.
You should consider refinancing your student loans if you have a good credit rating and stable profits. You can reduce your interest rate, merge several student loans into one monthly payment, and lower the average monthly student loan payments.
Saving for Retirement
On the other hand, you may choose that saving for your retirement is more important to you in your early 20s, as it is for many people given the current economic situation.
One of the good things about saving for retirement is that you are able to do this at your own pace and you won’t have anything looming over you saving you need to save, and you need to do it now. You are also the one in control of your retirement goals so you can decide how much you want to save up and how, which makes the process much easier and less stressful.
For example, a quick and easy way to save money is to have a current account that offers great value, good interest and a savings pots feature. By doing this you will be able to set goals and save your cash readily into one (or several) different goals at one time.
You may also want to consider using an automatic savings feature offered by many banks. With this feature, every purchase you make is rounded up to the nearest £ and that extra few pence from every transaction is put directly into your savings fund. This means, you are saving without even really noticing or thinking about it.
Traditionally and for good reason, the best advice is to always pay off debt because the interest rate on borrowing money is greater than what you can earn in a savings account.
However, only you know what is best for you, and hopefully this article has given you some advice on both options so you can make a decision more confidently.