Congratulations on obtaining your college degree. Your education was a sound investment but now you are faced with the reality of starting out with the high cost of student loans to deal with. Unless you still want to be saddled with college debt into your 40’s or beyond, it makes sense to aggressively tackle paying down your student debt now, before you have other financial commitments to deal with.
As you graduate you are most likely to have few other financial obligations to meet beyond your student debt, which gives you a unique opportunity to apply as much as your income to reducing the debt now. There are advantages to paying off student loans quickly, not least the relief of not carrying so much debt into the future.
Students have typically lived in a frugal fashion whilst at college. If you are prepared to continue to do that to reduce your debts it will free up your income later to better deal with further borrowing such as a home loan or future education loans. If at a later point you decide to return to college it would be advantageous to know that the first set of college costs are out of the way.
By paying off loans early you will improve your all important FICO score in a number of ways. Firstly the amount of debt to income ratio you carry will be reduced which will improve your chances of obtaining further borrowing at preferential rates in the future. Your payments will also be recorded and show that you are handling your financial obligations in a responsible fashion. Potential employers will most likely refer to your credit report before extending an offer so your credit dealings can actually have quite a dramatic impact on your future.
Another advantage of paying your student loans early is no one is shielded from future financial uncertainty. There may come a time in the future when a period of unemployment strikes or illness prevents you from coping with accumulated debt. Many people don’t expect it to happen to them but it can, and coping with debt at such a time can be extremely stressful. It often leads to unpaid debt which adversely affects their future financial dealings.
The biggest incentive of all to pay off your student debt early is the amount of money you will save in the long term. Each payment you make to reduce the principal of your loan will reduce the overall interest which you end up paying to service the debt. Instead of paying hundreds of dollars each month over many years to slowly reduce the principal and pay interest to the lender; you can significantly reduce the overall interest which you pay, thus paying far less to the lender in total.
How you choose to deal with your student debt now will most likely influence your approach to dealing with future borrowing and there are many advantages to starting out without facing the prospect of years of student loan repayments as a burden.