Pay Off Early OR Run Its Course

[coffeegrl]

Ok, so I have been wallowing back and forth with this and would like some 3rd party opinions.  I currently have a small private student loan that I am paying $50 on monthly.  That's the amount they automatically started taking out when it came due to start paying. The interest rate is 5.99%.  It was a total of $2500 and I now have $1294 left.  I've used several different online calculators and they all give me similar results.  It will take between 2 years 3 months and 2 years 6 months to finish paying off the loan at this rate and will cost an additional $90 to $105 in interest during this whole time.  I have already been paying on this for almost 2 years and it has obviously already cost me additional money in interest.  (I would have to look at my account to find the amount.)  

So my question is this: Now that I have some money saved up, should I take that money, pay off the loan, and then start funneling that $50 each month into my EF?  Or should I just let it continue on and let the loan payments run their course since I wouldn't be saving that much money (in the grand scheme of things) in interest.  This is the first time since the loan came due that I feel like I would be secure in taking money I have saved and paying it off in one final lump sum, which is why I never considered the option before.

Thoughts?

[zibazinski]

How much money would you have left in your account I'd you paid off the loan?

[Deleted]

How much money will you have left in EF after payoff, or how much in funds that are accessible within 4 days do you have?

At that interest rate I would pay it off. But totally dependent on whether you have EF or not. If it wipes out your quickly available assets, don't pay off yet.

[kadee79]

I agree with the others, however, what about paying off a chunk of the principle, say $400 or $500 and continue the monthly payments til you can either pay off the rest in a chunk or until the debt is settled?

I used to do that way back when and it helped to get debts out of the way.

And any time you can save even $1 in interest, that is one more $1 in YOUR pocket instead of in someone else's pocket!!!!

[❤ mollymouser ❤]

[Peace77]

Keep $500 in your EF.  Use anything over that to pay down on your debt.

Pay down your debt that has the highest interest rate first.
For example, if your credit card is at 15% interest, pay that first.

Can you pay $52 or $55 each month towards the student loan?

Can you cut down on meals out, vending machine purchases, buying coffee and treats?
If you bring your own lunch, coffee and snacks from home, you will save enough to pay off your debt much sooner than you thought.

When your debt is paid off, build up your EF.  First to $1,000.
Later, increase your EF to 6-8 months of expenses.

[Tiny]

I'm not a big fan of throwing a lot of saved up money at low/medium debt that's 'short term'. And two years is short term in my world . I like to have $$ on hand -- OR invested. That said, paying it off sooner IS something I would work towards. I'd maybe look ahead 12 months/18 months and see what's on your financial horizon. If you have some big expense (that may come with a higher interest rate than the loan) it might make more sense to save up for that. You don't want to trade 5.99% for higher interest. Looking ahead can also help you decide on a pay off date that maybe works well for you.


Some options that get the loan paid quicker and that probably won't bust your budget OR effect your other plans...

1.) Are you currently funnelling money to your EF on a regular basis? If you are, could you, instead, add that money to your monthly loan payment? That way you keep a base amount in your EF AND pay down the loan. Then if something $$ happens you have flexibility.

2.) If you are't putting money towards your EF, Can you find another $50 (or some other amount) a month to add to the loan payment (so pay $100.00 (or more) a month)? and then set a 'pay off' date in your head - something like when it's down to $300 you'll pay it in full (pulling some $$ from savings)? Don't know how much busy work it is when paying off the loan in a lump sum... it might be better to do some calculations and maybe hit the loan with $300 (or some other amount) and then make payments until it's done.

That's the route I would take - but I've got a fully funded EF, paid in full credit card bills, and a solid budget so I have money for things like Christmas/Gifts/Vacations/Cats/etc.   I'd rather keep my 'budget' steady - and only use my EF for true emergencies and use the money I've saved to spend on the things I saved the money for   Don't want to spend my Christmas $$ to pay down debt for example - unless I've hit hard times .  

[coffeegrl]

Thanks everyone for the responses.  Paying off the loan in one fell amount right now would leave me with around $600 in my EF.  I think what I am going to continue doing for now is keep making payments @ $50/month until I have enough saved up that taking out the amount needed (at that time) to pay off the loan would still leave me with $1000 in my EF.  I'll continue to evaluate every few months until this happens.  Then I'll start on something else and keep working on my debts one at a time.

[truthbound]

Yes the loans you take out should always take first priority.

[Peace77]

You will save money and pay off the loan faster if you send in money as you have it instead of waiting until you have the full amount in savings.

If you have $1300 in your EF now and send $300 on your loan, the next interest charge will be less.
If you could increase the payment amount to $60, the ($994 remaining) loan would be paid off about 2 months earlier.

[Knee Deep in Water Chloe]

I struggle with this stuff too. What did you decide?