So, some good news about my goals for 2016, now that we’re four months into the year. I’ve done pretty well about shopping less (despite what the last few review posts would have you believe), I’m on track to reach my reading goal, and I’ve paid off one of my student loans and put another $3,947 and change towards my grad school loan (nearly $2,600 of which was in capitalized interest alone. Yikes).
Now that I’ve started to make headway on my student loans, I’m actually considering back tracking. I won’t go back to making the minimum payment under the Income Based Repayment plan (which, as you can see with that $2,600 in accrued interest, wasn’t even paying all of the interest each month), but I don’t think I’m going to necessarily try and beat the clock when it comes to paying off the loan. There are a few things behind my decision to ease up a bit on payments.
My Savings Are Low
I’m a freelancer, and for the past few years, have enjoyed a fairly steady monthly income – the holy grail of freelance. This year is shaping up to be a bit different, so I’m feeling a bit more unsteady financially. I didn’t really foresee that when I decided to transfer $2,700 from savings to my loan a few months ago, dropping my savings account a bit lower than I’d like it to be. So, for the next few months or so, I’m going to focus on beefing it back up, just to have more of a cushion and to help me feel more secure. Once it’s back up to a level I feel comfortable with, I’ll refocus on bringing down my student loans.
Paying off Students Loans Dropped My Credit Score
OK, this next one isn’t that big of a deal, but paying off my undergrad loan made my credit score drop a few points. Not that much of a biggie (it’s still in the high 700s, but it was once over 800), but kind of a disappointing thing to see. I know it will go back up in a few months, but having it drop still makes me cranky.
Obsessing About My Student Loans Was Stressing Me Out
We all hate thinking about money, right? Well, focusing on paying down my loans more quickly and reading lots of stories of others who paid theirs down in just two years or whatever was just stressing me out. For one thing, many of those stories are just unrealistic for the average person. It’s great that someone was able to pay down $8,000 in debt in just three months or that someone was able to pay off a $40,000 student loan in three years. But, if you actually look at what people do to make those big loan payments, it’s usually something along the lines of they got a big windfall, they had a high income and could afford to pay $2,600 twice a month, or they just lived really really frugally, going to extremes.
After reading those stories, I found myself staring at a budgeting spreadsheet pretty much daily, wondering what I could cut to make bigger payments or just generally feeling unhappy about my financial situation.
And that’s no way to be. My student loans, in the long run, aren’t that big of a burden. They’re all federal loans and are all eligible for the income based repayment programs, should I really fall on hard times. Even if that program goes away over the next few years, the most I’d be required to pay each month would be $300, which really isn’t all that much.
Would it be great to be debt free in four years? Sure. But it’s also great not to be super stressed about money now and in the future. And I’ll take that over obsessing about my loan any day.
What do you think? Is it better to pay off debt as quickly as you can or focus on building up more savings?
Thanks to Pixabay for the image.