Student Loans & Savings Goals: How to Prioritize

Now that you’re out of school, you can finally put all of your life-long dreams into action – that is until your student loan payments become due. Don't let that be the case. Your current circumstances and longer-term goals should dictate the terms of your student loan, not the other way around. That’s why it’s important to know how to pay down your student loan debt without sacrificing your dreams or savings.

If your primary focus is on monthly savings, buying a home or traveling the world during retirement, then your current student loan circumstances need to be adjusted accordingly. To some, it may be appealing to consolidate multiple student loans into one monthly payment, while others may prefer to switch from a high fixed rate into a lower variable rate to reduce the amount of interest on your loan payments.

Before you make any decisions about your student loans, you have to think about where you are now and what you plan to achieve in the future. Some options include lengthening the term of your loan and choosing a fixed rate, which could result in monthly savings and allow you opportunity to save for your future. Alternatively, shortening the term of your loan and choosing the lower variable rate could help you save thousands of dollars over the life of the loan leaving you more money for long-term goals such as retirement.

With that said, one option is not necessarily better over the other. Your current situation and future goals must be the deciding factor on how to handle your current student loan debt. And remember, you can always adjust your options as your life and income change.

You may be a young professional just starting out who is looking to purchase a home or start a family in the near future. Taking a look at your student loan repayment term and interest rate is the first step in preparing for the financial obligations coming your way. Let’s say that you pay $672 a month on a 10-year $60,000 student loan. Your first priority may be to reduce that payment allowing for more monthly savings for that mortgage payment lurking in your future. Refinancing a 10-year fixed rate loan to a 20-year variable rate loan could save you hundreds of dollars a month.

Contrary, when you’re in your 30’s, successful in your career and already own property, it may make sense to shorten your loan term and prioritize for long-term savings. Refinancing that 20-year variable rate loan to a fixed rate 5-year loan could have you out of debt much faster and ultimately save you thousands of dollars which can be used for retirement or a dream vacation home.

As mentioned above, your current circumstances and longer-term goals should dictate the terms of your student loan. Do not let the intimidation of student loan debt get in the way of your future and drain your life-savings. Let Personal Finance help you plan accordingly and provide you with options.

To learn more information about how Pioneer can be a financial partner in helping you achieve your goals, call or visit one of our branch locations.