I pay $63.15 each month toward my student loan, a massive balance I (only) have cut in half since graduating more than 10 years ago. My interest rate is 2.625% and I currently earn .50% interest in my checking account. Should I pay off my loan?
Here are the options, as I see it.
Yes. The student loan interest rate is higher than what I am earning in my checking account. The money in my checking account is growing so slowly it doesn’t make sense to keep it on hand when I could reduce a debt that carries a higher interest rate.
Current CD rates aren’t much better than my .50% checking account, even for long term deposits, which tie up my money. I have enough to cover the remaining loan balance – a few thousand dollars – without depleting my savings.
Paying off the remaining balance may improve my credit score by having less debt on the books. With the economy still slagging, paying off debt is a better strategy than investing in the stock market (though I am still maxing out my Roth-IRA and contributing to another retirement fund).
No. My interest rate has dropped steadily over the years as reward for never missing a payment, so it’s possible that the rate will continue downward. I’m aware of a checking account with a significantly higher interest rate – 3.5% – so my time would be better spent researching and opening a new checking account.
In a fragile economy, it’s a good idea to increase my emergency savings balance because recovering from a financial loss could take longer than normal.
Maybe. Increase my monthly payments to pay it off more quickly, accruing less interest over the life of the loan. This solution allows me to keep the bulk of my savings on hand in case of an emergency or if a better opportunity comes up.
If the interest rate on my student loan were significant higher, say 6% or 7%, it would be easy for me to decide. Because it is only accruing interest at 2.625%, a seemingly low rate, I’m stuck. What would you do?