Student loans have been a hot topic since President Biden’s first day in office. Talks of student loan forgiveness have been on the radar, with many politicians on board. Biden has iterated numerous times that he is pushing for forgiving $10,000 for each American in student debt, though the plan isn't final. Other politicians want the forgiveness of up to $50,000, which may or may not see play.
Whatever the case, the question on people’s minds is, should I pay off my student loans? Biden extended the suspension of student loan payments until September 2021. We still have months ahead of us before we get any approval or disapproval of loan forgiveness.
Do I Continue Making Payments?
Some argue that making payments is an ideal strategy while loans are at a pause. No interest is accruing during this period, making each deposit hit the loan’s principal. When the principal lowers, interest also lowers significantly. While this is an ideal scenario, it might not be a good move for everyone.
The $10,000 forgiveness will remove student debt for 34% of those who have it. Some of you may no longer need to pay the debt if this occurs. The possibility of $50,000, while small, can also happen with viable legislation. There are better ways to utilize your money in the meantime.
Alternatives for Your Extra Money
You may have extra money now that you’ve not yet used with all the news of loan forgiveness around. While you can keep it handy waiting for confirmation, you can also use that money to work for you in other ways. Here are a few things you can do with it:
Build Your Emergency Fund
The pandemic has likely depleted the resources of many around us. Even with stimulus checks, extra liquidity is important to take care of any unexpected life events. You can start building cash reserves to help you in case you lose your job or have to deal with a medical condition. You won’t feel as stressed when you know you have money saved up for a rainy day.
“Cash is trash” is a phrase used by investors popularized by the billionaire Ray Dalio. Instead of having the money saved up in your bank account, consider putting it in an investment. You can place the cash in low-risk investments that could add to your eventual retirement fund. The stock market increases by around 8-10% annually based on history.
There are also other avenues for investments that are becoming popular in recent years. Real estate is seeing some increases, though these investments require a lot of money. Another popular option is cryptocurrency, though it is not for those who have a weak stomach. The crypto markets are very volatile.
Whatever you decide to invest in, there is always a chance that the money you put in ends up lower after a year. Long term, many of these markets show that they always go up. Find a financial advisor, do your research, and take some time to learn about what you want to invest in before pulling the trigger.
Pay Off Other Debts
There is a chance that student loans aren’t the only thing you are paying off. Consider using the money you save to pay off other outstanding bills. Paying off credit card interest can help you save more money in the long run. You can also use the money to pay off loans for a car or a house. There are two ways to approach this:
- Start with the debt with the lowest balance. It will lower the number of payments in a month, and you can start moving to the next.
- Start with the highest interest rate. The interest rate can add up and even compound in some loans. This can get you into deep debt if you don’t take care of them while you can. Focusing on debts with high interest rates ensures that you pay lower amounts over time.
Free Yourself From Stress
Debt can get people into a lot of stress, and it’s good that the government is considering debt forgiveness. However, don’t just leave your money for student debt stagnant. It’s not ideal to pay it right now with all the talks of removing debt. Instead, use the money for other areas which can benefit you in the long run.
Whether investing, paying off other debts, or building liquidity, all of these work for a better financial future. When you are secure financially, you worry less, and you get stressed less. Consider your options, do your research, and don’t be afraid to ask for help.