Student Loan Repayment Vs Savings

I have outlined my debt and desire to pay it off quickly. I have also outlined some big savings (and spending) goals. Why don’t I put all my money onto my debt?

This is my justification.

Currently, my OSAP loan is at $16790.98, which I think is pretty great/ a good start. I know a lot of people talk about ‘good debt’ being educational or mortgage debt. Other folks, fairly so, talk about all debt being bad and debt being an emergency onto itself.
Personal finance is personal- you have to find a balance that works for you. And that may (and should) change over time.

For me, right now, I am choosing to make moderate payments on my loan while also growing my savings.

My $16790.98 loans is at 5.5% interest, which translates to approximately $2.53 a day, or $923.50 a year in interest alone.

Scenarios for paying off my loan

Payment Months to Pay off Total Paid Total Interest Paid
$300.00 72 $21,600.00 $4,810.00
$400.00 50.5 $20,200.00 $3,410.00
$500.00 39.5 $19,750.00 $2,960.00
$600.00 31.5 $18,900.00 $2,110.00

I strongly encourage you to do this with all any any debt you have. Interest is a very insidious, creeping thing.

Often even increasing you payment by $20-50 a month can shave months, and hundreds off of your total repayment amount.

My current goal is to put between $400-600 onto my loan every month.
I recently started a new job that allows me to take home over $1100 more than my previous position (I know right!?!).

I am trying to consider all of that $1100 as extra money. I do have slightly higher expenses in this city, but honestly, they are only higher by about $100-200/month.

I am considering my loan repayment and savings goal as a part of this extra $1100/month.
Of the $1100, whatever is remaining after debt repayment I aim to put into savings.

I am the type of person who values money as a source of security. At this point in my life I want to tackle debt, but also have savings.

This chart represents the savings to accumulate during the life of my loan, based on the different repayment terms as listed below.
I know both of these charts assume a constant interest rate, a constant income and constant living expenses (which I agree are a hard thing to predict 30-72 months in advance).

Scenarios for building savings

Savings Months Total Interest Paid from Loan Total Savings Difference
$800.00 72 $4,810.00 $57,600.00 $52,790.00
$700.00 50.5 $3,410.00 $35,350.00 $31,940.00
$600.00 39.5 $2,960.00 $23,700.00 $20,740.00
$500.00 31.5 $2,110.00 $15,750.00 $13,640.00

This chart represents the savings I could accumulate during the life of my loan, based on different repayment amounts.

Because my interest is low, I think it is a decent plan to make payments on my loan while also growing my savings, because in every scenario the amount I save beats the amount I pay in interest.

BUT, before anyone points it out, I realize this chart assumes that I will not save anything after I pay off my debt, which is (hopefully) not true.

Another angle to debt repayment is to kill debt as soon as possible so you can grow savings at a much faster rate.

Savings Months Total Interest Paid from Loan Total Savings Difference Savings $1100/month until 72 months Total Savings
$800.00 72 $4,810.00 $57,600.00 $52,790.00 0 $52,790.00
$700.00 50.5 $3,410.00 $35,350.00 $31,940.00 $23,650.00 $55,590.00
$600.00 39.5 $2,960.00 $23,700.00 $20,740.00 $35,750.00 $56,490.00
$500.00 31.5 $2,110.00 $15,750.00 $13,640.00 $44,550.00 $58,190.00

It is clear that you will always make more money in the long run by paying off your debt faster!

You just need to figure out for yourself what time line is most important to you right now, and be sure to re-evaluate every 6 months or year.

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