Dark Side of the Student Loan – Repayment Time

Dark Side of the Student Loan – Repayment Time

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by Gabriel Gibson

Going to college is a smart move if you can swing it financially. For many of us, that swinging is done through student loans. We thank are lucky stars they exist when we use them to pay for school, but curse them when it comes time to pay them back.

When you first start making money, you are just happy to have it in your pocket. Soon, however, you will start trying to figure out how to pay those loans down. Is it better to throw extra bucks at the balance each month or invest that money and then pay it off later when the investments pay off?

At this point in the article, you are probably smirking. Extra money. What extra money? The truth is you have it, but just do not recognize it. If you could set aside $5 a day, you would have $150 at the end of the month and $1,800 at the end of the year.

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If you have student loans, a good percentage are government oriented. They tend to have low interest rates on them compared to private loans. This may tempt you to pay them down first. In truth, you might want to invest that money and pay them off later.

Basically, we need to compare the gain of the investment versus the cost of not paying the loans down. Pengrowth Energy pays a fifteen percent dividend each year. Assuming your loan has a seven percent interest rate, investing your money makes more sense.

Two other factors need to be considered. Will you have the discipline to leave the investment fund alone? If so, is it still wise to go with the investment strategy if taxes are figured in? Capital gains are generally taxed at a rate of 15 percent, so do the math.

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A big factor in all of this is also your attitude. Are you aggressive and comfortable with investing? If not, you might want to take the approach of just paying down your loans directly. There is no right answer per se when it comes to your comfort level, so be honest with yourself.

Should you decide to skip the investment strategy, there is a particularly successful approach you can take to paying down your loans. It has worked time and again, so it should work for you as well. The key is to recognize you do not have one loan, you have many.

Your first step is to pick the smallest loan. After you make all your monthly payments, apply whatever extra cash you have to that small loan. Be disciplined. Since the loan is probably relatively small, you should be able to pay it off quickly, often in less than a year.

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The positive reinforcement from this is hard to measure. You will feel like you are getting somewhere with your financial situation. Now start working on the next smallest loan. Whatever you do, avoid starting with the biggest loan. You need positive reinforcement as soon as possible, so small makes sense.

Whatever your choice in this matter, your goal should be to pay down those loans as quickly as possible. The faster you go, the sooner you will be free of your student loan obligations. When you pay them off, your credit will also be golden and banks will lend you money hand over foot.

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