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Save Money While Paying Off Student Loan Debt: To Save or Not to Save?

//Save Money While Paying Off Student Loan Debt: To Save or Not to Save?

Trying to save money while simultaneously trying to pay off your student loans can seem like an impossible feat.

The two concepts also seem at odds with one another – should you prioritize saving money, or paying down your student loans as fast as possible?

Both financial goals are important and it can be hard to decide which is best for you.

Below are several things to keep in mind when deciding whether you should be saving money or pouring all that extra money into paying off your student loans.

1. Do You Need an Emergency Fund?

The first thing you should consider when deciding whether to save money or put more towards your student loan debt is whether you have an adequate security net, i.e. your emergency fund.

Your emergency fund should be a buffer of cash that you keep on hand to cover any financial surprises or hard times you may encounter.

Having an adequate emergency fund is crucial to prevent you from incurring even more debt should hard times come your way.

Just how much money you should keep in your emergency fund will depend on your own financial and personal life situation.

A single person with no children or mortgage may be comfortable only keeping an extra $1,000 on hand for a rainy day, while someone who is the primary income-earner with kids and a house may feel more comfortable with an emergency fund to last anywhere from six to twelve months in the event they suddenly lose their income.

2. What is Your Interest Rate?

If your student loan debt has a very low interest rate, it may make sense to save more money as opposed to dumping it all towards your student loans.

Alternatively, if you’re saddled with some high-interest loans, it would be wise to focus on paying these down first before fully shifting your focus to building your savings.

3. Is Your Savings Going Into a Retirement Account?

When it comes to retirement, it is never too early to start saving and planning for your future.

If you have an employer who matches any money you put into your retirement account, it is a worthwhile idea to allocate some of your discretionary income towards your retirement in order to reap the benefits of the employer matching.

A good approach would be to attempt to contribute at least enough to your retirement account to get the maximum match from your employer, and then put the rest of your discretionary income towards any excess above your monthly minimum on your student loans if at all possible.

The Best Approach?

While there may never be a crystal clear answer as to whether you should be focusing on saving money or paying off your student loans, a smart approach is to try to strike an even balance between saving and paying off debt.

Keeping an adequate amount of money in savings provides peace of mind in the event an emergency takes place, while investing more in paying down your student loans means achieving financial freedom sooner.

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