Loans are extremely common for a number of reasons. You may have faced a financial emergency and needed a payday loan, or you may be a business owner and needed a merchant advance in order to purchase new equipment. However, one type of loan that millions of people have is a student loan. These can mean the difference between someone being able to complete their higher education or not as they may not ever be able to afford it on their own. Paying them off can actually be fairly affordable as it’s worked out based on how much you earn, and it can fluctuate over the years to match your current situation. Paying off your student loan early could actually have some benefits, so keep reading to find out why you should start considering it.
Table of Contents
Reduce Interest
Like any loan, over time your student loan accrues interest, meaning your total repayable amount increases. However, if you were to pay off the loan early, you stop the interest in its tracks, and it enables you to pay off less than if you were to pay it off over a longer period of time. Paying it off early allows you to avoid increased repayments due to interest, so you can actually end up saving money by paying out more upfront.
Boost Your Income
Your monthly income will be hit by your student loan repayments, so it can sometimes feel like you’ve never got enough money. However, if you were to pay off your loan early, you’ll gain back the money that you were losing each month. If you wanted to really future-proof your finances, you could reinvest what you would have paid out for your student loan and put it into savings or pop it into a retirement fund. That way you’ve paid off your debt, but you’re still thinking about your future. Alternatively, you can simply use the extra money for whatever you like and just enjoy not having to pay off any debt.
Decrease Your Debt-Income Ratio
Your debt-to-income (DTI) ratio measures how much debt you have and what your monthly repayments are in total. If you’ve got numerous debts that you’re paying off each month, eliminating your student loan can help decrease this total. Having a healthy DTI ratio can also be beneficial when it comes to applying for other finance like mortgages. If your DTI is too high, it shows the lender that you’re still trying to pay off a lot of debt, so adding more to it might not be a good idea. However, if you pay off your student loan early, it can drastically lower your DTI and help you meet the criteria needed for further credit and support.
Get Rid Of Financial Stress
One nonphysical benefit of paying your student loan early is getting rid of your financial stress. Having to make the same repayment month in and month out can really increase the amount of stress you face with your finances. Once paid off, you’ll no longer have to worry about it nor have to think about it increasing over time. Having peace of mind can be one of the best benefits of paying off your loan early as it will help you feel in control of your finances. After a stressful time at university and then heading out into the big wide world, you’ve probably encountered a lot of worries, so getting rid of a big one of them can be a weight off your shoulders.
Paying off your student loan early does have a fair few benefits, and not all of them are purely about saving money. If you’re thinking about paying off your student loan early, be sure to speak to the financial advisers with whom your loan is with. They’ll be able to offer you expert advice and support throughout the process and enable you to feel free of your student loan burden.
