Are you one of the nearly seventy percent of college graduates who walked the stage with student loan debt? Student loans are generally considered a good debt to have as over time, you will see a greater return on your investment once you enter the workforce as a practicing nurse practitioner. Given that they’re not a bad debt to have, and because there are numerous ways to make the monthly payments more affordable, you may not have given much thought about what the long-term impacts may be if you don’t try to pay off them off early.
However, not only could stretching their repayment out over the years to come hurt you in the long run financially but harboring debts can have negative emotional and relational impacts on your life as well.
Here are seven reasons why you should make every effort to your rid yourself of your student loan debt as quickly as possible.
1. You could be stuck in debt for decades to come
Even if your intentions are to repay your loans within the standard ten year repayment plan, not working to pay them off earlier could mean that you’ll end up being in debt for decades to come; and if you’re dreaming of a more leisurely lifestyle by age forty, you may need to start rethinking your goals and priorities. In a report from the Federal Reserve, nearly seven million student loan borrowers between the ages of forty and forty-nine still owe an average balance of $33,765. Furthermore, a recent survey conducted by Citizens Bank found that almost 50% of those surveyed have sought refinancing and consolidation options. As such, 60% of student debt borrowers who graduated before age 35 won’t pay off their debts until they’re well into their forties.
2. Freedom from monthly payments
Even if they’re affordable, continually making the minimum monthly payments on your student loans means that a portion of your NP salary will always be tied up in loan repayment, which will, in turn, mean that you’ll have to make sacrifices in other areas of your life. In fact, in the same survey by Citizens Bank. millennial graduates will spend at least one-fifth of their annual salaries paying their student loans. Satisfying balances ahead of schedule will free you from the debt trap of monthly payments and will ultimately give you the freedom and flexibility to apply the funds towards achieving your other financial goals like boosting your savings, paying down other debts or owning your own home. Or, if you’d rather, you can simply enjoy the luxuries of having extra funds each month.
3. Boost your credit score
A common misconception about credit scores is that carrying balances boosts your number; in actuality, balances account for 30% of your credit score, so the higher the balance is to the original loan amount, the more negatively impacted your credit score is. Contrary to popular belief, it is possible to have a good credit score without staying in debt. How? By paying off credit cards in full each month and paying off loan balances as quickly as you can.
4. Improve your overall health
Numerous studies conducted within the last five years have found that credit balances have a negative impact on the overall mental and physical health of consumers; specifically causing anxiety, depression, insomnia and chronic stress disorders, which in turn can result in high blood pressure and a suppressed immune system. Pertaining specifically to student loan debt, a study by Student Loan Hero found that 67% of its respondents reported physical symptoms of anxiety due to the stresses of their student loan including loss of sleep, headaches, muscle tension, upset stomach, elevated heart rates and tremors.
5. Achieve your retirement goals
In a study conducted by Nerd Wallet, student loans have pushed the retirement age from 65 to 75 for recent college graduates. Furthermore, according to a 2016 report by Morningstar, each $1 of student debt you accumulate decreases your retirement savings by $0.35; a calculation that the report says applies no matter how much money you make or how old you are. This means that if you have $35,000 of student loan debt, you could set yourself back by $12,250 in retirement savings. Although it amounts to about $50 less each month if your retirement lasts 20 years, bear in mind that you’ll be living on a fixed income so every little bit will count.
Investing in your future retirement is hard to do when you have debts that require a payment every month, as you might be facing an internal struggle about which you should focus on. As recommended by financial expert Dave Ramsey, establishing a safety net of cash in an emergency fund and paying down your debts should be your first priorities before you focus on aggressively investing in your retirement plan. Once you do so, you can then use the extra funds to build up your nest egg without also having to worry about lingering debts.
6. Lessen the blow of financial hardships
It’s not a matter of if financial emergencies and hardships will happen but a matter of when they’ll happen; which makes the risks of staying in student loan debt one of the single handed worst things about not trying to pay them off early. If you or your spouse suffer a job loss or a major medical crisis, you might find yourself unable to make your monthly student loan payments. This could lead to you being sued for nonpayment, having your wages garnished and other financial consequences that could leave you worse off than before. The longer you carry your debts, the riskier they become.
7. Strengthen your relationships
It comes as no surprise that money issues are the third leading cause of divorces in North America (according to a survey conducted by the Institute for Divorce Financial Analysts).The number of negative mental impacts associated with being in debt undoubtedly spill over into your marriage and into your other relationships as well, such as with your children, friends, and coworkers. Living debt free enhances and strengthens relationships as you’ll have an improved emotional state. In addition, paying off debt can strengthen your home life which will, in turn, create a better environment for the entire family.
You may not be in a position where you can afford a lump sum payment on your student loans, but that doesn’t mean that an early payoff is impossible. By taking a few small steps towards doing so each month, you’ll be able to eliminate your student loans faster and begin living a fuller, more enjoyable life without financial constraints.