Should you pay off your student loans early?

Student loans are a great option for nurse practitioners who need assistance paying for their education. In some cases, it may be the only way to do so. Most have low-interest rates and affordable monthly payments spread out over a long period of time. There are also a plethora of options for making repayment more manageable. But even if the terms are easy to meet and the maturity date isn’t for another thirty years, it doesn’t mean that you shouldn’t try to pay them off as quickly as possible. By the same token, ensuring a quick payoff doesn’t mean you should sacrifice saving money each month either. So which is the priority, paying off your loans faster or building up your savings account?

Many financial experts agree that, ideally, you should try to accomplish both using a split approach. According to personal money-management expert Dave Ramsey, the key is focusing on one step at a time to get from one point to the next with your finances by taking baby steps. Saving is a priority but getting out of debt is equally important.

Using the first four of Ramsey’s seven baby steps, here’s a quick start on how to prioritize both saving and paying off your student loans quickly.  

Step One: Have an emergency fund

If you don’t have any savings at all and are putting it off until all of you’re debt free, you’re setting yourself up for a financial disaster. As an adult, by now you know that unexpected events happen and if you’re not prepared for them financially with an easily accessible emergency fund of hard cash, you will have to borrow money in order to pay for them; putting you even deeper into debt and thus making your goal of paying off student loans before their maturity date less likely. So at the very least, it’s in your best interest to have an emergency fund of cash before you focus on tackling your student loans.

Note that the emergency fund is for your protection when unexpected events happen; not for things like spontaneous vacations, new furniture, retirement, etc. (though you should save for these later, just not yet). So how much money should you allocate for emergencies before you move onto paying down your student loans? Ramsey suggests a beginner fund of at least $1,000 if you make more than $20,000 per year, for which you should save aggressively as possible so you can begin paying down debts soon after.

Step Two: Pay off debts quicker using a snowball method

Once you’ve saved at least $1,000 in an emergency fund, Ramsey recommends using his debt snowball method as the fastest means for getting out of debt. Regardless of balances and interest rates, you’ll start by paying off your smallest debts and work your way up towards paying off those with larger balances. Although it may make more sense mathematically to pay off your loans with the larger balances first, Ramsey theorizes that if you start by trying to tackle the bigger debts, you may feel you’re not making fast enough progress and lose your drive for paying off your loans altogether.

Excluding your primary mortgage balance, list all of your debts from smallest to largest, including not just your student loans but your credit cards and car loans as well. Make the minimum payments on all of your debts except the smallest, for which you will put as much extra money towards the monthly payment as you can. Once you’ve accomplished paying this debt off, you’ll then take its payment and begin applying it towards the next smallest debt on your list while continuing to make the minimum payments on the remaining debts; and so on and so forth. By the time you get to the student loans on your list, you’ll be able to apply hundreds of additional dollars towards them each month! With the exception of your primary mortgage, Ramsey states that most people who use this method can be debt free within 18 months!

Step Three: Save three to six months of expenses

Once you’ve completed steps one and two, your next focus should be on building up your emergency fund even more in order to avoid slipping back into debt. Figure out how much money it costs in order for you to keep your house running for a month; how much would you need in order to meet all of your obligations and pay your bills if your income suddenly dried up? Once you have a number, starting working towards putting three to six months worth into your emergency savings fund.

Step Four: Begin investing (again) into your retirement

A tough pill to swallow, Ramsey suggests that until you’ve secured an emergency fund of at least $1,000 plus three to six months of expenses and paid off all of your debts that you temporarily stop all retirement savings, even if you have an employer-matched 401(k). The reasoning behind such is so that it will help you free up money in order to get out of debt as fast as possible. Once you are debt free and have an easily accessible emergency fund, you can get back to investing in your retirement without worrying about outstanding debts looming over your head.

Ramsey also has three additional baby steps in his method for financial freedom to help you continue to save while also tackling your mortgage. He also advises how to save money for things like your children’s college tuition and family vacations once you’ve accomplished these first four steps.

Graduating your NP program with student loan debt is common. Although they are considered a good debt to have as they do improve your finances in the long run, and you could potentially qualify for loan forgiveness if you drag out your repayment, being in a debt trap of continuous monthly payments keeps you from being able to live a more stress free life and from focusing on your other financial goals. Over time, regardless of easy repayment options, the pressures of surmounting debts can also damage your work, health, and relationships. Paying off your student loans should be a priority as you’ll not only free up your finances but it will improve your emotional well-being. However, before you can do so, you need to have some savings first. As Ramsey puts it, you can’t dig your way out of the hole from the bottom.

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