Getting out of student debt as quickly as possible is one strategy that many consider when it comes to paying off their debt. Borrowers with student debt often sacrifice building up their emergency savings or forego investing in their retirement fund to reduce their loan balance down to zero. Psychologically, debt can be seen as a roadblock to financial goals, and many focus all of their energy and cash flow on getting it out of the way. By refinancing your student loans, you can may free up cash flow to use your money more wisely. If you throw every spare dollar at your debt, then you miss out on the opportunity to save or invest these those funds. Sacrificing an emergency fund to pay off student debt can potentially end up costing you more if you have to turn to high-priced credit cards for unexpected expenses.
This strategy doesn’t mean paying only the minimum loan payments. Refinancing into an 8 or 12-year loan term, both offered through PenFed, can provide a long enough time window to keep your monthly payment down, while still allowing you to build your emergency fund. Saving what you can, be it $10, $100, or even more every month, will help you when unexpected expenses arise.
A 5-year term, typically the most aggressive for student loans, can save you thousands on interest costs by paying off your debt faster. PenFed has no prepayment penalties, so if you want to maximize extra payments and get out of debt even faster, we won’t stop you. Depending on your situation, the 8-year term, our most popular choice, can also provide for an aggressive goal to help you get out of debt.
Broken down cars and medical emergencies can’t be controlled, and big expenses do pop up unexpectedly. If you don’t have a built-in cushion because you are focused only on student loans, then it can lead to more debt and financial hardship. Think of all your financial goals when deciding which refinancing strategy is right for you – “slow and steady” or “full speed ahead.”