Everyone who knows me knows that I can’t stand being in debt. I pay off my credit card every month and complete Venmo requests as soon as I receive them.
The only debt I have left is my student loans, which I have been on autopilot with minimum payments ever since I graduated from college in 2013. For years, I put off these payments and put the extra savings into investments.
However, my financial strategy recently changed as my fiancé and I started planning our summer 2027 wedding. In order to build up a wedding fund, I sold a significant amount of stocks and withdrew my retirement savings.
For the first time in my life, I’m sitting on a pile of cash. And I have to say I’m tempted to use some of it to write off the loan.
Please listen. My student loan has an interest rate of 6.55% and is scheduled to be paid off at the end of 2027. Paying off your loan now will give you a few extra dollars on top of your monthly loan payment, plus regular contributions to your wedding fund, to help you reach your financing goals on time. Additionally, you will be debt free.
I spoke to several certified financial planners, and almost all of them agreed that this math worked in my favor.
“If you have the funds available, the smart move is to pay off your loan first,” says MaryAnn Gucciardi, CFP at Wealthmind Financial Planning. “That’s a guaranteed 6.55% ‘return’, which is higher than what you would get with the best high-yield savings account.”
By the time you’re reading this, I’ve already paid off the loan, right? No, no. I actually decided against it. Here’s why:
My decision to postpone loan repayments for the time being
The mathematical principles that Gucciardi identified are important principles that apply to a wide range of personal finance situations. Paying back your loan at a specific interest rate is the same as earning an annual percentage return on your investment.
This is the quick and dirty way to prioritize your financial goals. According to Bankrate, if your credit card debt is 20% and it’s currently near average, paying it off is the same as earning 20% a year in the stock market. This is a number that the portfolio is unlikely to earn in the long run, so the idea is that it is better to prioritize debt.
The same logic applies to my loans. The 3.4% annual rate we earn on our savings account is nowhere near the 6.55% I owe on my loan.
Gucciardi and others pointed out to me that the cost of making such a move is liquidity. Once you make a lump sum payment, you won’t be able to go to your student loan servicer and ask for a refund. Catching up on your wedding day can be as simple as redirecting the cash left over from student loan payments to your wedding fund. But a lot can go wrong between now and then.
What happens if we lose our jobs? Or will one of us need expensive medical treatment? Or will elements of the wedding go way beyond our budget? I have emergency savings, but when a few problems arise, something that looks very easy on paper can become very difficult in real life.
So I did some more calculations. I paid off 81% of my student loans. This means that the majority of your payments these days go toward repaying the principal rather than paying interest. According to my calculations, you could save $400 to $500 in interest if you pay off your loan now instead of continuing to make minimum payments.
“That net difference is the price you pay for financial flexibility,” says Sean Pearson, CFP at Ameriprise Financial Services. “That’s the price of doing what’s most important to you, what you want to do, when you need to get it done.”
To be clear, my financial priorities may not be the same as yours. It’s worth discussing your own goals with a financial advisor. The most important thing I’m saving money for right now is my wedding. I want it to be everything my fiancé and I envision it to be, and I want my guests (too many to be honest) to have a great time. Having extra cash on hand in case something happens is worth the extra $400 to your student loan servicer.
This is a lesson I apply to my broader financial life as well. While a particular financial strategy is mathematically optimal, it may not fit my particular set of goals.
“Although imperfect, the best solution is often to create a budget that meets your priorities while they are on your timeline, and to remember that your calendar is just as important as your calculator for financial planning,” says Pearson.
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