Paying Extra on College Debt Has Wallop
One-third of 18-24 year olds in a new Allstate poll said the best use of their extra funds is getting their college or other debts off their backs. For those considering making larger payments, a loan amortization table demonstrates the impact.
Paying down debt is just another form of saving, and larger loan payments significantly shorten the time it takes to pay it off, while reducing the total interest paid. Start with the $5,000 loan example already loaded into a Bankrate.com student loan amortization calculator:
- Paying $96.66 per month on a $5,000 student loan with 6 percent interest eliminates it in five years. An extra $50 every month – a couple of nights out – knocks two years off the payment time. This can be seen by entering $50 in the top box under the “Extra payments” heading in the calculator and clicking “Show/Calculate Amortization Table.”
- The stakes are higher – and the rewards greater – for bigger loans. It takes $333 per month to pay off a $30,000 debt in 10 years, but an extra $50 a month eliminates it in eight years. Another advantage of paying the loan down faster is less interest – about $2,000 less by paying it off in eight years.
It’s okay to carry some debt from college, which is an investment in one’s future earning power. But as young adults enter the work world and start receiving a steady paycheck, they will have to work through competing financial priorities.
There are many legitimate uses for extra money, including paying more on the mortgage each month, building up an emergency fund, or investing in a 401(k) retirement plan at work – or chopping down the student loans.
This calculator helps with the decision.