The often debated subject, should I pay off my student loans or my mortgage has resulted in many hours or research and study. First off, there’s no such thing as the right answer to this question. It’s mainly based on a series of criteria which we’ll discuss today. Review the below bullet points and you’ll be able to determine which direction you need to travel in first. A) How much do you owe on each balance? I’m willing to bet the average person owes more on their home loan than on their college loan balance. Notice the keyword in my last sentence, Average! Some people have attended more expensive colleges and pursued higher degrees of education which we applaud and congratulate. However, people in that category may own more on their school loans than their home loans. The first step to attacking the loans is determining the total cost of each loan.
B) What’s your salary? This is another major, major factor in determining which one of these loans to eliminate first. Let’s say your salary is small and you’re just trying to make ends meet. I would focus more on paying the mortgage because it’s imperative you have a place to lay your head at night. Once you increase your salary and can afford making extra payments on the loan, go for it. Do not over extend yourself to make the student loan payments. Doing so may cause extreme stress and decrease your ability to work efficiently.
C) What’s the interest rate on both loans? Here’s another major factor to determine. More than likely, student loans will have a higher interest rate and a more flexible time frame to repay. Mortgages are usually concrete with lower interest rates but limited in payment time frame (15-30 years). Be sure you know what interest rate you’ll be paying on both loans.
D) Combine all 3 factors. Combine all three factors above and create the most logical decision for your situation. If you have a fairly low balance on your college loans with a low interest rate and a decent salary, I would suggest forgoing a mortgage and doubling up on loan payments. This will provide your more flexibility for when you do actually purchase a home. Now you have 1 loan payment instead of 2. However, if you’re deep underwater with student loans, have a low salary and need a place to stay, forget about the student loans for now and purchase your home. I’m not saying stop paying your loans but focus your attention on building assets because the student loan will not be paid off anytime in the near future.
Again, let’s put everything in perspective. You cannot make this decision based on one person’s opinion. The question, ”should I pay off my student loans or mortgage” is a question in which requires many hours of reflections and truth. Be sure to complete your due diligence and determine what your strategy is before it’s too late.
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