Should I use my stimulus check to pay down my student loans?
Are you wondering how to spend your stimulus check? If you’ve lost your job or are working reduced hours, that money is likely going toward bills, food and other necessities. Not everyone has been affected equally so why not use it to pay down student loan debt?
Paying back some or all of your loans now could help bring down the amount of interest you will pay in the future (since payments lower the principal balance). You can also take advantage of the forbearance put in place through September.
According to an article in Forbes Advisor, If you only have federal student loans, you may be paying a super low interest rate. But private loan interest rates can approach 10% or more depending on your creditworthiness. If this sounds familiar to you, you could benefit from paying down your student loans by:
- Paying less interest. If you have high-interest student loans, reducing the balance by paying extra principal could decrease the total amount of interest you pay over the life of the loan. Let’s say, for example, you owe $30,000 in student loans with a 10% interest rate on a 15-year term. Making a lump sum payment of $2,000 right now would save you $5,989 in total interest and let you pay off the loan about two years early.
- Taking advantage of Covid-19 forbearance. If you would normally be paying down your federal student loans, you may be thankful the government has ordered pandemic-related forbearance through September. You aren’t required to make payments, and you won’t accrue interest, but any additional stimulus could help you take a chunk out of your balance. Our federal student loan forbearance calculator can show you how. Note: Private student loans don’t qualify.
- Gaining peace of mind. Personal finance isn’t just about what makes sense mathematically. It’s also about what will make you sleep better at night. For many borrowers, becoming debt-free is more of an emotional decision than a logical one. If the psychological burden of your student loans is too much, decreasing the balance could relieve your anxiety and help you move forward.