5 Reasons to Pay Off Your Student Loans in 5 Years or Less

Most college students anticipate landing their first job so that they can have endless happy hours and expensive sushi with their jumbo sized salary. Sadly, student loan payments can delay that reality for many. Save for the desperate few who are willing to give up a bodily organ to have their loans forgiven, the rest of us need all the help we can get to eliminate our debt the old fashioned way.

There are plenty of terrifying motivators to pay off those loans in five years or less.

Losing Thousands of Dollars to Your Lender

Have you ever noticed that when you started making your minimum loan payments only a small portion of the payment was actually applied to principle amount? Interest keeps you in debt longer and robs you of progress!

Depending upon your interest rate and loan amount, paying your loans off in five years instead of ten or more can save you hundreds—more likely thousands of dollars.

For many, the amount they could save in interest payments by paying everything in five years could buy a new vehicle.

Delaying Major Financial Purchases

More and more millennials are choosing to either not own a car or only keep one car for a couple to cut back on expenses. This is largely due to the inability to afford a vehicle or lack of interest in taking on the additional debt of a car loan.

If you think that is extreme, forget about buying a house! A standard home purchase requires a 20% down payment. It’s near impossible to save that percentage of a home when trying to make student loan minimum payments of anywhere from $100 to over $1,000 per month.

One of the less tangible major “purchases” that is often delayed due to student loan debt is having children. While they aren’t a purchase, they certainly are a large expense. Many millennial parents with student loan debt find that they have to choose to pay for expenses related to their child rather than to make progress on paying down their student loans.

One Job Loss Away From Default

If you think you would never lose your job, think again. The most heartbreaking stories that unfold every day are those who have a false sense of income security. The folks that have large minimum monthly payments and no emergency fund are just one job loss away from defaulting on their loans.

There is a cycle that is created when debt is accepted as normal. The lack of monthly cash flow from student loan payments prevents people from buying a car with cash. When they eventually need a car, they take out another loan, further limiting any cash flow that they could use to save for a down payment on a home. It becomes a near unbreakable cycle.

Limiting Your Freedom and Flexibility

Student loan debt can limit career choices. An awful job that pays the bills may be necessary instead of following passions if the latter doesn’t pay well.

Forget about last minute getaway weekends with friends or a partner. With debt, you either put these last minute vacations on a credit card to add to the cycle of debt or you don’t go at all. Without debt, you’re able to not only take the trip, but can also pay for the upgraded room or extra excursion.

Missing Out on Compounding Interest in Retirement Savings

This one is the real killer. If you think missing out on a weekend getaway was bad, how about missing out on retirement.

Millennials have the severe advantage of time on their hands when it comes to saving for retirement. There are very few reasons why any millennial couldn’t be a millionaire by the time they retire. Student loan debt in one’s twenties is unfortunately one of the reasons they may not reach that goal.

Leaving payments to the full term of the loan means there is less cash freed up to save for retirement. When considering the amount lost on compounding interest, it’s clear this is not just a now or few years from now problem. Student loans can be a lifelong problem through the ripple effect.