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Hello everyone… Glad I found this forum. Hope someone can help me with my query… I have taken student loans when I was in school and I'm not able to clear it off till date. There's around 9k in student loans left with an interest rate of 6.6%. As far as savings is concerned, I'm bad at it – why I'm saying this?? Well – I could only save 15% of my salary…. i.e the amount that goes into my 401k. I'm planning for an emergency fund keeping in mind the present situation. I can pay off the loans in few months if I pay a few dollars but then it would be difficult for me to put money into the emergency fund. What do you say? Should I put money back towards the emergency funds or continue to pay down my student loans? Any advice/opinion is appreciated… Thanks for your time.

Niicss · Posted: Thu Oct 29, 2009 4:32 am Post subject:

I must say you're contributing quite a good amount towards your 401k account. There are a lot of people who can't even do so. However, a 401k account is only for your retirement. It cannot be considered as an emergency fund. It is good to know that you're planning to establish an emergency fund.

In my opinion, it would be a good idea to open a small emergency fund first before you start paying extra towards the student loan. Once you successfully establish an emergency fund, you can then start paying extra dollars towards your student loans. Thus, it would help you balance both the things. Once you've paid off the student loans, you can then start adding more to your emergency fund.

gmakerley · Posted: Thu Oct 29, 2009 8:08 am Post subject:

i think having reserves is a very good idea. at the interest rate you have now, you're not really being penalized greatly to keep those loans open. if you were in need of a loan in the future (personal loan, for example), you'd likely pay quite a bit more than 6.6%.

Jessica · Posted: Fri Oct 30, 2009 5:57 am Post subject:

Well Raindrops, I understand that you wish to make extra payments on your student loans. But the fact is, having an emergency fund does help you in times of financial hardship. I guess you're willing to repay the student loans fast. Is it that you're unable to manage the loans comfortably? How many are they? Are they federal student loans or private loans? If they're all private student loans and you wish to save in interest, you can go for an unsecured debt consolidation loan. It'll help you consolidate and pay off all the loans with a lump sum payment thereby leaving you with a single loan payable at a low rate of interest. In case you've taken out federal student loans, you may try out with the Income-Based Repayment Plan.

Regards,

Jessica

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Pay off student loans vs. emergency funds