Is Paying off the Student Loan More Important? Or Saving for Retirement?

My personal opinion?  Treat it like any other debt.  Get rid of it as soon as you can.

You can choose the order of priorities to pay off a student loan, or to save for retirement.  Some argue that saving for retirement is more important because of the benefits of the compounding interest rates.  The earning power is impressive.  However, most of us consolidate the student loans for one easy and “lower” payment every month.  Through the loan consolidation process, the interest rate gets higher.  For instance, mine was at 9% after consolidation.  It took me 20 years to pay it off.  That was even benefiting from the extra $50 payment per month.  Otherwise, it would have taken even longer to pay it off.

It is even more crucial to pay off the student loan first if your current financial situation is tight.  Do not default the loan because it will destroy your credit.  Rebuilding the credit is no easy task and no fun at all.

If the student loan interest rates are low, let’s say 5% or less, and your paychecks allow you to make a choice without losing sleep, it is fine to take the time to pay off the debt while you put as much as you can in your nest egg.

Never underestimate the power of the credit score.

Your student loan is an installment loan.  Installment loans are different from credit card debts.  Since the installment loans take some time to pay off, the creditors get to see that you can responsibly manage your credit over a long period of time.  Combining this with low credit card debts, preferably below 10% of all of your credit card limits, never miss a payment, and always pay on time, you will be in good shape with your finances.  Your credit score will be high.

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