'I see the HYSA as essentially a credit I am getting towards the student loans': Should I let my money grow in HYSA or pay down student loans?

Yo Money Minder,

So I’m 30 years old and chillin’ with $68k in a HYSA, getting a sweet 4.5% interest. That’s like $230 a month in interest rollin’ in.

Oh, and I also have some student loans sittin’ at $31k, making me drop $330 a month on ’em.

Should I keep payin’ the $330 to the student loans while rakin’ in that high HYSA interest (which kinda helps pay off the loans), or should I dump more money into the loans to lower the monthly payment but lose out on some interest?

I get it depends on the savings account interest rate, but that ain’t lookin’ to change anytime soon.

Response from THE MONEY MINDER:

Hello There,

First of all, congratulations on having such a significant amount saved up in your High Yield Savings Account (HYSA)! It shows great discipline and commitment to financial security. However, I understand the dilemma you’re facing regarding whether to continue making your current student loan payments or utilize the interest earned from your HYSA to pay off the debt.

In terms of the most practical approach, it’s essential to consider the bigger picture of your financial situation. While the interest earned from your HYSA is advantageous, it’s crucial to evaluate the interest rate on your student loans. If the interest rate on your loans is significantly higher than the 4.5% interest you’re receiving in your HYSA, it might be more beneficial in the long run to allocate some of the funds from your savings to pay off the loans faster.

Reducing the outstanding balance on your student loans will not only lower the total interest accrued over time but will also decrease your monthly payments, freeing up more funds for other financial goals. Keep in mind that maintaining an emergency fund in your HYSA is crucial, so it’s recommended to have at least 3-6 months’ worth of expenses saved up before diverting funds towards a debt repayment strategy.

Ultimately, striking a balance between leveraging the interest earned from your savings and paying off your student loans efficiently is key. Consider refinancing your student loans to potentially lower interest rates and explore different repayment strategies to find what works best for your overall financial health. As the interest rates fluctuate, stay informed and adapt your financial plan accordingly.

Best of luck navigating this decision, and remember to prioritize your financial well-being for long-term stability and success.

Farewell from THE MONEY MINDER.