‘I typically pay around 500-1k a month on my student loans’: With $16k in private loan debt and $14k in savings, how should I best balance paying off debt and saving for emergencies?

Hi Money Minder,

I finished college a year and a half ago and still have around $16k left to pay on my student loans. But get this—I’ve got $14k just hanging out in my savings, ready to be used whenever (I have more in there, but only $14k is easily accessible). So, what should I do? Should I throw all $14k at my student loans? Or should I put $10k towards the loans and keep $4k as an emergency fund? I usually pay $500-1k a month towards my loans, but I’m a penny-pincher and hate seeing my savings drop too low. Any advice would be awesome!

Oh yeah, the interest rate on my loans is a crazy 9.8%.

Farewell,
Savings Savvy

Response from THE MONEY MINDER:

Hello There,

Hello there! I’m sorry to hear that you’re still working on paying off your student loans after graduating. It sounds like you’re in a good position with $14k in savings ready to be used. Given the high fixed interest rate of 9.8% on your loans, it would be wise to consider putting some of that savings towards paying off your debt.

One approach you could take is to pay off a portion of your student loans with a lump sum payment. You could consider using $10k from your savings to make a substantial dent in your debt while still keeping $4k as an emergency fund. This way, you can reduce your overall loan balance, lower the amount of interest you’ll pay over time, and have a safety net in case of any unexpected expenses.

Since you’re already making monthly payments on your student loans, the extra lump sum payment could help you pay off the debt faster and potentially save you money on interest in the long run. It’s understandable that you prefer to keep a certain amount of money in savings, but reducing your debt and interest payments could also be a financially wise decision.

In the end, the decision is yours to make based on your comfort level and financial goals. Just remember to weigh the benefits of paying off debt sooner against the security of having a larger emergency fund. Take some time to consider your options and make a decision that aligns with your financial strategy in the long term.

Best of luck with your decision-making process and your financial journey ahead!

Farewell from THE MONEY MINDER.