Ask Money

Pay off student loans

Chris Farrell Jun 26, 2009

Question: My only debt after I sell my house will be a student loan. Here is the info on that loan:

Principal: $13,741.43
Rate: 1.65%
Monthly payment: $123.63

I don’t think that there is an early pay off fee. I’ll have enough $ from the sale of the house and cashing in other investments to pay it off. Should I? Or should I invest it in something that is uber secure with a higher interest rate? I like the idea of living debt free…aside from house payment. Just want to know my options. Would love your thoughts. Thanks, Austin, Louisville, KY

Answer: It’s wonderful to live debt free. Even though the rate on your student loan is extremely low it’s still better to be free of a monthly debt obligation. I certainly felt that when I paid off my car loan. It’s much easier to build up savings every month when you aren’t paying down a loan, too.

Why wouldn’t you eliminate the debt? The main reason would be if you’re nervous about losing your job. I would park the money into an ultra-safe government-insured savings account if a layoff is in your near future or even if there is a strong possibility that you might get handed a pink slip. Another reason to hesitate might be if you don’t have any emergency savings set aside. In that case, you might want to some of the money into savings and the rest into paying a chunk of the loan.

Still, if you’re reasonably secure I’d pay off the loan.

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