If your student loan debt is gargantuan, you might feel like you’re on a Sisyphean treadmill of bills — paying and paying and never getting closer to a $0 balance.
Throwing in an extra $25 a month would probably be futile… or would it?
A recent NerdWallet post about paying extra on your student loans inspired me to do the math.
Yes, that’s how much I love you: I did math. Well, sort of; the Student Loan Hero calculator did it for me.
Specifically, I wanted to know how much money you could save by paying $25, $50 or $100 extra on your student loans each month.
Here’s what I discovered — plus, what to think about before you start paying extra.
Should You Pay Extra on Your Student Loans?
Let’s say you have $28,950 in loans, the average amount held by a 2014 graduate of a public or nonprofit college.
And let’s say your interest rate is 6%, since it’s the average of the rates between 2010 and 2014.
Assuming those numbers, you’re paying $322 per month on your loan — or $38,568 over 10 years (including $9,618 in interest).
Here’s what would happen if you paid…
An Extra $25 per Month
You’d pay off your loan in 9.1 years and save $1,010 in interest.
An Extra $50 per Month
You’d pay off your loan in 8.3 years and save $1,808 in interest.
An Extra $100 per Month
You’d pay off your loan in 7.1 years and save $3,024 in interest.
With just an extra $25 per month, you could pay off your loan a year early — and save more than a grand in interest.
But, this comes with one big BUT…
When NOT to Pay Extra on Your Student Loans
Don’t pay extra on your student loans if you have high-interest debt or aren’t yet saving for retirement.
Although it’s undeniably tempting to wipe all of your debt clean, pause when it comes to paying extra on student loans, which have a relatively low interest rate.
“A $1,000 contribution made at age 25 would typically be worth $20,000 or more at retirement age, while the same contribution would be worth about $10,000 when made at age 35,” MONEY explains.
In other words? Retirement returns “tend to dwarf the value of prepaying student loan debt, especially for recent graduates.”
A CNN financial planner agrees: “Millennials are going to be so much more dependent on their own savings for retirement. We don’t want to see young people shortchange themselves trying to pay off student loan debt sooner than it needs to be.”
In past research, I discovered that — if you start at age 21 — you only need to save $25 per week to retire with enough money.
So, resist the temptation to pay off your loans early. Instead, start saving for your future.
Need some extra dough to get started? Here are some ideas:
Your Turn: Do you pay extra on your student loans?
Susan Shain, senior writer for The Penny Hoarder, is always seeking adventure on a budget. Visit her blog at susanshain.com, or say hi on Twitter @susan_shain.