The Complete Idiot's Guide to Getting Out of Debt by Ken Clark Cfp

Author:Ken Clark, Cfp
Language: eng
Format: epub
Publisher: Penguin USA, Inc.

So how do you choose between the four main repayment options? Well, when it comes down to it, I’m not sure why they actually give you four options. Considering that your interest rate stays the same regardless of what option you pick, and the fact that there is no prepayment penalty for paying extra early, you should take the smallest payment possible.

Now, don’t get me wrong. I’m not arguing for you to drag out your loans as long as possible. Rather, I’m arguing for the maximum amount of flexibility. With a rate that stays the same regardless of the length of your repayment period, it would be in your favor to be as least committed as possible. I’d rather be committed to paying $100 a month with the option of paying more if I have it, than being committed to $250 per month.

This is especially true if you’re managing other higher-cost loans and credit cards. Because your student loan is probably one of the cheapest loans you’ll have, with the bonus of having deductible interest, you’ll usually want to pay off other things first. The only time I’d caution against this is if you don’t have the willpower to pay more than your minimums. In this case, you might as well do yourself a favor and commit to a higher monthly payment!

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