A Tale of Two Student Loans


A Tale of Two Student Loans

Unfortunately many people are laden with a mountain of student loans and it can be stressful working out if one should pay one off faster than the others. So what should one do?

It all depends on the type of loan. For example if you have one loan with a balance of $8,500 at 4 percent interest and the other for $7,500 at 6 percent, you need to consider whether the rates are fixed or adjustable.

Most private student loans these days have fixed rates, but in the past most had variable rates which means higher costs and larger payments when interest rates rise.

If you have loans with variable rates, or both fixed, it makes most sense to pay off the highest rate debt first.

If the lower rate loan is a variable one and the higher rate one is fixed, you may have to take a punt on whether interest rates are likely to go up in the next several years, to instead pay the larger balance first. Some people pay off a variable debt just to get rid of the uncertainty, while others gamble that rates are not going to rise two full percentage points before the loan is scheduled to be paid off.

Whatever you decide to do, do some research and talk to a financial advisor, or even your bank. They are there to help.

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