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Figuring out whether to pay off student loans or save your money is a common conundrum. Both are important financial goals, so how do you know which one to prioritize?

At the very least, you should always keep up with your minimum student loan payments — otherwise, you could rack up late fees or even default on your loans. But if you have extra money at the end of the month, you might have to pick between making extra payments on your debt or putting that money into savings and investments.

While everyone’s financial situation is unique, thinking through the following eight points can help you figure out the right course of action for you.

Should I pay off student loans or save? 8 questions to ask

1. Do I need emergency savings?
2. Should I pay off student loans or invest in my retirement savings?
3. Should I save for any major life events?
4. How high are my interest rates?
5. Do I need to lower my debt-to-income ratio?
6. What do I value most?
7. Can I work on savings and student loans at the same time?
8. Could focusing on one goal help me achieve the other?

1. Do I need emergency savings?

When deciding whether it’s better to pay off student loans or save, the first thing to consider is whether you have a solid financial safety net — your emergency fund.

An emergency fund should be a buffer of cash that you keep on hand to weather any surprise expenses or costs that life throws your way. This fund is crucial for helping you avoid future debt and the worst consequences of financial setbacks.

Only you know how big your emergency fund should be to achieve the level of financial security comfortable to you. That said, it’s typically a good idea to save enough to cover three to six months’ worth of expenses in the event you lost your job.

You’ll also want to weigh emergency savings against student loans. Depending on factors such as the student loan interest you face, your college debt might feel like the emergency. If this is the case, you might choose a minimal emergency fund for now, and put your extra cash toward extinguishing the burning fire of your student debt.

2. Should I pay off student loans or invest in my retirement savings?

Then there’s another important financial goal: saving for retirement. When you’re facing student loan payments each month, retirement can feel far off. But when it comes to saving for retirement, there’s no replacement for an early start.

Even small contributions now can be worth thousands more in retirement, with decades in between to grow your savings via compounding interest.

Here are a few other ways saving for retirement can be financially savvy:

  • Tax-advantaged retirement accounts let you lower your taxable income
  • You get more money if your employer matches your retirement contributions
  • The return on your investments can sometimes beat the cost of your student loan interest rates

If your employer does offer a retirement savings match, it’s a good idea to max that out. Since this match is an immediate 100% return on investment, its value outweighs the cost of student loan interest.

3. Should I save for any major life events?

Consider important future life events that you’d need money for. Unlike emergencies, these are anticipated and planned, and could include:

  • Moving out on your own for the first time
  • Moving to another city or state
  • A wedding
  • Starting a family
  • Starting a business
  • Going back to college or switching careers
  • Getting a divorce

When deciding whether it’s better to pay off student loans or save, spend some time thinking about your student debt and your significant life events. Five years from now, which would you regret more — delaying or not taking one of these life steps or still having your student debt?

At the same time, don’t lose sight of the financial side of the equation. Think carefully about how far these big costs could set back your student loan repayment.

4. How high are my interest rates?

If your student loan interest rates are high, you might prefer to pay your debt off ahead of schedule. But if your rates are relatively low, your student loans don’t have to be the highest priority on your list.

This is especially true if you have other debt with higher interest rates. The average APR on credit cards, for instance, is 19.39%, according to LendingTree. So, if you have high balances on your credit cards, it makes more sense to pay them off first before tackling your student loans. The same goes for a high-interest personal loan or payday loan.

If your student loan rates are fixed, you don’t have to worry about those rates increasing in the future. But if you have variable rates that are rising, then student loans might be more of a priority — either repaying them quickly or, if possible, refinancing them to a fixed (and hopefully lower) interest rate.

5. Do I need to lower my debt-to-income ratio?

If you’re hoping to take out a mortgage or car loan in the near future, you might consider ways to lower your debt-to-income (DTI) ratio. Lenders use DTI to decide whether to approve your loan, and according to the Consumer Financial Protection Bureau, they often want that ratio to be 43% or lower if you’re seeking a qualified mortgage.

If student loans have lifted your DTI to a relatively high level, it might make sense to pay down some of that debt as quickly as you can. By decreasing your debt (and/or increasing your income), you can lower your DTI and boost your chances of qualifying for a low-rate mortgage or car loan.

Snagging a lower rate will decrease your interest costs, so even if you’ll have to spend more on your student loans in the short term, you might save money on your home or car loan in the long run.

If you want to crunch the numbers on your DTI, try out this calculator:

Debt-to-Income (DTI) Calculator

6. What do I value most?

Of course, financial calculations and returns on investment are just one side of the equation. The other factor in any financial decision, including whether to save money or pay off student loans, is you. Specifically:

  • What is most important to you?
  • What are your goals and dreams?
  • How comfortable are you with being in debt?
  • What kind of lifestyle do you want?
  • What are you willing to sacrifice to achieve this?

Considering financial questions alongside your personal goals can help you compare their importance to you. You might have certain goals or achievements you value more than repaying student loans.

Many people will live with student loan payments and interest if it means they can travel more while they are young, work at a lower-paying job they’re passionate about or build a robust investment portfolio.

Then again, that might not be you. You might see your debt as a significant source of stress and hate the idea of having it. If freedom from debt is the top concern, then paying extra on student loans would likely be a higher priority than saving for a house.

7. Can I work on savings and student loans at the same time?

Of course, your finances don’t have to be a zero-sum, all-or-nothing game. It can be possible, and even beneficial, to work toward repaying student loans and saving money at the same time.

Say you have $300 of discretionary income a month to put toward financial goals. You could throw all of this toward either saving or repaying student loans, but you could also split the money between both.

One possible strategy to do this is “temptation bundling,” where each time you put extra money toward your student debt, you also use some money for something you really enjoy. Maybe you reward yourself for every extra $200 paid toward student debt by adding $50 to a vacation fund.

8. Could focusing on one goal help me achieve the other?

On a related note, you might want to think through how your goals of saving and paying student loans can actually work together.

For instance, money-saving strategies can help you save, but they can also help find extra funds to put toward student loan repayment.

Likewise, effectively managing your student loans can help you accelerate a savings goal. For example:

You have a variety of financial goals, life events and big purchases to plan for. If you take some time to focus on what’s most important — not only with your money, but with your life — you can reach the right decision for you.

Rebecca Safier contributed to this report.

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