I see friends and people I know furiously paying down their loans. Really using every last cent to pay them down. They were probably trained from a young age to avoid debt. I completely agree that it’s smart to avoid debt.
However, when it comes to student loan debt, I’m not really worried.
Here are 5 reasons you shouldn’t be worried either:
Having Some Low Interest Debt Isn’t a Big Deal
A lot of companies keep cash on their books despite having debt. You know why? Because of opportunity cost. If you are spending all of your money on loans, you aren’t going to have any around for other stuff you may want or need.
It’s nice to have cash around. Maybe something will come up that you want to buy, or another investment will pop up that’s really attractive. Maybe you need to buy a refrigerator, who knows. The point is, it’s nice to keep cash around and it’s ok to have some debt.
Consider the following:
Say I want to buy a car. The car costs 30 grand. I have 30k in my bank account.
Should I spend all my cash on my car? Or should I finance it?
While I think it’s great to pay cash, if this is going to wipe out the cash reserves you have, it doesn’t make sense. It makes even less sense when you can get a car loan for next to nothing. What if something comes up, like you need to buy a new washing machine or something? Are you going to put it on a credit card with a high interest rate?
Many smart people see student loans the same way, and they are right.
It’s an Investment
You took student loans so you could pay for a chiropractic education. You probably became a chiropractor because you had a good experience with chiropractic and it was something that interested you as a career.
Chances are you know some chiropractors that make decent money. That may have been part of your motivation to become a chiropractor.
So, you spent the loan money on an education that you expect will make you money. It will. As you begin to make more and more money, the amount you pay for your loans will seem insignificant, because it will be insignificant.
You probably have a low interest rate, so there’s no harm in taking the full term to pay back the loans, which takes me to my next point:
Student Loan Interest is Tax deductible
The interest you pay is tax deductible. That means you effectively have an even lower interest rate than you think you have.
Whatever you pay in interest is deducted from your taxable income. This means you pay less. Less is good. For every $1,000 you spend in interest payments, you will get around $300 dollars back.
That means there is even less reason to throw all your money at your loans, because you aren’t really penalized that much for taking your time.
There are Plenty of Affordable Payment Plans Available
There are a lot of different plans available for you to pay off your loans. The different plans make it very affordable. If something happens and you can’t pay for whatever reason, you can call your lender and pause your payments. If things are going well you can pay more against the principal.
You can even do an income based repayment which means you only pay a small % of what you make towards your loans. When you factor in tax deductible interest payments, you are paying even less.
If You Think 150k is a Lot of Money, You’ll Never be Wealthy
Ultimately, 150k is not a ton of money. A lot of practices make that in a month. Once I expressed my concern about my debt to a successful friend Dan.
This guy was close to a half a million dollars in debt because of his businesses. I asked him if he was every concerned about that much debt and he said “if you think 450k is a lot of money, you’ll never be really wealthy.”
He now doesn’t have a debt problem. He doesn’t have money problems either.
Obviously this message stuck with me, because the same mentality applies to us. If we think 150k in student loans is a lot of money, we’ll never be truly wealthy. When you think that way, you’re framing the size of your loans as “a lot.” When you put something in those terms, “a lot,” it makes it a bigger number than it is, and maybe puts it a little out of your grasp.
Here’s a much better way to look at your loans: Your loans are a small investment that’s really no big deal because there are flexible ways to pay them off and they’re going to end up making you a lot of money over your career.
Isn’t that a nicer way to look at them?