Dilemma!

This last week I have been thinking about what to do with my student loan. I would love to be completely debt free within the near(ish) future but at the same time I wonder whether it’s a good idea to pay off the cheapest loan I could possibly have. Should I make extra payments above the 5% of the total loan that I pay over the year and pay it off quicker, or should I instead take the extra payments money and invest them? Theoretically, and probably even realistically I could make a greater return investing this money than I can “make” through paying off my loan quicker.

In reality I think the solution to this dilemma is in weighing up how comfortable you are with taking a risk. Taking money that could be used to pay off a loan and investing it instead means that you are investing borrowed money which must always be considered risky. However, in this particular case I think the risk is so small that it may very well be worth taking even if I am rather risk averse generally.

It is also important to consider whether I will have to take out another, more expensive loan later. In this case it would be better to keep the money (obviously ensuring that they are giving me a decent return during the time it’s not used) and use it rather than taking out another loan.

I shall think about this some more and make some calculations over the weekend to see how different situations might pan out, will let you know my decision next week.