Student debt goes to bottom of priorities

Q. Should I make extra payments on my student loan? It’s interest-free and I have no other debt, apart from my mortgage. I realised this week it’s a massive chunk of my pay each fortnight – about $200 – that I’ve been paying for 15 years. But is it silly to prioritise interest-free debt over saving for other things, like a new roof?

A. Because it attracts no interest, your student loan should be the bottom of your list of financial priorities.

Pay it off at the slowest rate possible. This maximises the amount of money you have left over each pay to get rid of the debts that are costing you money, or to save and earn interest.

Pay off your highest-interest debt first (things like credit cards and hire purchase arrangements, usually), then work through to channelling your available money on to lower-interest debt, such as your mortgage.

Saving money to pay for expensive things that you need but might otherwise have to put on your credit card or borrow for – like your roof – is also a sound move.

The only time to ignore my advice is if you are going overseas soon.

When borrowers are overseas for more than six months, student loans start to attract interest at a rate of 4.4 per cent. In these circumstances, you’d want to get rid of it faster.

❚ Do you have a question about personal finance or consumer issues? Contact susan.edmunds@stuff.co.nz