I am trying to decide how aggressive to be with a low-interest student loan while my emergency fund is still small.
The minimum payment is comfortable and the interest rate is not high. I currently have about one month of basic expenses in cash. I could keep making extra loan payments, or redirect that money until I have maybe three months saved.
I know this is partly about risk tolerance, but having only one month of buffer feels increasingly thin now that I am paying my own rent and bills. Is there a useful way to think about the tradeoff besides comparing the loan rate with savings interest?
4 replies
I’d treat the emergency fund as the priority until it feels less fragile. A cheap loan is still a scheduled payment, but a thin cash buffer...
I’d treat the emergency fund as the priority until it feels less fragile. A cheap loan is still a scheduled payment, but a thin cash buffer can turn every surprise into a mess.
This is where I’d ask myself which problem would hurt more right now: the balance growing slowly, or needing cash and having nowhere comfortable to get it. For me, one month would feel tight.
That’s the bit I keep getting stuck on too. If the loan is cheap, the extra payments are nice, but the cash cushion seems more flexible.