Should I make xtra paymts towards my student loan or put it into savings until I can pay it all off?

My student loan is ~$26,000 @ 4.125%. I am debt free except for my house, and I have a good start on my retirement fund. I am ready to start making extra payments each month towards my student loan of $500- $1000 each month. My monthly income varies, so I can not commit to an exact dollar amount each month. I also have a savings account that is currently paying 5.20%apy or 5.16% per month. As long as this rate stays at this range, am I better off putting my extra payments into the savings account until I have enough to pay off my student loan? My thinking on this is that the student loan is tax deductible and the savings is paying more than the costs of my loan. I am very strict about not dipping into accounts that are earmarked for other things, but if I did put the money into the savings, it would give me a buffer in case I had a bad month financially with income flow. I am in the 28% tax bracket. Anyone have a calculator that calculates paying off debt vs investing

Public Comments

1. PAY IT OFF!!!!
2. Don't pay down the student loan,I would put extra money towards paying down the mortgage. Most likely the interest rate on your mortgage is higher than the student loan. and even higher than the rate the savings account is paying
3. I would say invest instead of paying a low interest debt like student loan.
4. If you already have money in a savings account that is earning more than your loan charges in interest then don't use that money to pay it off. You must consider one thing though: Even though your bank account has a higher interest rate than what you're paying on your loan, there is already a huge sum of money gaining interest on the loan. That is costing you money. Paying off the loan as soon as possible is the best decision. Putting extra money toward the loan is better than putting it into an account. After you pay off the loan you should consider saving for other things. The payments on the loan are deductable whether you pay extra or not. They are deductable no matter what. It's also a good idea to have some extra money in the bank saved up in case something happens. I would keep a few hundred dollars just ready for emergencies.
5. wow you are in pretty good shape financially, is there any way you could put the extra money into an account that would pay you a higher rate of interest. if you could and would be willing to invest in non aggressive funds that pay a higher rate of interest at say 10% the ratio would be approximately 7-4 so you could making every month on average 3% more on your money and in the long run it would and could add up to a lot of money. Since i live in canada the rules are slightly different but the tax deduction looks very good as it could bring your rate down especially if there is any overtime at the job.You may also consider getting into your own business because there are huge tax benefits.
6. You don't need a calculator. You already answered your own question.Savings pays more than SL interest so you are still making money on the savings account. You also want the cushion of money in savings, which, based on Murphy's Law, you will need that cushion as soon as you pay of the SL. The SL is cheap money, go with savings, money market, and then investments as you can handle it.
7. The difference is that the money you have saved is not compounded daily like the student loan. 4.125% compounded daily is a lot more then 5.2 percent compounded quarterly or monthly. Maybe split the difference and find a better investment to put that money into. Always make sure you write on the check for the extra money pay to principle. The lower the principle the less effect the interest has. Here is another trick. Try paying the payment twice a month. You have to be a month ahead on the loan. By doing this and adding extra you cheat the compound interest by 30 days. You will save a lot. Remember it's not the interest rate only it's the compounding of it and the frequency that results in the yield. Here is an example. Say you are selling a car. You sell this car at 1000 dollars gross profit. You sell it once every month. Your friend sells the same car for 500 dollars Gross profit but he sells one every day 30X500= 15,000.00 dollars. Who yields more net profit at the end of the month? You get 1000 dollars and he makes 15,000 dollars. At the end of the year 180,000.00 vs 12,000 dollars. Compound interest is why you should pay off the student loan. By the way your mortage is also compounded daily. This is why banks can afford to give you 5% interest compounded quarterly.
8. Determine what your living expenses are per month and that includes EVERYTHING...food, mortgage, transportation, utilities, insurances, etc. Multiply that total by a minimum of 4 but look as high as 6-8. That is the cushion you need should you become unemployed so that you can not have to depend on credit cards or other interest-bearing sources of bill payments. In case you think that's high, here's an example; my husband hurt his shoulder and had exactly four months off for surgery and PT...without income! Not fun!!!!! Save that amount. Then start paring down your student loan; look to determine what your actual APR is (based on how they compound it; there should have been a disclosure in the paperwork as to the effective APR). Then determine what the loan payment/savings split will be....make sure that anything you pay toward the student loan is actually going to your principle rather than being a paid ahead status. You might want to start on a personal portfolio as well as a retirement plan...good place for planning for extra and at a young age you can bear the risk of higher yielding investments. Good luck!