Hello, David here! I am going to walk you through my decision-making process for paying off my student loans versus investing my money elsewhere. When it comes to student loan debt, most students have it, and most students have about $30,000-worth of it. Woah! By the time you graduate college, you may be 45 by the time your student loans are paid off or close to being paid off.
I know, wow. I was in the same position. I was torn between the decision to pay off the student loan debt that I accumulated or to simply invest my money somewhere else. The decision for me was easy, but it is not always so easy for others. It takes time to do the math, and you’ll need to weigh the best options for your future.
When I talk about investing over student loan debt, I do not mean that you should skip your monthly student loan payment. That would not be wise, and it is definitely not what I recommend. I want you to still make that payment. The real question is between putting all of your money towards your student loans versus paying the minimum while investing the remainder elsewhere.
Okay, let’s take a look and talk about what I did.
Student Loan Payoff or Invest: Where My Money Went
I chose to invest part of my money. Let’s here the reason. I chose this because my student loans had a low interest rate, and my return on investments elsewhere was going to be much greater than the return on paying my student loan. Now, if your student loan has a higher interest rate, such as those with private student loans, then I would not recommend investing. Why exactly? Because you will spend more money in interest over the course of your loan.
One piece of advice I like to give is that you can refinance and consolidate your student loans to receive a lower interest rate. Afterwards, you can choose to invest over paying off the loan with a lot more breathing room. If you have good credit and qualify for refinancing, then this is a great move. Not only will your interest rate be lowered. In most cases, y our monthly payment is reduced as a result, so you will be able to put away more money like I did.
Another thing to consider is whether or not your employer will match any of your investments. For instance, many employers offer 401k benefits and match the employee’s contributions dollar for dollar. If your employer does match the amount you invest, then the incentive to invest is greater since this pretty much doubles your investment.
I chose to invest my money in a 401k offered by my employer because they offer matching benefits. Before I simply chose to put my money into the 401k account, I did my homework and researched if there were any hard requirements. Often times, some companies will require you to work for the company for a certain number of years before the company contributions become yours.
My Final Thoughts on Investing Versus Paying Off your Student Loans
When it comes to my student loans, I received a bigger payoff by investing my money instead of paying off the debt quickly. It is never too early to set up your financial success in the future, but that doesn’t mean you should dive right in to all gung-ho.
One of the best pieces of advice I can give would be to spend your money wisely (duh!). Do what you think is best for your situation. If you are more comfortable paying off your student loan debt in five years then investing afterwards, then do just that.
Finally, I never recommend that you simply avoid your student loan payments. This leads to bigger problems down the road. Keep your future credit score in mind! If you are having trouble affording your student loans, then talk to your student loan servicer to find out what options are available to you.