Should you pay off your student loan with the extra money you get or invest it? According to research, millennial students’ loan is at the highest in history. The loan burden is also affecting Americans’ ability to invest since they are often left with little money.
The consequences of not paying your student loans are dire, including the shuttered dream of grad school, disqualifications from a job, and hindrances from pursuing your dreams. Take student loans plus the easily accessible credit card loans, and you have Americans dissuaded from investing. Many are blinded by debt and miss the big picture of investing.
How do you balance between paying off your student loan while still investing? Well, read on to find out factors to consider in your investment journey.
Consider Paying Off Your Student Loan Early
When you have enough finances left after paying off your monthly loan premium, then you can consider paying off your loan first. This should be a priority, especially if your student loan interest is high. But ensure before you take up this option, you are at least making contributions to other life goals such as saving for a house.
The aim is to invest while still paying off your student loan. Only consider paying off your student loan first if you have an emergency fund set aside. If you don’t have an emergency fund, consider setting up one immediately and start saving. An emergency fund includes six months’ worth of living expenses set aside.
When faced with problems, you won’t have to turn to credit cards. That will be counter-intuitive since the aim is to clear off the debt. Similarly, if you have credit card debt, it’s better to pay off credit card debt first as they have a high-interest rate.
Student Loan Refinancing
You can reduce your interest on a student loan and even pay it up faster by taking up another loan. You gain more through student loan refinancing, such as freeing up cash for investments.
However, this option is ideal if you have a private student loan. Not recommended for a federal loan as you lose a lot of protections that are provided if you chose to refinance a federal student loan.
Also, to qualify, you need a credit score of 600 and higher and proof of steady income. The benefits are immense. You pay less interest, reduced monthly premiums on your student loan, and you finally get to pay up your student loan faster.
Invest for Retirement With 401(k) Matches for Student Loan Payments
Students loan are crowding out investing for retirement. It’s essential to invest in your future even if you are in debt. For every delay, you make towards saving for retirement, the amount you are supposed to contribute doubles with every passing year.
You can invest while paying off your student loan. Some companies have established a 401(k) plan where your student loan repayments count as a 401(k) match. There are also the benefits of your contributions being tax-deductible, which is great since you need all the help you can get to encourage you to invest while paying off your students’ loan.
The first lifestyle changes that you should adopt is budgeting. Track your expenses for a whole month to get a clear picture of where your money goes. Then list done your costs such as loan repayment, among other fixed costs. Using excel have a goal on how much extra you want to set aside after cutting down on unnecessary expenses.
If you have to downsize by moving to a smaller house, then, by all means, do it. You may have to take on extra work to supplement your income, depending on your circumstances.
Save What You Can
You don’t want to delay until your student loan is paid off to start saving. Besides, if your student loan comes with income-driven repayment benefits, then you have a better short of saving enough for investment. If the loan interest is less than six percent, then prioritize saving and investing the extra cash somewhere.
You are better of opening a brokerage or retirement account and investing that could earn you 7 to 8 percent interest per year. It’s better than paying off your loan with your extra cash. You have nothing to lose.
If you want a short at being financially independent, then you need to be financially literate. You should know that your education-related loan is not bad but rather an investment. However, you should not focus on paying your student loans and forget to plan for your life’s future.
Besides, if you invest well, the return on investment can help you towards clearing off your student loan. Educate yourself on how to balance between investing while still paying off your student loan.