Americans as a whole are on the hook for a whooping $1.6 trillion in student loan debt. You could say that it’s a bit of a problem, and not just when it comes to the monthly bill that young professionals have to budget for each month.
No, student loan debt might also prevent individuals from buying a home, saving for retirement, starting a savings account or even investing in the stock market. And rightfully so. After all, it makes more sense to pay off debt that you’re also paying interest on rather than save money or invest it elsewhere.
Right?
Actually, the answer to this question is more complex than you might initially think. In fact, in certain situations, it could actually make more sense to make sure you’re also investing in the stock market while you’re paying off your loans. Let’s take a closer look:
Investing While You Pay Off Loans
Invest while you have student loans on your plate? It’s actually not as crazy of an idea as you think, especially if you hit the market at the right time. While certain times can see your investments increase by up to 10 percent a year, most experts predict growth to be more moderate in the near-term — as in more in the 6 to 7 percent increase range. That’s still pretty good, and it could make sense to invest while you’re paying off your student loans if your interest rate on your loans is below that 6 or 7 percent increase on investments. Aside from this, here’s a closer look at when investing might also make sense:
- You’re able to refinance your student loans to a lower interest rate than what you’re currently paying.
- You don’t currently have a retirement savings account and want to jump start things.
- You just want to diversify your portfolio and see entering the stock market as a good way to do it.
Pay Off Loans First
Like we said earlier, any time you’re paying interest on a purchase, it’s always wise to make paying off that debt a priority so that you’re paying less money in the long-term. In fact, if you’re trying to improve your credit score, experts will often tell you to prioritize paying off the debts with the higher interest rates first.
Here are a few situations where it’s better to prioritize your student loans over anything else:
- If they’re private student loans, as these typically come with higher interest rates than federally held ones.
- If you’re able to pay them off on an accelerated schedule and can regularly make extra payments, as this will save you more money in interest long-term.
- If you just don’t like having any type of debt to your name and are anxious about paying it off.
Now that you’ve read this, what do you think? Is it better for you to just wipe out your student debt, or are you in a position where you could invest in the stock market?
