You’re at a point in your career where you’re focused on growing your wealth and ready to start building a nest egg for retirement—but, like many Americans, you’re managing student loan debt, too. Fortunately, there are plenty of ways to successfully balance investment opportunities while paying off your loans. Here’s how to get started.
If you want to invest but your student loan payments are taking up a large portion of your monthly budget, you might consider refinancing. Replacing your current debt with a brand new loan at a lower interest rate should enable you to reduce your monthly loan payments, decrease the amount of interest you’ll owe, and in turn pay off your debt more quickly. That will not only leave you with more money in the long-term, but can also free up some room to focus on investments right now.1
If your loans have a relatively low interest rate (anything below 6%), it may make sense to put more of your money towards investing, rather than paying off more of your debt. That’s because over the long term, you will likely earn more from those returns than you’ll save by paying off your loans faster.
Let’s say, for example, you have $20,000 left to pay on your student loans,
But, if you invest that $20,000 instead,
On the other hand, if your interest rates are higher (and you can’t refinance to get lower rates), it’s probably a good idea to focus more on paying off your loans.5
If you’re unsure where to start or want some expert insight before starting out, consider speaking to a financial advisor. There’s no obligation when you reach out to have the conversation, their advice is tailored to your unique needs and it can be a great way to help ensure you’re making the right moves for your long-term financial health.
Managing your financial priorities is a balancing act, especially when you’re trying to save for the future while also paying down debt. The good news is that with the right strategy, it’s very possible to pay off your loans and start investing at the same time. For more guidance customized to your goals, check out our financial advice and set yourself up for the future you deserve.
1 Nerdwallet: “Refinance your student loans” by Ryan Lane, Anna Helhoski, & Cecilia Clark https://www.nerdwallet.com/refinancing-student-loans
2 Smartasset: “Student Loan Calculator” https://smartasset.com/student-loans/student-loan-calculator#6I1Y71Egx9
3 The Simple Dollar: “Average Stock Market Return: Where Does 7% Come From?” by Kathryn Pomroy, June 20, 2020 https://www.thesimpledollar.com/investing/stocks/where-does-7-come-from-when-it-comes-to-long-term-stock-returns/?utm_source=feedburner
4 Nerdwallet: “Investment Calculator: See How Your Money Can Grow” by Chris Davis & Kevin Voigt, March 11, 2021 https://www.nerdwallet.com/blog/investing/investment-calculator/
5 Nerdwallet: “Should You Pay Off Student Loans or Invest?” by Ryan Lane, February 5, 2021 https://www.nerdwallet.com/article/loans/student-loans/save-invest-pay-off-student-loans
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