Should I Pay Off Student Debt Faster or Start Investing Earlier?
Answers to all of your questions about starting to invest in the stock market.
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The stock market is one of the best paths to building wealth. If you know the basics, investing early can be one of the most profitable decisions of your life.
But we know it can seem confusing…
Insights from the pros.
Grain is teaming up with wealth advisors and financial pros across the country to answer the questions we’ve all had about starting to invest in the stock market.
To answer the next question in our series, we asked financial advisor Kyle Richardson from Mishawaka, Indiana.
Should I pay off student debt faster or start investing earlier?
Kyle Richardson — Financial Representative
A lot of people make the mistake of overpaying on their student loans and choosing to forego investing until all the debt is paid off.
Student debt is one of the most pervading obstacles of our generation.
When I work with young clients, I often ask what they think is their biggest threat to financial security. The most common answer is the burden of monthly payments for student loans.
Step 1 — Find out the interest rates of each loan
When dealing with student loans, especially in the context of starting to invest, it’s important to look at the bigger picture. Student loans are one piece of your overall strategic plan.
First, you should find out the interest rates for each individual loan.
Interest rates for student loans have a lot of variance so it’s important to understand exactly what the interest rates are on your loans.
Step 2 — Compare interest rates on your loans to the historical return of the stock market
If we make the conservative assumption that over time we’ll get a 7% rate of return from the market, then that will act as our break-even point.
If you have student loans charging an interest rate less than 7%, especially if it’s 3–5%, then you’re better off making the minimum scheduled payment and using the rest for future saving and investing.
Your interest rate is the price you pay for borrowing money. That might sound straightforward, but student loan…www.nerdwallet.com
If you have one or possibly multiple loans charging an interest rate above 7%, then it may be wiser to use any leftover cash to pay more than the required minimums on that specific loan or group of loans.
In this case, paying off student debt faster is a better alternative to starting to invest sooner. If you’re still unsure, it’s best to consult a financial professional so you can come up with a plan that fits your individual goals and objectives.
The Grain Team
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