Should I pay off my student loans or invest?
Not sure if you should pay off your student loans or invest your money? Here’s how to make the right choice for your situation. (iStock) Student loan debt is a burden for many Americans. In 2020, 30% of all adults reported that they had student debt, according to Federal Reserve data. Student loans can cause financial strain and make it hard to save for retirement or other goals. If you’re in this boat, you may be eager to pay off those student loans as quickly as possible. But in some cases, that might not be the right move. If you’re wondering whether to pay off your student loans or start investing now, this guide will help you weigh the pros and cons of each. Consider refinancing your student loans to save money. With Credible, you can compare student loan refinance rates from various lenders. There’s a lot to think about when deciding whether to invest your extra cash or put it toward your student loans. Here are a few things you’ll want to keep in mind as you make your decision: When it comes to choosing between investing and paying off student loan debt, there’s no right or wrong answer. It depends on your unique situation and your goals. Here are some scenarios in which you might want to prioritize paying down your student loan debt before investing your money: If you think paying off your loans first is the right move, you have several ways to go about it. In some cases, refinancing may be the best route. Refinancing can give you a lower interest rate (and, potentially, a lower monthly payment), making it easier to pay your loans off quicker. Keep in mind that if you refinance federal student loans into a private student loan, you’ll lose all the benefits of federal loans, including income-driven repayment plans, loan forgiveness, and forbearance. Also, consider your credit score, which plays a big role in your ability to refinance. Lenders generally require a score of at least 670 to qualify. And the lower your score, the higher your interest rate is likely to be. You may want to add a cosigner with good credit to help you qualify for refinancing with a better rate and terms. Check out Credible to compare student loan refinance rates from multiple lenders in minutes. Several debt payoff methods can help you handle your student loans efficiently. The most common are the debt snowball method and the debt avalanche method. With the debt snowball method, you make the minimum payments on all your loans and then put any extra cash toward the smallest student loan balance, aiming to pay that one off first. Once that’s paid off, you move on to the next-lowest balance, and so on. The debt avalanche method prioritizes the debts with the highest interest rates. You focus on paying off the loan with the highest interest first, and then continue to tackle the rest of the loans. Ultimately, this method saves you the most money in the long term, since you’re reducing the amount of total interest you pay. In some cases, investing before paying off your student loan debt may be the smarter move. You may want to consider investing before paying off your student loans in the following situations: Keep in mind that investing also comes with risks. While returns might be estimated at higher rates than your student loan rates, those returns are never guaranteed. You don’t have to choose just one or the other. A hybrid approach can also work, allowing you to both pay down your debt and invest simultaneously. To do this, take any discretionary funds and split them between your loans and your investments. (You can still use the debt snowball or avalanche methods when paying down your loans.) The upside to this approach is that you’ll make progress toward both goals. You’ll also minimize risk, since you’re not putting all your funds toward investing. The drawback is that you'll stretch out your loan repayment timeline, which will cost more in interest. You also won’t see the full potential of your investments, since you’ll be limiting the funding you put toward them. With Credible, you can compare student loan refinance rates from various lenders all in one place. If you have extra cash after making your student loan payments, or you decide to take the hybrid approach, you’ll need to follow a few steps to start investing: If you’re unsure whether to invest or pay off your student debt, consider speaking to a financial advisor. They can offer personalized advice to guide you down the best path for your situation. Source: Read Full Article
Pay off student loans or invest? What to consider.
Option 1: Pay off student loans first
Should I refinance my student loans?
Debt payoff strategies
Option 2: Invest first
Option 3: Pay off student loans and invest at the same time
How to invest when you have student loans