Student loan debt has become a major obstacle in the ways of young and bright minds as they are dealing with those issues as soon as they get the degree. Most of the time, students focus on paying off the student loan as soon as they can, as it seems like a burden for them. They put other financial goals on hold while trying to eliminate the majority of the student loan debt in a short period of time. However, the main question here is about the contradiction between choosing to pay off the debt or investing for the future.
Should there be a right balance between those two critical elements? Which one is more essential, and how can we assess them properly? Sure, time is the most valuable asset for building the future, but what if we allocate all that time for paying off our student loan debt? If you are trying to find reasonable answers to such questions, this article will help determine which option is more feasible depending on the case. Below, you will see several questions about these types of consequences. By analyzing them, you can figure out whether or not it is a good idea to pay off your student loans or invest money for the future.
Are You Making Payments on Time?
It is essential to pay off the student loan debt before the annual deadline. If you missed the deadline, there could be negative consequences as it can lead to hurting your credit score, disable you from using student loan refinancing, or increase the overall amount. If you are struggling with the current option, it is recommended to search for alternative student loan repayment plans that can help you. If you have other financial goals such as investment and want to balance the two, consider changing the current repayment plan to a more flexible one that can make you better off in the long run.
What about the Interest Rate on Your Student Loan?
The average student loan interest rate is currently sitting at around 6 percent for US residents. If you have several student loans from different lenders, the best way to approach the case is to start paying off the ones that have a higher interest rate. If your daily income allows you to do so, you can always invest the remaining part. To manage those high-interest rate student loans, it is better to try student loan refinancing to get more optimal deals that would allow you to save extra cash and invest in something else.
If you cannot use the available refinancing options, there are some alternatives, such as the personal line of credit. A personal line of credit enables student loan borrowers to access the funds more conveniently. By utilizing these offers, students can turn various loans with high-interest rates into one that offers a more flexible monthly repayment plan.
Are You Utilizing the 401 (k) money?
401 (k) is the employer-sponsored retirement account that enables employees to withdraw the money after meeting certain criteria depending on where they are working. The employees allocate some portion of the pre-taxed salary and send it directly to this fund. The money goes into mutual funds, stocks, or bonds, depending on the employee’s choice.
As a result, those former students who have been dealing with loan debt will have an option to invest money for their future while also consistently paying off the debt. There are certain limits regarding the amount in these types of cases. Each year, employees can contribute to the retirement account without exceeding the limits. For 2020, the threshold was 19.500 dollars for the 401 (k).
What about Your Other Financial Goals?
It is often overlooked regarding the financial goals as most of the students are dealing with a number of loan debts and do not have enough resources to pursue the life that they would like to have. There can be long and short-term financial goals such as buying a new car, or moving to a city that you love, etc. In order to accomplish these goals, there should be a balance between paying off your loan debt and saving money.
To create a feasible financial plan, you need to be able to understand the terms such as tax implications, risk tolerance as well as cash flow. Reading and researching about these things allows you to manage the finances better. While picking between paying off the loan debt or investing money, one should not focus strictly on either option. Rather than that, you need to balance these priorities in order to pursue a financially stable lifestyle.
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