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Cindy16 | Should I invest or pay extra towards my student loan? |
I am currently in a 16% tax bracket, with 30K loan.
The loan is on a 7% interest. The retirement is on a target date fund.
I am wondering should I put my monthly extras toward my retirement account or student loan? |
 |
 
Jbud
 |
Historical rates on stock market returns are 8% and above, and the debt is at 7%. Theoretically, investing in the stock market and using the difference to pay down the loan is the wisest option. However, there is often a big gap between theory and reality.
1% is a razor thin "spread", the stock market can make returns of plus 30%, but also -30% as well. That volatility needs to be compensated to you as the investor, and the 1% spread is not enough.
Paying off the debt first has several advantages. By paying off the 7% debt, you are guaranteeing yourself what amounts to a 7% return on your money. It is 100% guaranteed, the same as if you had a 7% savings account insured by the FDIC.
Secondly, like others have offered, attacking debt is the first step toward building long term net worth. A borrower is a slave to the lender. Attack that bondage first.
The only reason to invest the difference instead of paying down the debt would be if you have an investment that will return 15% or higher with reasonable certainty. If you're going to deal with the uncertainty, you should be paid for it. |
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---
 |
Both. If the loan interest rate were higher, I'd suggest paying off the loan first. If it were lower, I'd suggest putting all the extra money into retirement. I say both because investments will historically earn 7%+, and you can benefit long-term from the current downturn in the market; plus, $30K is a lot of debt to have when you're just starting out. So put extra money into both. Good luck! |
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bradsr0138
 |
Invest, student loans carry a low apr so its better to leave them alone and just invest the money |
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Doctor Deth
|
If you want to ever buy a house in the next 15 yrs, pay all you can to accelerate payoff or the size of that debt will haunt you financially |
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spacesick
|
When you are looking at the returns of investments, make sure to look all options on an after tax basis. Retirement investments in a tax deferrals plan will earn whatever return the investment makes. The return of retirement investments outside of a plan will be reduced by your taxable amount.
The return on reducing your debt depends on whether the loan is tax deductible or not. Deductible debt reduction has a risk free return equal to the interest rate. Non-deductible debt reduction will have a risk free return of the pretax amount paid (divide by 1-taxrate).
If you are going to invest in a retirement account, make sure your portfolio has a better return than that you get by paying off debt. However, paying down the debt is risk free, while the returns in an investment account are not.
It is difficult to earn regular returns on investments better than the interest savings you get from paying down debt (especially if it's non-deductible). Doubly so on a risk adjusted basis.
My advice would probably be different to an older person, since investment risk increases over shorter vesting periods. |
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Mommy of Braden : now about 17lb
 |
If you put it toward your student loan you can pay it of quicker. It will always be at 7% but the amount you pay in interest will go down. My parents got a 30 year loan for their house and by paying only $100 extra a month they lowered it so much that they took 12 years of their loan. |
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dimkinb
 |
Keep your loan payments as is. The student loan usually has a low fixed rate. The interest on student loan is deductible. Make sure to choose your investments carefully and you will achieve a decent rate of return. |
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Imzadi
|
Take your money and go to mexico for the weekend. |
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Investment A
|
Hello,
Allot of people have the same problem as you are experiencing, a good amount of money but don't know where to place it.
I have to confess I was also one of those people.
Until I actively started searching for a good investment opportunity.
And I'm glad to tell you I finally found one that is working out great for me.
It's a mannaged account run by a verry capable man.
if you want you can check out the results he has made.
Here you can check them out:
http://my-robottrader.blogspot.com/
My money is working for me, in a litle over three months time I already have a ROI of 107%.
If you want a good place for your money to grow then I can only advice you to take contact with my moneymanager.
just send me a mail to derrekmay @ gmail.com, and then I'll bring you in direct contact with him.
I hope this answer has helped you out. |
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