Student loans in America average near the $40,000 mark, and it makes it difficult to decide whether to invest or pay off student loans. Because, let’s face it, getting out of debt and saving for retirement is equally as important. 
There are three elements that determine which route will suit your needs best. These are: 
But before you dive in, it’s important to understand external factors may affect your decision. 
A critical factor in deciding whether to pay down your debt as opposed to boosting your retirement savings is the effect the move will have on your finances. Things to consider, include: 
The average student loan debt of $40,000 might seem doable, especially if you’re earning a decent paycheck. But let’s consider those specialist degrees where your student loans creep up to the hundreds of thousands of dollars. Suddenly this amount seems like a behemoth and it might not make sense to throw money at anything else until you get this huge number under control. 
The flipside is that with all those years you devote to paying off your student loans, you could have built up your retirement savings. You may want to predetermine a goal that will give you some wiggle room to focus on investments. For instance, you might set the goal that once you reach the halfway mark of your debt, you’ll start contributing to your retirement accounts. 
If you’re right at the beginning of the loan period, for instance, fresh out of college and working that first job, your priorities might be different to someone close to retirement. 
There are only a few instances where the debt interest rates are lower than what you would earn on an investment, but it happens. When it does, you want to make sure that you’re getting the best value for money. A low-interest rate student loan might just be better off with that minimum installment if you haven’t maxed out your 401(k) just yet. 
However, if the interest you’re paying is on the higher end, you might want to consider paying your debt first before increasing your investment contributions. 
Fast-tracking your student loan payments can save you a stack of money in the long term. 
For instance, an extra $100 goes a long way to clearing off the interest portion faster. 
Here’s an example. Let’s say you have a $10,000 student loan at a 6.8% interest rate with a 10-year repayment period. If you go with the standard monthly payment, you’ll pay around $115 a month. But look at how much you’ll save in interest if you just pay $100 more each month:
It’s worth knowing that there are a number of options open to those who wish to pay off their student loan debt. 
There are three student loan types to consider: federal, private, and refinance loans. Each has its own set of rules and carries a few pros and cons. 
A big plus across the board, however, is the fact that you can pay extra or make prepayments into an education loan without penalty charges. How’s that for an incentive? 
The government makes provision for loans for students in order to access higher education. Instead of students borrowing from banks and other financial institutions, these loans are entered into with the federal government. 
There are three types: 
Positives include that it’s easier to apply for a federal loan and in times of hardship, there are deferral and forbearance options. They also tend to offer lower interest rates as the rates are controlled by the government. 
It’s important to note that these loans carry costs and charge an initiation fee of 1.057% to 1.059% for regular student loans and 4.228% to 4.236% for PLUS loans. 
There are a number of private student loan products offered by banks and other institutions. What’s great about these loans is that they can tailor the loan type to suit the need, for instance, there is a loan for bar exams, another for medical school, and even a product for those with bad credit. 
These loans tend to be a little more costly and while there aren’t initiation costs, the interest rate is not fixed by the government. This means that the rate can be substantially higher than that charged on federal loans. 
Applicants will also need to show a good credit score. It’s also worth knowing that these loans aren’t part of any government forgiveness programs. So why get it at all? Turns out these loans are great for those who have high study costs. 
High-interest rates on a student loan are a real kick in the teeth and what better way to get your own back than by opting for a product with a lower rate? Student loan refinance products are offered to students who have a decent credit score with the aim of reducing their interest rate. This is not a great option for those with federal loans, however, as you will lose the federal protections and benefits should you opt to refinance. 
Saving for retirement is an essential component of building wealth. It also happens to have tax and other benefits that you simply can’t get from regular savings or investments. But how do you make the decision to pay your future self when you still have debt? It will be easier to unpack that mule of a question when you understand retirement investment options a little better. 
These retirement plans allow you to contribute to your retirement savings up to a certain threshold per year. In 2020 and 2021, this annual threshold was $6,000. That means that if you’re worried about paying off debt or saving towards retirement, first check that you’re not already maxed out on these contributions. 
It’s worth noting that a Roth IRA also has an earnings limit of $140,000 for individuals. 
There is no cheaper way to fund your retirement than a matched 401(k). Read that again. If you have extra cash lying around and you’re not maxed out on this, you’re losing out. Let’s explain. 
A matched 401(k) means that your employer will match your 401(k) contributions either fully or partly up to a certain percentage. Now just bear in mind, there is a limit of just under $20,000 per year, or 100% of your salary, whichever is the smallest. 
Okay, we’ll admit it, you’re going to have some work to do. But a little bit of effort now will save you a ton of financial admin in the future. There are a few things you need to know before you can make a decision about whether to pay student loans or invest. 
An envelope system is a budgeting tool that allows you to allocate all your money to payments, savings, and such. It works on the premise that, if you had cash, you would stick your dollar bills into various envelopes and then mail them off to cover the bills. 
An envelope system works well because you decide the categories. While housing and utilities are a given, you can also have an envelope for lattes, entertainment, etc. Sure, you can decide that the biggest chunk of your salary goes to Target, but the point is to cover your expenses and bills, put aside money for saving and investing, and still have some fun money. 
When you’ve used all your entertainment money, the idea is that it’s done. When the envelope is empty, that’s when you stop. Not only will this allow you to allocate more effectively, but it will also stop the frustrating overspending that seems to befall us when we’re low and there’s this great pair of shoes… stop!
Now, here’s the great part. You can have an envelope for additional payments to your student loans AND you can have an envelope for investments. 
When you have to ask the question, “Should I pay off my student loans or invest?” chances are good that you’re not interested in spending a ton of cash on fees and expensive investment products. 
You have two enormous financial goals and the quicker the better. That means you’re going to need options that will allow you to do both. 
So out comes Ramit Sethi’s Ladder or Personal Finance. It’s a gamechanger when it comes to building wealth and vanquishing debt. And here’s how it works: 
You can check out this video to learn more:
Let’s face it, student loans are a drag. It’s only natural to want to get rid of them ASAP. But here’s the thing, we’re also getting older. Investing shouldn’t be relegated to some future date when things are peachy and the debts are done. 
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