23Sep 2016 Should You Pay Off Student Loan Debt? by AffordEverything ⋅ Leave a Comment Student Loan Debt Unless you come from a rich family, student loan debt is all too familiar to those with those looking to further their education. Todays guest post comes from Michael L. owner of the person finance blog, Super Millenial. If this article helps you, or you want to hear more from Michael, take a moment to visit his website. Without further ado….take it away Michael… Student loan debt is a necessary evil and a reality many young people will face to continue their education. According to the Wall St. Journal “ About 7 in 10 seniors set to graduate this spring borrowed for their educations. Along with their diplomas, they’ll carry an average $37,172 of student debt as they enter the workforce.” Before we go into let’s take a look at three easy ways to approaching paying down student debt: Live Like A Student: You’ve been doing it for past 4-5 years, keep doing it as a way to keep costs down to pay more towards your student loans Set Up A Plan: Know how much you can afford, when your expected pay off date is and how you can pay it off sooner. As you reach certain dates and reach goals make sure to celebrate to stay motivated! Refinance: If you’re committed to paying down student loans early look at ways to consolidate your loans to the lowest payment possible. This will ensure you’re paying more towards the loan and less wasted on interest. So should you pay off student loans or look to start investing in your retirement funds? A good place to start is the Federal Student Aid by comparing your student loan interest rate vs. your expected portfolio returns. Student loan debt has ranged from 3.86% (direct, subsidized loans) to 6.41% (Direct Plus loans). Historically the stock market has been ~8% but there will be bad times in the economy, drops in the stock market, and potentially another bubble or recession. Student Loan Debt Interest >=< Expected Investment Return? In the end it is a very personal decision as some may not be able to sleep at night knowing they have a debt looming over them. Here are the benefits of both investing by building assets & paying off student debts: Investing (Building Assets) Emergency Fund: Do you have enough money in savings to pay for basic expenses for three to six months? If not then start saving & automating 1o% of each paycheck towards your emergency fund until you reach your goal. 401K: Are you currently contributing to your employer’s 401K? If they match a percentage or amount, invest at least up to that amount to take advantage of free money from your employer. If you invest $3,000 and they match, you just doubled your investment instantly. This habit will ensure you automatically pay yourself first and contribute towards your future. Pay Down Credit Card Debt: With high interest rates these will do more damage to your credit and your potential for lending than student loan debts. Roth IRA: By opening a Roth you can increase your savings and also still have liquidity if needed as there is withdrawal flexibility if you need to use those savings in the future (unlike a 401K). Generally, early withdrawals from an IRA prior to age 59½ are subject to income taxes, plus you’ll pay a 10% tax penalty. However, you may be able to withdraw your contributions (before any earnings) tax-free and without penalty. Taxes: Depending on your income you may be able to deduct up to $2,500 of your student loan interest costs. If you pay your loan off early you may reduce your tax savings. Paying Down Debt Now that we’ve covered the benefits of building assets it’s important to also evaluate the benefits of paying off student loans: Predictability: While the market has historically been 8% returns the future may yield different results. Your student loan payment is fixed for the life of the loan and will give you consistency in your budget planning. Credit: Paying down your loan make a big impact on your credit score as you are lowering your overall debt which can increase your credit score. The higher your credit score the more likely you’ll be able to get a lower rate on buying a car or house Stress: Debt is a burden to many, some people can’t barely sleep at night knowing they owe money. Once your lower your debt or completely eliminate it you’ll be able to enjoy peace of mind and really begin to start increasing your net worth. Dealing with debt is like meal prepping for a full week; it’s necessary but not always the most fun (until you see the results). I’ve mentioned before it’s important to find a balance in your life and finances, same goes for investing and paying down debts. Start by eliminating credit card debt then accelerate your student loan debt while investing in your emergency fund, 401K, and Roth IRA. The most important part is identifying your debts and setting up a game plan for each paycheck. Have you had success paying down either type of debt & investing at the same time? What strategy worked best for you? Michael L. is the creator of Super Millennial. He teaches people how to evaluate their financial situation, simplify money management & learn how to automate your investments to reach their financial goals. Subscribe for his personal finance “Keys To Success” PDF and blog updates HERE.