For a lot of people, graduating from college with at least some debt is inevitable. With the high costs of education and all that entails, nearly 43 million Americans carry student loan debt, accumulating to about $1.59 trillion. 

As we all know, debt can negatively impact a person’s life if they don’t have a plan. One of the biggest concerns people have in their 20s and 30s is whether they should work to pay off student loan debt as soon as possible, or put that money toward investing for their future. In this article, we weigh the options of each.

Climbing out of student debt

With the average American student graduating from college with about $30k in student loan debt, people are eager to want to pay it off. After all, interest payments could add another several thousand dollars to the principal amount. 

However, many people find that their first job out of college isn’t typically the highest paying, and with additional living expenses such as rent, utilities, groceries, and car payments, they can find their paycheck wiped out quicker than they expected. 

The first thing to do when attempting to pay off debt is to create a budget. List your monthly expenses and allocate the appropriate amount towards them. After listing all the necessities, if you find yourself with some leftover cash, decide how you want to spend it. If you can put an additional hundred dollars or so toward your student loan payment every month, you will be able to pay it off sooner and cut down on the interest. 

But is it worth it? If you decide to tackle student loans, start with those with the highest interest rates — anything 6% or greater. You should also remember that it’s wise to have an emergency fund of about 3-6 months worth of your salary. This should be in place before any extra payments are made to your student loans. The sooner you start investing, the greater your return will be in the future. 

What about investing?

If you decide to pay down on your student loans, you can certainly save money in the long run. However, it doesn’t earn you money. 

Remember compound interest? With the right investments, you can still come out on top even if you decide not to pay off your student loans early. Investing in mutual funds and your employer’s 401(k) plan can set you on a solid path for your financial future. 

Contributing to your employer’s contribution matching 401(k) is an excellent way to earn basically “free money.” Contribute as much as you can to reap the benefits of the employer matching program. 

Final thoughts

Everyone’s circumstances are different, and if you’re struggling to make ends meet, it’s helpful to meet with a financial advisor and look into refinancing your student loans or applying for a student loan repayment plan. We always recommend investing as early as you can, but we understand that life happens and goals and needs can change. If you’re interested in learning more about investing while carrying student loan debt, contact us for a consultation.