How to Pay Off Student Loan Debt While Saving and Investing

You have questions, we have answers. Each Monday, we’ll tackle one of your topical personal finance questions by seeking advice from several financial experts. If you have a general question or money issue, or just want to talk about something PeFi-related, leave it in the comments or email me at [email protected].

This week’s question comes from the fact that I never remember my burner name , although it is often asked:

How to prioritize student debt payments while trying to save and invest?

Here’s what individual experts * have to say as a whole about a problem that affects each person differently – if you need personalized advice, you should see a financial planner.

Focus on one goal at a time

Balancing debt and investing can be challenging. You should focus on things in the following order to make sure you make your money work as much for you as possible:

1. Always make your debt payments on time. First things first: you must prioritize the timely payment of at least the minimum amount due on your mandatory debt payments. Failure to do so can result in fines, additional interest and higher financial costs, as well as a deterioration in your credit rating.
2. Take advantage of your employer sponsored retirement plan: Check if your company offers an appropriate percentage of your contributions for an employer sponsored retirement plan such as 401 (k). If so and you are eligible to sign up for the plan, you should participate and take advantage of this free money.
3. Paying off high debt: After you continue to pay your bills on time and assess your eligibility for eligible contributions to a retirement plan, your third goal should be to pay off debt with a high interest rate (over 5%). For most people, the most expensive [student loan] debt is associated with unsubsidized loans [or credit card debt]. [ * Editor’s note: Steps 1-3 can be performed at the same time.]
4. Build your safety net: After your dear debt is gone, you should start setting up a safety fund for financial emergencies. I recommend saving three to six months on living expenses, including monthly housing bills, bills, utilities, and other recurring monthly bills.
5. Save for retirement. Now that your costly debt has been eliminated and your social safety net is in place, you are ready to invest for the long term. By the time you reach the age of 59.5 or when you are allowed to step out of your 401 (k) category without penalty, that 401 (k) match alone may not be enough to sustain your post-retirement lifestyle. This is why you will want to start saving for retirement sooner.

While there is little you can do to make your loans disappear overnight, with the right strategy, you can pay them back much sooner than you thought, and potentially even save you a little money along the way.

• Include the minimum monthly payment in your budget: If you plan on making a monthly payment on a loan of nearly $ 1,000, you may have to cut back on some areas that are not necessarily required.
• Use windfall profits wisely: You can speed up your loan payments by channeling any additional money you receive during the year, such as a job bonus or tax refunds, towards your loans.
• Consider refinancing: Another way to speed up loan repayment is to lower interest rates on loans. If you qualify for student loan refinancing and consolidation, it can lower your monthly payments or shorten your maturity, and save you money in interest in the long run.

– Nick Holman , CFP at Betterment

It doesn’t have to be all or nothing.

Don’t get hung up on the idea that it has to be all or nothing when you pay off debt or invest. See how much you are investing in student loan debt. What if you reduce that amount by 25% and invest the difference? You are still investing 75% of your additional payment to reduce your student loan debt, but now you are also preparing for your future.

Check with your employer if they offer a retirement plan. If there is a match, be sure to take advantage. Not only can this help you prepare for retirement, but the match is free money. If you need a little distraction from paying off your supplemental student loan to get free money from your employer, go for it. This will end up being more than you pay the interest on your student loan.

– Miranda Markuit, Financial Expert at S tudent Loan Hero

You will have to make a budget

Create a budget that includes monthly debt payments and savings contributions (savings account and investment). Track expenses daily, weekly, or monthly. Use the leftover excess money to pay off debts and to save.

Create a debt settlement plan that includes column headings for the total debt, outstanding amounts, due date, and interest rates for each account. Use an app, software, or pen and paper to track debt payments and set reminders [on your phone, calendar, or planner] to pay off debt and contribute to your savings and investment account. Set a maturity date for each debt and use the debt settlement calculator to determine when each debt will be paid off.

Determine which payout method is right for you:

• Snowball : Start with the smallest bill and pay off. Then add the money from that account to the minimum payment of the next bill (the debt snowball method) to pay off the debt faster.
• Debt avalanche: Pay off the debt with the highest interest rate first.
• Only minimum payments

Then pay for the essentials first, and then pay the lower priority bills:

• High priority: rent / mortgage, utilities, car payments, legal debt (alimony, alimony, taxes)
• Medium priority: insurance, student loans, court decisions, collection accounts
• Low priority: Internet, telephone, cable TV, credit card debt, etc.

Check with the lender to see if they offer repayment programs or agree on a payment plan. Offer a bona fide payment or one-time payment to use as an intercom, requesting waivers of any commissions or financial charges.

Top up your savings and investment accounts regularly. Automate savings and investment investments. Save at least 1% of your monthly income (10% to 20% is ideal). Paying off your debt is great, but you’ll run into debt again if you don’t have any savings.

—Harrin Freeman, CEO / Owner, HE Freeman Enterprises

Safety Net> Repayment of Loans

An emergency fund is a must. Financial security is imperative and an important part of the equation for paying off student debt and saving. While both steps can help increase your net worth, there is a lot to be said for the safety of liquid money in the bank. This is why it is imperative to create an emergency fund before you start paying off student loans with enthusiasm.

When it comes to federal student loans, you have many options, such as repayment based on income or deferral. You won’t have the same protection for other debts or areas of your life, so you’ll need to maintain your own financial liferaft: your emergency fund.

Shoot to save at least one month of spending as a reserve fund, and possibly up to three. Once this is taken care of, you can rethink your financial goals and decide which goal to focus on next.

– Elissa Kirkham, an expert on student loans in Student Loan Hero

* Answers have been slightly edited.

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