Payoff Student Loans or Invest Calculator
- August 14, 2018
- Posted by: Dave Rathmanner
- Category: Student Loans
When it comes to managing your finances, deciding between prepaying your student loan debt, investing in the stock market, or saving for retirement can be extremely challenging. Financial experts are divided about what is the best course of action, and in many cases, it is entirely dependent on your unique situation, your current needs and your goals for the future. This student loan payoff or invest calculator will help you determine what you should do.
The type of loans you have is a major factor in making your decision. For instance, if you have a Direct Stafford Loan with a low interest rate, it is probably below the average return for investments. In that situation, it would make sense to pay only the minimums on your loans each month and put any extra money towards investing. This is especially important when you remember that student loan interest is a valuable tax deduction, bringing down your tax burden; having that deduction can help reduce how much you owe each year (see exactly how much using our Student Loan Interest Tax Deduction Calculator).
If you have a higher interest loan, like a private student loan which can be as high as 12 percent, the interest rate you pay is greater than the return you could expect on an investment. In that case, it is more financially sound to pay off the loans faster, rather than to invest your money.
Your approach should be different when it comes to retirement. The power of compound interest is an incredible thing, and by contributing even relatively small amounts to retirement vehicles while you are young, you can reap huge rewards later on. Especially if your employer offers a company match for a 401K, it makes financial sense to pay just the minimum on your loans so you can contribute what’s needed to get the full match.
However, while this is a financially sound approach, there is an emotional component to it too. Even if your loans have a low interest rate, if the thought of all that debt makes you nervous and anxious, it makes sense to prioritize paying it off to give yourself peace of mind.
This student loan payoff or invest calculator can help determine the best repayment strategy for you, taking into account variables like interest rates, employer retirement contributions and tax deductions.
You can see all of our student loan calculators here.
Author: Dave Rathmanner
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