Out of all the questions I get about credit card debt, student loans, emergency savings, etc. – this one may be the most common. The funny thing is that usually people already have a strong opinion about it and just want me to try and prove them wrong for some reason.
The internet is weird (and people are weirder honestly).
Before we jump in, I want to make it clear that there is no real “right” answer for this one in most cases. I have some thoughts based on my own experiences with debt. However, for every person like me there is someone else who has had an equally positive experience with a different strategy.
ALSO, NO FINANCIAL SITUATION IS THE SAME.
If I've learned anything so far…it's definitely that. I make a lot of statements about $$$ on this site that get some people uncomfortable when they hit too close to home. I get it. But I also know who my audience is and what type of content they need, so it works. 🙂
Check out the only company I recommend for finding lower student loan interest rates.
“Should I pay off student loan debt or invest?”
As a general rule, I like the idea of using extra funds to pay off debt (especially student loans) instead of investing. Before anyone calls me crazy – hear me out! My reasoning came from a really good friend of mine that convinced me to pay off MY debt.
A lot of you already know my student loan payoff story, but for those that don't I paid off $40,000 of student loan debt on a teacher's salary. It was awesome and obviously was the key to my killer blogging career that I currently enjoy.
My friend's reasoning was simple. My return on the investment of paying off my student loans would be guaranteed. Boom.
You could absolutely argue that I should have put my money into the markets instead after college. There's a good chance that I would have ended up better over the long term and would have outpaced my student loan interest with my percentage of return.
But just like most seasoned investors will tell you – you can't predict the future and shouldn't try to. However…I can predict that I would put future interest money back in my pocket (or really keep it there) by paying down my student loans at 6.8% interest.
I could actually guarantee that return, which is powerful.
You can't guarantee that kind of return anywhere else.
I'm sorry, but if you honestly have a way to guarantee substantial investment returns or even the average stock market investment return over any period of time…you should be doing that full time and DEFINITELY shouldn't give a crap about my site.
The reality is that the markets rise and fall, and we don't have any way of accurately predicting what they will do. Now, if you've invested and had killer returns, cool! I'm proud of you. Seriously. But I'm not going to tell a 22 year old with $60,000 of student loan debt making $35,000 per year to follow in your footsteps.
It would be irresponsible in my opinion, because I KNOW paying off their debt will help get their head above water. I don't know if investing in the markets or real estate will. See what I mean?
There are other benefits to paying off debt that go beyond the numbers.
Anyone that has ever made that last payment on anything knows what that feeling is like. I truly believe THAT feeling is worth something. It's tangible. It's real. It has value. It's worth sacrificing like crazy to achieve.
I can't tell you how many Facebook comments and emails I've had where people talk about how proud they were to pay off their car or finish their student loans. Talk to anyone who has paid off their mortgage, and I guarantee there is a strong sense of pride associated with that accomplishment.
We live in a world where debt is normal only because advertising would have us believe it. It's not freaking normal.
Can it make you money (i.e. real estate investing)? For sure. I'm a huge fan of real estate investments and plan on allocating a lot of capital there in the coming years. But the average person trying to figure out their debt needs the most direct solution, not the one that might work out better if things go their way.
I think the guaranteed return of paying off student loan debt is the way to go.
Question for you:
Pay it off or invest instead?