The debate of paying down your debt or investing in your future is one that you should have at the start of your university life. It will help clear out what you need to do.
You need to consider many factors, such as your financial status, the amount of debt you’re taking, and what career you choose. These factors will help you determine if you can pay off and save.
Factors That You Should Consider When Deciding
There are three key elements that you need to take into consideration when deciding between paying down debt or investing. It will make it easier for you to figure out what will suit you best.
The mathematical approach: You must consider what is more beneficial in terms of numbers. If you have a high-interest rate compared to what you will be earning when you’ve invested, you should pay off your loan.
The emotional approach: A student loan will always make you feel like you’re in debt, which can be overwhelming for some individuals. Thus, most choose to pay off their debts and then invest.
A hybrid approach: You can run the hybrid model if you’re strong-willed and working more than one job. It is an ideal situation to have. This way, you will be paying off and saving for your retirement.
Before you conclude, you should know some external factors that need to be considered. These include:
Your Financial Status
Think about the three approaches in your head and identify the effect each will have on your current finances. There are a few things to pay attention towards:
Emergency funds: you never know when you’re faced with an emergency. Thus you need to have cash for that. It should be your priority.
Payment deadlines: if you’ve been missing out on paying debt, you should get back on it. It will only add more money owning.
Basic needs: long-term plans are acceptable. But you need to think about your day-to-day payments first. Keep track of how much food, utilities, and transport costs you require.
Leisure money: working, paying off debt, and saving should not be your life’s motto. Take out some cash to relax and have fun with friends and family.
The amount of your debt, the remaining years, and the cost of your finances should be considered when deciding. They play an essential part when making a final decision.
If your debt is high and you have a high-interest rate, and you’re young and have recently taken the loan, it is best to pay most of it off as much as possible. Then, you can focus on your investment contributions.
Student loans are a drag. It’s only natural that you’d want to get rid of them ASAP. However, you need to consider saving as an option too. It is best to make a spreadsheet and plan accordingly. This way, you’ll know exactly where your finances are going and how much you need to stop spending or saving.