Ask YOUNG MONEY: Pay student loan or invest?
Dear YOUNG MONEY,
I am going to be a college senior and currently I have $11,800 worth of student loans. My internship this summer is paying me very well and I would like to start investing in a Roth IRA. I would also like to take this last year loan-free. However, with investing in an IRA I won't have as much to pay for this last year, which will possibly mean that I have to take out my loan. What should I do, take out the loan and invest in a retirement account or pay the year off? (The loan would be for $5,500 and the initial retirement investment would be $1,000).
Thanks,
Tim
Tim,
My advice is standard when asked whether to start saving or pay off currently held debt. Always pay off the debt first. Especially taking into account the way the stock market is acting these days, if I were in your position I would attack debt now and avoid taking on additional debt if I could.
There will be plenty of time in the future to begin investing. In the meantime, if you want to start to save some money at a decent interest rate, plenty of online banks are paying 4.5% or more interest on savings accounts.
Good luck and please keep us posted.
Mike Schiano
"The DebtBuster"
Listen to a Money Minute with Mike at: http://www.inchargeradio.com/MoneyMinutes/default.aspx
Visit www.inchargeradio.com and read Mike's book, "Spend Your Way to Wealth."
© 2008, Young Money Media, LLC. All rights reserved.
Comments
Your not taking into account the time value of money. Investing returns come from length of time invested, not total dollars invested. Start investing now and create a smart, and aggressive debt-paydown plan at the same time.
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