#Mymoney loan how to#

So, the interest rate you’re paying on your student loans comes out to 3.9%. Plug the numbers into the formula to get 5 x = 3.9.

You file as single and make $50,000 a year, putting you in the 22% tax bracket for 2020. Let’s say your average student loan interest rate is 5%. It’s possible to estimate your after-tax interest rate with this formula: student loan interest rate x. When it comes to sheer numbers, the decision to pay off student loans or invest can be made by estimating your after-tax interest rate. You may be able to reduce your taxable income by up to $2,500 depending on your eligibility.Īdded up over time, that can help make your student loan interest less expensive. When you’re paying off student loans, you can typically take a deduction on your college debt. Consider tax deductions for student loan interest If the interest you’re spending on your student loans is lower than the interest you expect to earn on your investments, it could make sense to prioritize investment over paying off your student loans early. So, if your average student loan interest rate is right around 5%, paying off your loans early is like getting a 5% return.īut what if you could get a return of 7% or 8% through investing your money? When you invest for the long haul, there’s a real possibility that your returns will make up for your student loan interest payments - and beat inflation to boot. When you pay off debt, that’s like seeing a guaranteed return. Your first consideration is whether or not you can get a better return through investing than through paying off your student loan debt.ĭepending on the year you took out the loans, and the type of loan you have, you might have an interest rate between approximately 4% and 8%. Here, then, are a few things to keep in mind while you debate, “Should I pay off my student loans or invest?” Compare the interest you spend with the interest you could earn Specifically, you’ll want to consider some key factors, such as tax deductions, forgiveness programs and expected investment returns. Look at your own situation and decide which course of action is right for you. Should you pay off student loans or invest?Īs with all things personal finance, there is no one one-size-fits-all answer.

#Mymoney loan how to#

How to invest when you have student loan debt.

Should you pay off student loans or invest?.In fact, there are circumstances where it doesn’t make sense to retire your student debt before you start investing. But if you’re wondering, “Should I pay off student loans or invest my money?” you’ve likely seen that the answer isn’t always straightforward. You may have been taught to pay off debt before you invest.