Is getting out of debt or investing for retirement more important to you?
This is an interesting debate. Many young people leaving undergraduate and postgraduate studies aren’t too concerned with getting out of debt right away. Many of my wife’s friends who will be leaving with considerable student loan debt from medical related degrees say that they would rather invest their big paychecks rather than use it to pay off the debt.
I think that’s backwards way of thinking. If you clean up your debt quickly, you’ll have more chunks of money to invest, which will allow it to grow quicker and help you catch up for the time lost when you were paying off debt. When you have $50,000 in the bank and $50,000 in debt, you really don’t have any money. You’re just borrowing against your own money. Many people argue that they can make more interest on the money than what the interest is on the debt. But do you really? Let’s say you rolled the dice and you invested it in a mutual fund that makes 10% interest, and let’s say that your debt is at 6%, which is the current rate for student loans. That 4% difference really isn’t 4% once you factor in capital gain taxes and expenses taken from the stock broker. So, is the 1% or 2% interest really worth the extra risk? It’s not worth it to me, but it may be to some of you.
Comment with your answer and your reason why.