The number of people taking student loans is getting higher day by day. Current research conducted by Student Loan Hero reports the average student loan debt of 2018 is $ 29,800. As a result, many young workers find it difficult to set aside money other than paying their student loans. Many of them don’t have investment and retirement money.
However, as reported from CNBC Invest In You, Erin Lowry mentions ways for young workers to invest while paying student loans. That two goals don’t have to conflict.
How Much to Invest When You Have Loans
It essential to start investing at a young age. According to Lowry the most important reason to invest at a young age is the money you invest has more time to earn compounded interest.
For instance, if you invest start $250 each month with a 8% rate of return starting at age 25, you will get $878,570 by age 65. However, if you start at age 35 with the same amount of money you will only get $375,073 by age 65.
Indeed paying the debt while saving money and affording daily expenses on the starting salary is hard. However, Lowry recommends saving 12% to 15% of your income each year.
When to focus on loan repayment
Before deciding how much you can invest, you need to also consider the interest rate of your loans. Compare the rate to the expected return of your investment. At the same time, you need to also consider the length of time you have before you retire.
Lowry says the investing experts she interviewed all came back with the same number: 5%. Additionally, Lowry also says if the rates of your student loans are higher than 5%, then focusing on paying your loans makes more sense.
In addition, if the rate below 5%, then you can invest right now.
Now, you can try to invest while paying student loans.
