Should You Pay Off Student Loans or Invest? The Definitive Guide (US & UK)

Should you Pay Off Your Student Loan or Start Investing? This definitive guide will help you work out whether investing or paying down student debt is best for you. (Inc Student Loan Forgiveness Strategies)

There is so much information about student loans and investing online, but most of it isn't that comprehensive, or it’s just downright wrong. So it’s time to lay out exactly how you should be thinking about this, and giving you all the information you’ll need to identify whether you should be paying down that debt or investing.

Sections:

Intro: (0:00)
Investment Rationale: (3:31)
US: (9:30)
UK: (12:30)
Subjective Factors: (15:42)

Step 1: Get an Emergency fund

Before you even start to think about investing or even paying down your debts there is one this you absolutely have to do first. You’ve heard it before, and I’ll say it again. You need to have an emergency fund. You need to have enough cash saved up to fund 3-6 months of your living costs if the worst should happen.

I know it can seem counterintuitive to have cash in the bank whilst you’re got some big old debts outstanding. But just imagine if you’d made a big overpayment on your loan, you’re feeling pretty pleased with yourself, and then suddenly you crash your car, and you’ve got no cash to pay for repairs. And you end up having to pay for it on your credit card that’s gonna charge you a hell of a lot more than the student loan did in the first place! So always keep some cash on hand.

Step 2: Educate yourself on Investment Returns

Most people make the basic mistake of looking at the average return of the stock market 9% and thinking “Hey, this is bigger than the rate I’m paying on my loans. So surely I’ll be better off by investing”. The thing people miss here is that that average stock market return is not guaranteed, whereas the student debt interest is. And even though the average is 9% you still have a very high probability of ending up with less.

You also need to consider that if this was just a normal investment opportunity, you’d be taking all of the same risks that come with investing in the stock market, for only a fraction of the return.

Part 3: Student Loans in the UK & US

I cover off in detail the differences between the types of student loans and how each of them will affect your decision.

Student Loan Refinancing Resources:

https://www.nerdwallet.com/article/loans/student-loans/student-loan-relief

Part 4: Subjective Factors

Arguably, this is the most important part. What are your goals, what are you trying to achieve? Do you want to be debt-free as soon as possible or do you feel like you can handle the risk and want to start learning about investing? I talk about all the factors you need to consider.

DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice - James is not responsible for investment actions taken by viewers. Please seek out a regulated advisor if you require assistance (whilst James is a financial adviser, he does not provide advice through this Youtube Channel, which is not affiliated with his employer).

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Видео Should You Pay Off Student Loans or Invest? The Definitive Guide (US & UK) канала James Shack