I was reading through Ellevest’s financial insights (a kick-ass firm that supports diversifying a portfolio based on a woman’s needs and lifestyle).
The founder talked through the importance of recent grads PAYING OFF their high-interest debt BEFORE investing.
In this post, it is my mission to make sure you learn from my mistake. I’m not big on regrets, as I believe that everything is working in our favor and every mistake is a lesson learned, BUT if I were famous and getting interviewed with the question “what is something you wish your younger self knew” THIS would be it.
My mindset out of school: I cannot pay attention to my student loan because it’s overwhelming. I’ll pay the maximum amount every month, and throw a few hundred toward it when I can. I’ll pay more when I make more. I’d rather not worry about it too much.
My mindset after learning about the importance of investing: OH MY GOODNESS, I need to start doing this as much as possible and right away!
Little did I know, that not worrying about my student loans, and becoming numb to my monthly payments of them, made me unaware of a really basic fault in the management of my personal finances.
It’s as simple as it can be. If your student loan has a higher interest rate than the predicted returns of your investment, then you should pay off the loan before investing.
This goes for any credit card debt with a high interest rate as well. Pay your credit card debt off before investing in an account with a lower return rate.
For anyone whose student loans are overwhelming, pay off the highest interest rate first, and work from there. Also, it would be wise to look into refinancing options as you might be able to find a lower interest rate.
Example: You have a basic 401k or a comparable basic investment portfolio. Each of those accounts is likely to have an estimated return rate of around 6%. Student loan debt and credit card debt can cost anywhere between 6% to 17% interest rate (even for someone with decent credit!).
It’s as simple as that.
If you haven’t already, I hope you’re able to take advantage of what I missed out on the first few years after I graduated.
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