Invest or pay off student loans?

There are many questions that involve investing vs. paying down debt. Invest or pay off student loans is a big one. We will probably revisit more. This is a classic one however. I hear far too often that someone doesn’t want to invest in a 401k because they still have student loans. Let’s discuss if this is a good idea.

Should you skip the 401k?

You’re probably thinking with how hard core I am about paying off student loans, that I’ll say skip the 401K. Wrong. The 401k is too good to pass up. First of all, most of the time when I hear that they still have student loans so they won’t contribute to a 401k, they are buying Razors, fancy trucks, and other toys. So that extra money after the minimum required student loan payment seems to be going to those things rather that student loans. There is a time and a place to be buying those toys. While you still have student loans, and if you are not contributing to your 401k, is not one of those times.

You should at least invest enough in a 401k to get your company match. That is the bare minimum you should do before putting extra funds towards student loans. It is also probably a good idea to put the max allowable amount in your 401k. 401k’s and other qualified retirement plans get great tax benefits and saving for retirement is a must anyway.

Invest in taxable or pay off student loan debt?

After you have maxed out tax advantaged accounts I would put any and all extra money towards student loans. Some people argue that if your student loan are at 4% then you should put that extra money in a taxable investing account because you will likely beat 4%. Well, that’s not guaranteed. You know what is guaranteed? Interest on your student loans. That being said I guess it could work if you are very disciplined.

401k company match is free money. Don’t pass it up.


So here is my suggestion on where your money should go when it comes to building wealth and paying down debt. After minimum required payments are made I would max out any tax advantaged investing accounts. I would then put any extra money towards student loans until they are gone. I might not even save for a down payment on a house while I had student loans. You have to get them out of your lives. After they are gone then extra money can go towards a house down payment, extra payments on your mortgage and taxable investing accounts.

Just make sure you are saving at least 20% of gross income towards financial independence at all times. Maybe you have heard 10% or 15% is enough. Well, as dentists and other professionals, we get a late start. Read here from the White Coat Investor why we need to save at least 20%. I know this sounds hard, but it is possible if you can reign in your spending and be disciplined. There is a time and a place for buying toys. If you wait until the correct time, you will be much happier and closer to financial independence.

-Debt Free DDS

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*Nothing on my website is professional or legal advice. I am only sharing information that I have learned and it may or may not be accurate. I am not liable for any problems you may have by following this advice. Please do further research and get professional and/or legal advice about any of these topics. This post likely contains affiliate links. This site could be paid for clicks or purchases made through these links.

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