4 ms·

This is really interesting and inspiring for someone like me who is in his mid twenties. Burning question: what to do when you have (education) debt? Do you pu

• JoshTriplett 13y ago
  What's the interest rate on the debt, and how much are you making on your investments? To a first approximation, you can treat the debt as an investment with a guaranteed rate of return. If you have debt that's not at such a ludicrously low interest rate that it makes sense to hang onto the money and invest it (rare), then your savings should be going straight into paying off that debt. The savings rate still applies; it determines how fast you can pay off the debt. If you can reduce your spending and increase your savings rate, you'll pay off the debt that much faster, and the same principle applies once you've paid it off and started investing.
  • scott_karana 13y ago
    Spot on analysis. I'd caution that you should still keep a small cash reserve for emergencies, of course. Savings are liquid: student loans are not.
• gerickson 13y ago
  Recent college grad and young working professional here. I graduated with ~$25k in student loan debt 2 years ago and am due to pay it all off by April 2014. I struggled with burning question, as well. The general advice I got was that if the loan interest rate is less than 6%, you're better off investing the majority of your excess cash into something like an index fund since it theoretically will give you >6% gains. However, I hate the stress, mental overhead, and risk involved in owing somebody money, so I decided to automatically save 10% of each paycheck (set up direct deposit to funnel 10% to a separate savings/investment account) and essentially contribute as much as possible after that to student loans. I'm happy where I currently am - almost out of debt and with a non-trivial amount saved up. The key for me was automatically moving the first 10% to savings then setting an ambitious goal each month to put toward debt. Good luck!
  • jakebellacera 13y ago
    Good job! After years of putting around with debt, I have kept a promise to myself that I wouldn't get into debt unless it was under dire circumstances. Peace has value, in my opinion. Not having to worry about debts and payments really frees my mind (and my funds) for other things. I'm not one for biblical citations, but "the borrower is slave to the lender" always gets to me.
  • gerickson 13y ago
    As a follow up, after April I intend to reallocate so that 20% goes toward savings each paycheck.
  • mistermann 13y ago
    That sounds to me like an excellent way to approach your debt, good job.