facebookI just started working and I am left with $29k student loan but my savings is only at $2k. Can I get some advice on which should I prioritise? Should I save more or invest or settle the debt first? - Seedly


31 Aug 2020


Saving Hacks

I just started working and I am left with $29k student loan but my savings is only at $2k. Can I get some advice on which should I prioritise? Should I save more or invest or settle the debt first?

Discussion (7)

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I will recommend to make paying off the loan your priority, simply because interest rate for student loan is ~4.5% which means every year you are down 4.5% without doing anything. On the contrary, saving account gives min 0.05% if you do not do anything to multiply the saving interest rate. Hence, by paying your student loan, you are effectively earning 4.5% per year not doing anything besides paying it off. Yes you can argue that if you invested the amount, you can get upwards of 7%. Take note, however that it isn't guaranteed and it's puts you under more stress if you delay your debt. Make it a priority to settle the debt asap so that you have hold your investments through volatile periods and not be forced to sell an unfavourable position to pay back the debt.

Of course, allocate your savings into emergency funds, living expenses (as low as possible), paying off debt.

So for this question, it depends on the interest rate of your loan and savings. If I assume your savings is in a normal bank with 0.05% interest rate, and your student loan is approximately 3-5% (?), then I suggest you clear your debt as soon as possible so as to reduce the interest your are paying from the loan. Also, do not utilise all your savings as there is a need to keep some of your own expenses for daily necessities and emergency needs hence drying up your savings is not feasible in the long run.

Pang Zhe Liang

13 Dec 2019

Fee-Based Financial Advisory Manager at Financial Alliance Pte Ltd (IFA Firm)

Assuming that you are using the local university student loan from OCBC, it is interest free during your course of study. Upon graduation, you will have up to 5 years to clear the loan without interest. Otherwise, the interest will be 4.5% per annum (subject to change based on prevailing rate).

Now, you have to decide if you are able to invest and earn the entire school fee beofre the end of 5 years upon graduation. Otherwise just pay off the loan and earn 4.5% return immediately.

By clearing your loan, you earn a guaranteed return of 4.5% while your investment return is not guaranteed. This is a choice that you will have to understand and choose wisely.

Here is everything about me and what I do best.

Settle the debt the soonest you can.

Saving is important as well.

In order to-do both, you need to examine your finances.

  1. Set a fixed sum of money to be saved.

  2. Calculate all your FIXED monthly expenses.

  3. look at point 2 and see if you can reduce your expenses.

Things like swapping starhub tv to netflix, lower the cost of your mobile plan. evaulate if you are over-paying your insurances, and little things like limiting yourself to resturant visits and eat at hawker centre, etc.

  1. Pay off the loan monthly, more is better as you can shorten the repayment period.

  2. Work with the rest of balance as other living expenses in cash.

Point 5 is also important, that you try to limit the use of credit cards and use only debit card or cash. This helps to discipline your spending and give you total control.

Jason Sing

30 Nov 2018

School Of Hard Knocks And Life at School Of Hard Knocks And Life

Settle the debt first so as to reduce the interest payable. Once your debt is cleared, you could the...

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