Should I liquidate my robo-advisor investments to pay for my student loans so that I will be debt-free faster?

You would have to consider the opportunity cost of liquidating your investments now vs paying off your loans now.

Could the market performance for the next two years be potentially more than 5-6%? If yes, then maybe you shouldn’t liquidate all of your investments. If the market performance can outperform the loan interest rate, you could potentially use some of the market returns for periodic lump sum payments over time.

On the other hand, if you liquidate your investments now, it will only clear a portion of the loan. Then you would only have your salary or savings to cover your future loan payments and other financial needs?

Not sure how much you have saved up for the loan repayment, you can choose to exercise that option first and see how the plan goes first before deciding whether to liquidate your investments in future?

However if you are averse to debt, then for your peace of mind, you could pay off your loans faster.

Also do check with the loan provider if there any loan deferral options due to COVID. It could help to alleviate some of your immediate financial constraints while you focus on your career.

Hi Anon,

It sounds like you have a plan for how to pay off your student loans, since you have calculated that you can possibly pay it off in 2 years.

Some things you can consider before making this decision:

• how much faster will you be able to pay off your student loan if you liquidate your investments?

• how much will you save on interest payments as a result of liquidating your investments? (reducing the capital will help to dampen the impact of compound interest on your debt)

• are you planning to buy a house soon? (may be harder to get housing loan if you still have outstanding student loans)

At the end of the day, it comes down to how comfortable you are with being in debt and how well you will be able to stick to your debt repayment plan.

The smartest decision for your finances isn't necessarily the smartest decision for your wellbeing - so do whichever helps you sleep better at night.

All the best!

Regards,

thefrugalstudent​​​