Can you invest while paying off your student loan? Or should you clear your loan first before investing? - Seedly
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Anonymous

Asked on 26 Nov 2020

Can you invest while paying off your student loan? Or should you clear your loan first before investing?

Should you invest while paying off your student loan?

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    Hi Anon,

    I would suggest repaying your tuition fee loan first before delving into investing.

    For a couple of reasons. Firstly, we should only invest money that we can afford to lose, we wouldn't want to end up with unnecessary debt, especially as a fresh grad. Secondly, while the interest on your student loan is guaranteed while returns on your investments are not, and the form is pretty hefty.

    Let me redirect you to a couple of other community questions in the event they resonate with your situation as well:

    Hope this helps! 🙌​​​

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    Hi anon,

    I did both at the same time. But if we are talking about priorities, then you should try and repay back your loan asap since your loan interest is guaranteed for now while your investment returns are not. And its also a matter of allocation. Will I allocate all the money i have to invest and not pay off my loan? Unlikely. So it is possible to do both at the same time. Just be watchful of your investment strategy. If you have a monthly allocation of paying off your loan, you can do a dollar cost strategy in an index fund for better cost-effective diversification instead of hitting hard on individual shares.

    Financial planning is an integral part of life. You can reach me here to find out more.​​​

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    My student loan was going to start at 4.75% p.a. so I proceeded to get rid of it immediately. Between guaranteed 4.75% p.a. and unguaranteed investment returns (I'm an amateur), I am more confident about dealing with the former first.

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    Hi anon,

    In my opinion, you should try to clear your loan and other liabilities first before you invest. Investments should be done with capital you can afford to lose. Do not use monies meant to return your loans to invest.

    Reason is, if (unfortunately) your investments do not turn out well, you will find yourself in a very stressful situation where you have to actively look to earn money just to pay off your liabilities. Very likely, you will also not be able to invest well with this pressure to have to earn back the money.

    With that being said, you can instead aim to save a portion of your allowance or part-time income, and invest those monies instead.​​​

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    Ryan

    Level 5. Genius

    Answered on 27 Nov 2020

    You have to check out interest of your student loan and depends on how much income you get per month.

    If you are able to take risk and interest is low, with steady income, some people do abitrage. Do make sure you have 6 months of expenses including loan payments in liquid forms and you can sleep soundly no matter which you option you choose

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    I will definitely clear my student loan first before investing. Unless you have extra money from your salary that you are willing to set aside (that does not affect the payment of loan) then you can consider that too.

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    Yes can is can, at least you have an income. But I prefer to clear loan first

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    Axel Blasé

    Axel Blasé

    Level 5. Genius

    Answered on 26 Nov 2020

    From my experience, I would say settle the loan as fast as possible before investing. A loan is a real liability and will limit your investment risk profile and restrict you to making conservative decisions to safeguard your money. It’s a real headache when investments go into the red and the loan lingers in the balance, waiting to be paid. If you can manage both comfortably, that’s the best of both worlds.

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