I’m 24, have $88,000 in student loans at 6.3% interest, paying about $760/month for 15 years. I make $97,000 a year. My company matches my 401k even if I don’t put anything into it because of a student loan match program, so I don’t have to contribute to get that match.
Here’s my dilemma: Should I just make the minimum payments on my student loans and put more into my Roth IRA? Or should I put less into the Roth and try to pay down my loans faster?
I’m leaning towards putting it all in the FXAIX Fidelity fund.
@Rebel
I see where you’re coming from, but I think the emergency fund advice there is overkill for younger folks. I’ve never needed more than a few grand for emergencies. Credit cards and a line of credit have worked for me when needed, though interest rates have gone up a bit.
Also, it’s smart to take full advantage of the 401k match. I wouldn’t prioritize paying down your student loans too fast, especially with a 6.3% interest. You’re young and have time for compound interest to work in your favor with your investments.
If you’re going to invest, find something low-fee like an S&P 500 tracker, and max out your Roth IRA first. Then, if you can, go for an HSA (if you’re eligible) before maxing your 401k. HSAs are great because you can invest the funds long term without worrying about yearly use-it-or-lose-it rules.
As for FXAIX, that’s a solid choice. It tracks the S&P well and has a super-low expense ratio.
@Anais
Honestly, the younger you are, the more important an emergency fund is, especially if you don’t have anyone to help you out in tough times. Credit cards can be tricky, and issuers will cut your limit if things go south. Plus, if you’re young, your credit limits are usually lower.
Chasing yields or risking your emergency fund might seem tempting, but it’s risky business. Just make sure you’ve got a cushion before diving into investments.
@Rebel
Yeah, using credit cards for emergencies can backfire. I’ve seen people dig themselves into a hole because they didn’t fully grasp the consequences. A solid emergency fund can help avoid a bad spiral with high-interest debt.
@Anais
You’ve been lucky not to need an emergency fund, but I wouldn’t count on that forever. Most people aren’t in that position. Your advice could really backfire on someone less fortunate.
Paying off your student loans is like getting a guaranteed 6.3% return, tax-free and risk-free. That’s hard to beat with any other investment right now, so I’d focus on paying off the debt.
The S&P 500 averages about 6-7% annually after inflation, but that’s with the risk of the market. Paying down your student loans guarantees you a 6.3% return. There’s less risk with that approach.
I’d say pay the loans too. With your income, you’re probably not getting any tax benefits from the student loan interest deduction anyway. If you only pay the minimum, you’ll be stuck with that debt for over a decade.
I agree with everyone about paying the loans, but just wanted to mention that Fidelity has funds with no expense ratio, which might be better than what you’re using now. Over time, even a small expense ratio like 0.02% can add up. If you can get the same performance without the fee, why not go for it?
Just a heads-up, Fidelity has zero-expense ratio funds that are worth looking into. Over time, even a tiny expense ratio can take a bite out of your returns. Might be worth considering.
