Pay Off Student Loan Debt or Save for Retirement? Help a Reader!

Posted by Adam Gomez

Finally reaching the point where you have positive cash flow to be able to choose to pay off your debt or invest is never a bad thing.

But it often creates some tough decisions for people.

When youre dealing with credit card debt with APRs above 10%, it usually is an easy answer: pay off the debt. Youre rarely going to consistently be able to make over a 10% on your investments.

When youre dealing with a very low APR, for example, student loan debt of 2-3%, the answer is also pretty simple. Invest. Its fairly simple to earn more than 2-3% via conservative investments in the market.

But what about when youre right around that 5-7% mark? Thats when it gets tricky.

Reader, Lisa B., write in:

I have about $15,000 worth of student loan debt at 6.25% interest rate. I am 27 years old and getting married this year. My partner is 29 years old. We do not have any retirement savings, but we also do not have any other debt besides my student loans. We will have about $1500 a month in disposable cash starting in the fall. Is it better to put the money towards my student loans or towards a retirement plan?

Its a tough question that many of us have or will come across.

On one hand, being 27 and 29 and not having any retirement savings is a bit of troubling red flag. Sure, Lisa and her partner have time to catch up, but if they dont start a retirement savings discipline now, when will they?

On the other hand, 6.25% is a rather enticing guaranteed investment return in todays volatile market.

I thought Id pass it along to the readers to comment to get a variety of opinion.

Should Lisa:

Focus on paying off the student debt first, before saving for retirement?
Focus on retirement and pay off the minimum monthly payments on the student debt?
Do both at the same time?

Whats your take?