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Which Is Worth Prioritizing: Repaying Student Debt Or Saving For Retirement?

Expert Panel
POST WRITTEN BY
Forbes Finance Council
This article is more than 7 years old.

With a national student loan debt of $1.3 trillion, many young professionals are entering the workforce dealing with debt. When first starting out, establishing a long-term budget plan remains one of the harder questions to get right. Is it better to immediately pay off debts, or should you invest in a 401(k) or in personal time? And how much should you set aside?

Seven financial leaders in Forbes Finance Council offer tips for young professionals managing student debt.

1. Focus On Retirement

Student debt is what I like to call "clean debt." Due to its low interest rates (for the most part), it can be paid off over a long time frame because there is an opportunity for your money to grow and exceed that interest elsewhere. While you should never miss a student loan payment, money invested in tax-advantaged investments – like a 401(k) – will almost always outmatch excess loan interest. - Elle Kaplan, LexION Capital

2. Prioritize Returns

If you believe you can make a greater return on an investment than the cost of student debt, make the investment. If the cost of the loan is more than you can feel confident making on an investment, then pay off the loan. - Paul Paradis, Sezzle

3. Establish A Pattern Of Saving

Putting the math aside, it's important for individuals to establish a pattern of saving, even if it's an incredibly small one at the beginning. Putting a little away early on can reap very large rewards in the long run. - Lindsay Garland, Glassman Wealth Services

4. Never Miss A Payment, And Invest From The Balance

Debt is certain, but returns are not. Student debt is notorious for following you around, and the impact on your credit can be lifelong. Investments in traditional retirement accounts cannot be accessed on a rainy day without penalty. So, if you can help it, never miss a payment and invest in retirement from the balance. - Atish Davda, EquityZen

5. Set Aside 20%

Debt should not be managed – it should be paid off aggressively. Ideally, you should be allocating 10% of your finances to debt, and another 10% to your savings. That way, when the debt is paid off, you’ll feel comfortable putting 20% towards savings. But when you have a surplus or extra left over, either put more of your money into either your debt or savings, depending on which is urgent. - Ismael Wrixen, FE International

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6. Pay Off Debt First

It's important to realize how crippling debt can be on your financial health. For example, personal debt may keep you from purchasing a house. Your debt-to-income ratio is determined by adding up your monthly debt, divided by your gross monthly income. If your debt-to-income ratio exceeds 43%, you may not be able to qualify for a home loan. - Domenica D'Anna, Supreme Lending

7. Invest in Yourself

I'd pay off low-interest student debt slowly: Just budget properly. As to saving for retirement as a young professional, don't! I'd first invest in yourself. Invest in travel, networking and fitness: things that save you time and better yourself. As an example, hiring a cleaning service that frees you up to spend three hours on a weekend project can be a great investment. - James Murphy, EquityNet