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Author: EdmundRoss Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8153  
Subject: Re: pay loans fast vs. start investing Date: 12/21/2000 7:46 AM
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i need some advice on whether or not i should pay off my college loans as quickly as possible or start investing the money instead...

As someone already said, your priorities should be first to get an emergency fund, and then fund your retirement accounts (IRA, 401k, etc.).

Putting any extra money (beyond your emergency fund) into a money market account is probably a bad idea. Keep in mind that you are being taxed on the money market interest, so the actual return is closer to about 4% rather than 6.25%.

i have some thoughts that i should pay my loans since the market is down

This is faulty reasoning. When the market is down, you should be more likely to buy (unless for some reason you think you can predict its future short-term direction, which many people have tried and failed to do).

Personally, I would invest my extra money in the stock market (an index fund or equivalent like SPY or QQQ that I would buy and hold). But it seems to make you feel a lot better to have that debt paid off. The psychology of money is such that you probably ought to pay off the debt so you feel in better control of your financial life. It is easier to make hasty, poorly thought-out decisions when we are afraid of our finances, so you're probably doing yourself a favor by paying it off as soon as you can. If you have to start investing a year or two later, it's probably not such a big deal if it means you can invest with the frame of mind that you no longer have a debt hanging over your head. (Just make sure you really do get started investing as soon as the debt is paid off -- if you have to wait five or ten years to invest, you may be sorry in the long run.)

-- Edmund Ross
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