I have been layed off after 26 years. I have a 28k student loan at 9% and must make a decision on using the severance to pay off the loan or invest the money. Since cash is king, what would be the best decision?
There is no easy answer to this one. Is it reasonable to assume you are not ready to retire, and hence seek another job?I would be reluctant to pay off the student loan until you land another job. But once you are working, paying down student debt is worth considering. Usually you will want to decide between investing surplus cash as for retirement as an alternative. The right choice depends on how confident you are that your investments can return more than 9%.These days most people aim for 8% return. Hence, paying down student loan looks attractive, but some can do much better than 8% especially in good times.One size does not fit all in this situation. You will have to decide for yourself, but most would pay down the student loan as soon as practical. So splitting funds between the loan and investments can be the best compromise.
If this is a private student loan and you can pay it off, I might consider it. Unless you have 3 to 6 months cash set aside for living expenses while you recharge your career, I would not pay down debt or invest.FuskieWho is sorry you are starting the new year with this situation...
At 9% guaranteed return I'd recommend paying off the loan first before investing unless you have a pretty good track record of being able to return substantially above 9%.That said, I wouldn't do either unless you have a really solid cash emergency of fund of around a year's worth of living expenses or until you find a new job. While you might be able to pull money out of an investment if you need cash, once that money goes to pay off a loan it's gone. Usually that's a good thing but not when your near term cash flow situation is in doubt.Mike
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