Ask the Money Coach: Can I Invest if I am Still in Debt

Let’s face it. Most people don’t have access to a financial advisor. And if they do, those financial advisors may not take into account the human side of managing money – like how spending, saving, and stressing about it actually makes us feel.

Cue the money coaches.* We’ve long been helping you out in the app, but now you can write in to our money coaches.

Money coaches help you figure out your financial priorities, like whether you should pay off debt or invest first.

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Listen to Mackenzie Stewart’s money story on the podcast

Dear Money Coach,

I see people talking about FIRE and buying crypto, but I just graduated grad school with a $^&% ton of student loan debt. I know I should be setting money aside for retirement. My company even offers a 401k match, but I just haven’t gotten around to it yet.

Full transparency: I don’t even know what the match is. And at this rate, it will be another eight years if I wait until I pay off my student loan debt. But I feel like I am missing out.

Should I wait to invest until I pay off my student loan debt?

-Missing Out on the Dividends

Dear Missing out on the Dividends Finding the Right Time,

First off, congratulations on getting your money in order!

Second, it’s never too late to invest, especially if your company offers a 401k. Remember, this is just our opinion, we are not registered financial advisors, so talk to a professional about investing! With that being said, here are some tips.

The rule of thumb for growing your wealth while having debt is as follows.

Assess your debt and the interest on your debt.

Calculate your debts in the money tracking app.

Is it a high-interest loan (i.e.,>10% APY) or lower interest, like under 6%? If it’s high interest, it serves you well to get it off your books ASAP to benefit your net worth and credit score. We have many articles explaining different ways of paying off debt and calculators to help you find the best approach for your situation, like the debt avalanche and debt snowball methods.

If it’s student loan debt, consider consolidation or refinancing.

Consider consolidating your loans into the lowest possible interest rate and having one payment, if possible. A lower interest rate benefits you by decreasing the loan’s total overall cost. A single loan payment simplifies your financial picture and makes it easier to manage.

This is even in light of the recent moratorium on student loan payments – maybe Joe will forgive all debt, but the caveat is that he only has the power to forgive federally held student debt. Private loans may not be subject to forgiveness, so look into consolidating your student loans with the feds. They usually have better interest rates anyway.

You can start with one of our partners here.

Let’s move on to investing.

I feel like a broken record, but I will say it once again: TIME IS YOUR FRIEND when it comes to investing. If you invest early, you’re more likely to earn a better return over time. It’s never too late to start investing, even if it’s $20 a month. Investing is one of the best ways to increase your wealth by the time you want to retire. Of course, it comes with its risks. The more educated you are about those risks and the options, the better chance you have of creating passive income for yourself over time, even if you start with just a little bit at a time.

For you, it sounds like the best place to start may be your 401k. Take the match!

A 401k match is free money left on the table that is rightly yours. Your company has budgeted that match for you each year, and you are leaving money on the table if you don’t take it.

Image of income and expenses in the app. Gains include income. Expenses include groceries, healthcare, restaurants, pharmacies, and unsorted.

If taking that money out of your paycheck each month seems complicated, I suggest you use the app for expense tracking to see where you can save. You can double your money with a match; here’s an example. Your money goes into the 401k, and then your employer matches that money. You go from, say, $200 to $400 instantly.

If you’re worried about your student loans and have an employer that cares about employee retention, why not approach your HR teams about a student loan debt matching program? These programs help employers take their 401k matches and direct them to student loan payments until the loans are paid off. Many companies do this, like Student Loan Genius, SoFi, and others you can find here. Why not lead the charge to lobby your employer for a program like this? Thirty-four percent of people between 18 and 30 have student loans, so you wouldn’t just be advocating for yourself. You’d also be advocating for a large percentage of your colleagues.

Finally, if you want to pay off debt AND invest each month, it’s time to get serious about your monthly savings.

You can only do so much. Assess how much you save each month and how much you’d like to go to debt payments versus diverse investments. There are many ways to invest these days, thanks to recent legislation that allows non-accredited investors to access different types of investment. Of course, you can always access the stock market, ETFs, bonds, mutual funds, etc., through brokerage funds like Vanguard or Public. In addition, there are new ways to invest, like on peer-lending platforms, peer investment platforms like Republic and Fundrise, and a whole new world of cryptocurrencies and defi platforms.

Your financial journey

You are asking the right questions, so you’re clearly on the right path to figuring out how to manage your money to grow your wealth. Debt is sometimes necessary to generate wealth and new opportunities like attending grad school, but it does drain your proverbial pocketbook. Long-term gain over time is the financial incentive to get any debt off your books while investing early. The best way forward combines your personality, risk tolerance, and knowledge. Learn about paying off debt and diversified investing, and you’ll grow your wealth in no time.

You’ve got this!


Related Reads:

Investments for Long-Term Goals

Short -Term Investments

Risk, Return, and Diversification

Ask the Money Coach: How to Deal with the Haters

*Just remember, we are NOT your financial advisors, tax advisors, or legal advisors by simply accessing this site.  Everything that you read or interact with on the site is for informational purposes only. You should contact a professional before taking action.

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