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

Money coaches are here to help you figure out your financial priorities like should you pay off debt or invest first?

Listen to Mackenzie Stewart’s money story on the Nav.it 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 8 years if I have to wait until my student loan debt. But I feel like I am missing out. So my question is

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! That being said…)

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 Nav.it 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. It benefits both your net worth and your credit score. We have a lot of articles explaining different ways of paying off debt and calculators to help you find the best approach for your situation.

Learn about the debt avalanche here and the debt snowball here.

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

Look at how to consolidate your loans into the lowest possible interest rate and have one payment (if possible). A lower interest rate benefits you by decreasing the total overall cost of the loan. A single loan payment simplifies your financial picture. It can make it easier to manage.

This is even in light of the recent moratorium on student loan payments – maybe Joe will really forgive all debt but the caveat is that he only has the power to forgive Federally held student debt. If you have private loans those 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.

Now, 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 have more chance of getting 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 own risks, but the more educated you are about those risks and the options the more 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!

That’s 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.

If taking that money out of your paycheck each month seems complicated, I suggest you start using the Nav.it app for expense tracking to see where you can save so you can double your money (i.e. your money goes into the 401k and then your employer matches that money so you go from say, $200 dollars to $400 dollar instantly).

If you’re worried about your student loans and you have an employer that cares about the retention of their employees— often you can tell if they have good benefits that they care about retaining their teams—then why not approach your HR teams about a student loan debt matching program? These are programs that help employers take their ‘401k matches’ and direct them to student loan payments until the loans are paid off. There are many companies that do that 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- 30 have student loans, so you wouldn’t just be advocating for yourself, you’d 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 really 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 paying down debt versus investing in 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, there is always the stock market, ETFs, bonds, mutual funds, etc. that you can access through brokerage funds like Vanguard or Public, but there are also new ways to invest like on peer-lending platforms, peer investment platforms like Republic and Fundrise, and a whole knew world of crypto currencies and defi platforms.

Your financial journey

You are asking the right questions, so you are on the right path to figuring out how to manage your money so you can grow your wealth. Debt is sometimes necessary to generate wealth and new opportunities like attending grad school. But it does drain your proverbial pocketbook. The financial incentive to get debt off your books while also taking advantage of investing early is long-term gain over time. The best way forward is a combination of your own personality, risk tolerance and knowledge. Go learn about paying off debt and diversified investing and you’ll be growing your wealth in no time.

You’ve got this!

Erin

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, that 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 and you should contact a professional before taking action.

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