Money Hacks Episode 51: Should You Pay Off Student Loans Before Saving for Retirement?


hey it’s Alex with AFS and episode
number 51 of money hacks! I read an article that came out just about a week
ago from Michelle Singletary at the Washington Post titled “Why it’s
important to pay off your student loans ahead of or before saving for retirement”
and I know on the surface that raises some alarm bells from financial
professionals around the conventional wisdom well what makes more sense paying off good debt or low-interest debt first before saving for retirement. I’m gonna
put a twist on her advice but the article I thought was really interesting
because she said that while most financial professionals, personal finance
experts and others who focus around the financial component of making decisions
what advise people who have low interest student loan debt not to worry about
paying off that debt fast or faster than they normally would in order to save for
other things in particular safe retirement and the reason why she thinks
that can be a flaw or potentially bad advice is that many of us will
receive that information and only accept the first part of it of it’s okay to
have this student loan debt for a long period of time and not execute on the
second piece of using the extra money you would have put towards paying down
or paying off your student loan debt faster and start saving that money for
retirement so what happens is people will get accustomed to the lower
payments the minimum payments and student loans and they take extra money
instead of putting away towards emergency savings or saving for
retirement they buy houses or buy cars or other things to take on additional
debt and get used to a lifestyle so they’re not necessarily making financial
progress now. My advice where I said I put a twist on this is that sure paying
off student loan debt is important and paying it down quicker or faster than
this the payments will certainly help you in
reaching financial success but I think you can do both I think you can pay down
your student loan debt while also saving for retirement and the important piece
of this is automating your financial life as making decisions so that you can
be structured and disciplined and saving in or paying down debts that you have
all at the same time in an automated unemotional way. 401ks are great vehicles to do that in saving for retirement allowed a number of workers to amass
really meaningful account balances and assets for their financial future and so
we create this Hierarchy of Financial Wellness that you’ll see here on the
screen as our step-by-step guidance to help somebody make the best decisions in
their financial life and as Michelle pointed out in the article typically we
would suggest somebody not be super aggressive and paying down low interest
debt ahead of things like building up emergency savings, paying down/ paying off
high-interest debt like credit cards and at least putting enough money in your
401k to get your full match so it’s about balance it’s about understanding
your financial goals for the short, medium, and long term but also
understanding our behavioral biases in a way that we can automate various areas
and make good decisions and both paying down debt and saving for retirement
while we have limited amounts of money discretionary money that we can put
towards these financial goals it doesn’t have to be all or not so check out the
article I think it is really interesting even though it goes in the face of what
most financial professionals would advise I totally agree with some of the
behavioral components of it and hope this is helpful and if you have
questions on our hierarchy of financial wellness. Please feel free to reach out!
Thanks see you next time!

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