If You Have Student Loan Debt, At What Point Does It Make Sense To Start Investing?

When you face considerable debt, it's difficult to imagine how you could possibly start investing. This is especially true if you have student loans, as the term during which you pay off student loans often coincides with the time in your life that you make an entry-level salary.

All that said, most financial advisors agree it's best to start investing as early as possible. Every investing model and every projection demonstrates that a dollar invested in your late teens or 20s vs. a dollar invested in your 40s is far more valuable when you reach retirement.

So, how can someone become a new investor even if they are trying to overcome considerable student loan debt? Here are some things to consider.

Overcoming Barriers

As an investor, your first priority is to keep an eye on interest rates. For example, if find that you're in a position to refinance your student loans at a lower interest rate, not only will that potentially make it easier to pay your loans off early, but it may free up resources that can be used to build your portfolio.

One other thing to remember is that your credit score has zero effect on your ability to invest. You shouldn't consider your loans or any past payment difficulties to be an impediment to saving money on account of your creditworthiness. These two things are completely unconnected.

Investing Early

When you are just starting out, one of the fastest and lowest-risk options for investing is to set up a monthly installment plan with a fund company. Many mutual funds have minimum investment requirements, but those can often be waived if you pledge to invest a fixed amount every month. Not only does this give you the benefit of cost averaging, it can also be used with zero-cost funds. You can often find online brokerages with valuable information on such programs.

It's also important to focus on equity investments, as those have the best potential for growth over time. As your portfolio grows, you can begin moving some of your assets to income investments, such as bonds, to improve stability and security.

Budgeting

The key equation in your investing strategy should be to compare your total return on investments to the interest rates on your loans. The higher the interest rate, the more you should set aside to pay down your loans. The lower the interest rate, the more you can pledge towards your investments.

If possible, you should make every attempt to accelerate paying off the loans. Every interest payment beyond the payoff date is money that not only goes directly to your bottom line, but can be amplified by strong investment performance. Over time, this effect can be powerful, especially when applied to a long-term schedule of regular investments.

It never hurts to consult a financial advisor if you can. There are many facets of investing and numerous programs and methods by which student loan debt can be managed and overcome. Combine the two disciplines and give yourself the best chance of success.