For investing in say, a 30 year period. Is it better to pay off a student loan with 5% interest quickly and then invest in the stock market after the loan is paid? Or is it better to pay the student loan minimum every month and then invest some money every month in the stock marekt? Thanks.
2007-01-14 16:11:04 · 4 answers · asked by tremcg 1 in Business & Finance ➔ Investing
Probably best to defer paying off the loan. This is due to the tax benefit you will get from paying off the interest. Effectively it will be like borrowing money at 3.5-4%, which would be nearly impossible from other sources. Assuming you have a steady and secure source of cash flow (a job), and the loans aren't horribly large, it is probably best to use them as a cheap source of financing for your investment portfolio.
2007-01-14 16:17:22 · answer #1 · answered by MagicalMke 4 · 0⤊ 0⤋
Where are you located?
If you are located in Canada, the answer is easy: Open up a self-directed RRSP or regular RRSP account, and put some cash in there. Your tax return for making an RRSP contribution can go towards your student loan principal.
If you are in Canada, and get to write off the student loan interest, this is a great way to do it. You get 18 to 49% of your RRSP contribution back (depending on your income) and this amount can go towards either more RRSPs or paying down your debt.
If your debt is manageable, and you can afford to put money into investments early - the compound interest and tax refunds will more than make up for it.
Good luck. Hope this helps.
2007-01-15 02:16:38 · answer #2 · answered by Mick 3 · 0⤊ 0⤋
Depends if you think you can make more than 5% in the stock market.
Can you get a income tax deduction for interest paid? I get a big tax break for my mortgage interest every year. That's another factor.
2007-01-14 16:16:30 · answer #3 · answered by Yardbird 5 · 0⤊ 0⤋
Second option.
2007-01-14 17:16:18 · answer #4 · answered by Anonymous · 0⤊ 1⤋