Investing vs. Making Extra Payments


Should I pay extra towards my student loans or invest?


Stop letting student loans control your life. Refinancing your loans may be able to save you money. You can get rate estimates from multiple companies in less than 15 minutes by going here.


Let’s say we have $100,000 of student loans, and we have refinanced to a rate of 5%. This gives us a monthly payment of $1,060.66. We have $458.33 extra each month and want to know if we should invest the money or pay extra to our student loans. By paying extra, we would pay the loan off in 77 months, at which point we could invest $1,518.99 per month.


There is a fairly simple rule to follow when making these types of decisions; put the money where you get the higher rate of return. If you have a dollar for dollar match in your 401(k), that provides an instant 100% return. You should put money there before paying extra on a student loan at 5% since 100 > 5. If you have credit card debt at 20%, you should pay that off before investing with an expected return of 7-10%.


This chart shows how our balances would grow if we receive a 7, 8, 9, or 10% return.


paying extra


When we start saving right away, we take advantage of compounding interest. Even the highest rate of return in our paying extra scenario doesn’t reach our lowest return of saving right away. At the end of 10 years, here are our balances.



Another benefit to saving right away is the ability to put the $458.33 a month into a Roth IRA. This will shield it from taxation while the $1,518.99 per month will have to go into a mix of IRA, 401(k), and taxable account. This may have a large impact on the after-tax value of your account.


If we assume that we were 30 years old when we started repaying, we can project these balances out for 35 years until we are 65 and nearing retirement.


At 7% and 10%, the balances would grow like this.


paying extra 3

paying extra 4


The balances from paying extra aren’t able to catch the ones that started early.


paying extra5


As you can see, 35 years of compounding can have a massive effect on your end balance as you retire. I remind you again that the larger balance is also in a Roth IRA that won’t be taxed as you withdrawal making the difference even larger.


If you are wondering what kind of rates that you could refinance at, you can get rate estimates from multiple companies in less than 15 minutes by visiting here.


If you would like to talk about setting up an IRA or any other investment related questions, send me a message!


Thanks for your time,










Bulldog Advisors LLC is a registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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