One of the most common questions we get at FitBUX is: Should I pay off student loans or invest? This is a complex question because each person’s goals are different.

When you have debt you have an added expense every month. This means that your budget has less flexibility. Also, all investments have different levels of risk vs return.

Assume you make $70,000 a year and your employer offers a 3% 401k match. This means if you put $2,100 a year into your 401k the company will put in $2,100 a year. THAT IS A 100% RETURN WITH ZERO RISK.

I make 73k per year in salary and I’m going to put 27% of that towards my loans. Therefore, I am going to pay $1,642.50 per month. Then I will invest at the risk free rate of 1.5% when the debt is paid off.

I am only going to make the minimal required payment over 20 years which is $845.93 per month. Then I’m going to take $796.57 each month and invest it at 1.5% ($1,642.50 – $796.57).

In scenario 1 you end up with $270,000, scenario 2, you have $223,000 after 20 years. It makes sense to pay off my student loans first then invest in this scenario.