Pay Down Student Debt or Start to Invest? Try Both!

Typically, a college student doesn’t graduate with a great amount of financial freedom. Tuition debt often hangs over graduates for years, if not decades, as they wind their way through their professional careers. This can make it difficult to undertake some of the financial decisions you may see your peers take on, such as investing. 

Whether you want to pay student loans or invest in your future, you have options available to you. Options that let you take care of both at the same time. This may not be advantageous for everyone, but those who can reduce their debt while investing in the stock market often find success. 

Investing and Debt 

Of course, as a college student, you have to prioritize how your money is spent. If you have student loans, they can take up a sizable portion of your budget once you graduate, and it can be difficult to find the needed funds to kick off your investing career. 

However, there are ways where you may be able to do both. Many post-graduates have taken on a side hustle, as it allows you to earn extra cash that can be used both as investments and to pay down your student debt. The key here is to start investing as soon as possible so that even a minimal contribution can have a major impact later in life. 

The Importance of Starting Early 

The best way to grow your money is to give it time. Small investments made early on often beat larger investments made later on in life. However, this can be difficult to intuit accomplish at a younger age, as budgets tend to be spread pretty thin. Yet, the longer you remain in the investment game, the more likely you will receive a larger reward at the end. 

Those who start investing later on often have to make more sizable investments to catch up to those that began investing at an earlier age. This is true even if the difference in starting points is minimal. 

This all goes to say that the earlier you start investing, the better your return will be long-term. Putting in that little bit of extra work can literally make you a millionaire by the time you retire. 

Understanding Investments For College Students

There are a variety of investment accounts for college students and young adults to consider. You’ll generally have several different options to choose from: 

• Cash accounts 
• Margin accounts 
• Roth IRA 
• Traditional IRA 

Cash accounts are often the most basic type of investment account. It gives you easy access to the funds you’ve invested. This means there’s typically no penalty or fee you have to pay to withdraw funds before retirement age. For folks who are , wanting to dip their toes in to see if the investing waters are warm, this can be a great starting point.

A margin account, like a cash account, is considered a brokerage investment account. Buying on margin allows an investor to buy securities partially with his or her own funds and partially with funds borrowed from a broker.  When you buy on margin, you’re using leverage to increase your purchasing power.  This leverage magnifies the results of your investment decisions.  It can lead to gains or losses that are greater than if you had invested your own money exclusively. 

Both Roth and Traditional IRAs are retirement investment accounts. That is, they’re designed for money to sit tight until you’re of retirement age. The key difference between these two accounts is when you’re taxed. 

When you contribute money to a Traditional IRA, you won’t have to pay any upfront taxes. The amount you contribute is tax-deductible. However, when you withdraw money, you’ll have to pay taxes at the rate of typical income taxes.  

Roth IRAs work in the opposite direction. The money you contribute now is taxed at normal rates. However, when you make qualified distributions at retirement age, you won’t have to pay any further taxes on that amount. 

Blackhawk Bank Can Help 

There’s still quite a bridge between “wanting to invest” and “investing.” After all, you’re not likely to just start calling the New York Stock Exchange to start making purchases of stock. 

At Blackhawk Bank, you have access to financial advisors and a full suite of wealth management services. They can help you identify your financial goals and partner with you to craft a plan that helps you reach them. Visit us today to see how we can help.