How should I balance paying off my student loans and contributing to a 401(k) plan?

I have over $200,000 in student loan debt. Some people have advised me to focus on paying off the loans, while others have advised me to keep contributing money into a 401(k) plan. How should I balance these two goals?

College Tuition, Debt, 401(k)
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January 2018



That must of been some degree you earned! Without knowing your details of income/interest rate on your loans/cash flow it is hard to give you a specific answer so this is a general thought. I would suggest you contribute to your 401k up to the maximum matched amount and then focus on putting everything above and beyond onto the loans. It sounds like you may be just starting out in your work life so some of my reasoning behind this would be: 


1) Assuming you are just starting out you probably have a small 401k balance which means even if you earn a high rate of your return you will probably pay more in interest because you are paying it on a bigger balance. For example 10% ROR on 50k = 5k growth but 4% interest on 200k = 8k paid out (your net worth decreased) 

2) We are at a high point in the market - equities are at all time highs. Knock off the loans and if we have a reset at some point in the next few years you may have more cash flow to dump into the market at a lower point. 

3) Those high debt balances will impact many other aspects of your life - buying a house, having a family etc.. all that debt will bog down your cash flow making it difficult to do anything else. 

Good luck and happy new year!

Tom Cymer CFP

President Opulen Financial Group LLC

January 2018
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