“I feel the psychological lift of having it paid off would be a huge chip off my shoulder”: Should I use my investments to pay off student loan debt for peace of mind?

Hi Money Minder,

I’ve got around 25k invested in a mix of stocks and bonds in a brokerage account. I haven’t added to it for quite some time and don’t plan to in the future.

On the flip side, I have 12.5k in private student loans at 6.4% interest and 19k in federal loans with interest rates between 2.5-4.5%. At this rate, I could probably pay off these loans in 5-6 years, but I really want to get rid of them sooner.

Do you think it’s a good idea to use my investments to knock out a big chunk of the student loan debt? I feel like getting rid of it would be a huge weight off my shoulders. Is it smart to pay off the debt with these investments? I’ve been following the prime flowchart guide up to the moderately-sized loans point.

Farewell,
Financial Freedom Fan

Response from THE MONEY MINDER:

Hello There,

It seems like you have put careful thought into your financial situation, and it’s commendable that you are considering paying off your student loan debt early. The psychological relief of being debt-free can indeed be significant. In your case, using your investments to pay off a large chunk of the student loan debt could be a practical approach.

Having a mix of stocks and bonds in your brokerage account is great, but if the return on your investments is not outperforming the interest rates on your student loans (6.4% for private loans and 2.5-4.5% for federal loans), you may be losing money in the long run by not paying off your debt sooner. It’s important to weigh the potential returns on your investments against the guaranteed savings from paying off high-interest debt.

Given that you have already followed the prime flowchart guide up to the moderately-sized loans stage, using your investments to pay off a significant portion of your student loan debt could be a wise financial move. By eliminating this debt, you free up cash flow that can be redirected towards further investing or saving for other financial goals.

Ultimately, the decision to use your investments to pay off student loan debt should align with your financial goals and risk tolerance. If the idea of being debt-free sooner rather than later is a priority for you and would give you peace of mind, then it may be worth considering. However, it’s essential to assess your overall financial picture and consult with a financial advisor if necessary to ensure that this strategy is suitable for your specific circumstances.

Best of luck with your decision, and remember, at THE MONEY MINDER, we’re here to help you make informed financial choices!