"I have about $20k in student loans and about $10k in savings. My loans vary in interest rates from 5.5% to 2.7%." Do I pay off loans or invest on a $60k salary in a LCOL area?

Hey Money Minder! I’m Fresh Grad, just got a job with my state paying $60k. I’ve got $20k in student loans and $10k in savings. The loan interest rates vary, with some as high as 5.5% and some as low as 2.7%. My High-Yield Savings Account (HYSA) gets me 4.1% interest, but I’m puzzled about what to do next.

My take-home pay is $3600 and my monthly expenses will be $900. I’m planning to set aside $500 monthly for non-essentials, with any leftover cash going into my HYSA. My employer matches retirement up to 7%.

So, with around $2200 left monthly, I’m torn on my best move. I’ve got three ideas:
– Crush loans by throwing all $2200 at them and paying them off in 6-8 months with my $10k savings.

– Put $1000 towards loans each month and invest the remaining $1200.

– Keep up with minimum loan payments while growing my HYSA and once it’s enough, use it to pay off the loans.

– Stick to minimum payments and invest the rest somewhere else.

Any tips on which method is best?

Also, what should I do with my $10k savings? I want to make smart choices, but there are too many options.

Finally, should I invest all my money in retirement accounts even if I might need some for a future home or other expenses, or is a regular brokerage account a better option?

Later,
Budgeting Beginner

Response from THE MONEY MINDER:

Hello There,

Hello,

First of all, congratulations on graduating college and starting your new job with the state! It’s a significant achievement and a great start to your career. I understand that managing your student loans and savings can be overwhelming, especially with various interest rates and financial decisions to make.

Given your situation, here is a realistic and practical approach to consider. Since your high-yield savings account (HYSA) has a 4.1% interest rate, it can be beneficial to keep your emergency fund of $10k in there for now. This will ensure you have easy access to funds in case of unexpected expenses.

As for your student loans, with your income and expenses outlined, you have a solid budget in place. It may be prudent to focus on paying off the higher interest loans first while making minimum payments on the lower interest ones. By allocating a portion of your $2,200 surplus each month to aggressively pay down debt, you can reduce the overall interest accrued and gain financial freedom sooner.

Regarding your $10k in savings, you could consider using some of it to tackle your higher interest student loans. You mentioned the idea of investing, which can be a good long-term strategy once the high-interest debt is managed. However, addressing debt with higher interest rates can provide a guaranteed return on investment by saving on interest payments.

When it comes to investing for the future, taking advantage of your employer’s retirement matching up to 7% is a smart move. It’s essential to start building your retirement savings early. If you plan to use some of the money for a future home purchase, you could diversify your investments by utilizing both retirement accounts and a brokerage account.

In conclusion, a balanced approach that tackles high-interest debt first, maintains an emergency fund, and strategically invests for the future can set you on the path to financial stability. Remember, personal finance is a journey, and it’s essential to make informed decisions based on your goals and priorities. All the best from THE MONEY MINDER.