Should I Start Investing or Pay Off My Student Loans?

David graduated with $70,000 in debt. He makes about $50,000 a year, and his wife is making about $40,000. He's in residency. Should he be paying off his student loans or putting money in a Roth IRA?

QUESTION: David in Birmingham went to medical school and graduated with $70,000 in debt. He makes about $50,000 a year, and his wife is making about $40,000. He’s in residency. Should he be paying off his student loans or putting money in a Roth IRA?

ANSWER: I’d pay down your student loans. I understand that means you may never be in a Roth, but you can invest in other things and you can grow wealth. I’m still going to stick with the principle of being debt-free in order to be a high-quality investor. Mathematically, that may not be exactly right, but I don’t always do things based exclusively on math. I do them based on the principle of becoming debt-free or the principle that smallest to largest paying off your debts is the smartest way because that one actually works. The other ones don’t work. I have to go with those kinds of things sometimes in spite of what the technical math shows.

In your case, I think it’s just going to be very, very valuable for you to have no student loans by the time you get out of school—by the time you finish the residency. And I think you can actually be there, it sounds like, with a $90,000 income, three years left to go, and $70,000 in student loans, so we’ve got $25,000 a year out of $90,000 and you’re debt-free. Then you come out as a doc and you’re blow-torching the income. Definitely, definitely would do that.

I understand. I see the pull to the Roth, but I’m still going to stick with—and if I were in your shoes, I would still stick with—being debt-free and then building my wealth.

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