When Your Student Loan Debt Shouldn’t Be Your First Priority


What's Hot


2 Types of Black Marks Might Vanish From Your Credit File SoonBorrow

6 Ways the Obamacare Overhaul Might Impact Your WalletInsurance

7 Dumb and Costly Moves Homebuyers MakeBorrow

This Free Software Brings Old Laptops Back to LifeMore

Obamacare Replacement Plan Gets ‘F’ Rating from Consumer ReportsFamily

Beware These 12 Common Money MistakesCredit & Debt

21 Restaurants Offering Free Food Right NowSaving Money

17 Ways to Have More Fun for Less MoneySave

House Hunters: Beware of These 6 Mortgage MistakesBorrow

30 Household Uses for Baby OilSave

25 Ways to Spend Less on FoodMore

Nearly Half of Heart-Related Deaths Linked to These 10 Foods and IngredientsFamily

5 Surprising Benefits of Exercising Outdoors in WinterFamily

10 Ways to Save When You’re Making Minimum WageSave

Boost Your Credit Score Fast With These 7 MovesCredit & Debt

7 Painless Ways to Pay Off Your Mortgage Years EarlierBorrow

The Most Sinful City in the U.S. Is … (Hint: It’s Not Vegas)Family

The True Cost of Bad CreditCredit & Debt

10 Companies With the Best 401(k) PlansGrow

This Scam Now Tops ID Theft as the No. 2 Consumer ComplaintFamily

6 Stores With Awesome Reward ProgramsFamily

6 Ways to Save More at Lowe’s and The Home DepotSave

6 Healthful Treats for Your DogFamily

New Study Ranks the Best States in the U.S.Family

Thousands of Millionaires Moving to 1 Country — and Leaving AnotherGrow

Strapped for College Costs? How to Get the Most From FAFSABorrow

6 Overlooked Ways to Save at Chick-fil-AFamily

Ask Stacy: What’s the Fastest Way to Pay Off My Mortgage?Borrow

Where to Sell Your Stuff for Top DollarAround The House

8 Ways to Get a Good Price on a Shiny New AutoCars

Ask Stacy: How Do I Start Over?Credit & Debt

Secret Cell Plans: Savings Verizon, AT&T, T-Mobile and Sprint Don’t Want You to Know AboutFamily

30 Awesome Things to Do in RetirementCollege

14 Super Smart Ways to Save on TravelSave

The Rich Prefer Modest Cars — Should You Join Them?Cars

You’ll Soon Pay More to Shop at CostcoSave

10 Ways to Save When Your Teen Starts DrivingFamily

Repaying your student debt may feel like it should be your top priority, but a financial expert says there are other places you should put your money first.

This post comes from Gerri Detweiler at partner site Credit.com.

If you’re like most college students with student loan debt, you can’t wait until the day that you pay down those balances to zero. In fact, you may think it wise to do everything you can to pay off your student debt as fast as possible, even if that means moving back into your parents’ basement and living on PB&Js.

Not so fast, says Chris Camillo, the author of “Laughing at Wall Street,” the book where he recounts how he turned a $20,000 investment into $2 million by spotting market trends. He believes there are times when paying off your debt faster may not be the smartest move.

The first thing he says students need to educate themselves on is the difference between good debt and bad debt. “Kids coming out of school need to be able to define what is good debt and what is bad debt for them,” he says.

Good debt helps you build wealth, he says, whether that’s through a physical asset such as a house or investment portfolio, or a “soft” asset such as an education that helps you increase your earning power. “What makes it good debt,” he says, “is that it will bring a return that exceeds the cost of the asset itself.”

Once that’s established, he suggests there are three times when you should hold off on throwing all your available funds at your student loans, which are often good debt.

1. You haven’t built an emergency fund

At the top of Camillo’s to-do list for college grads is to build an emergency fund. And not just a wimpy little account that would only cover a bill or two in a pinch. He wants students to aim for a “robust” emergency fund. That way, he says, you know you’ll be able to make the minimum payments on your debts and maintain a good credit rating no matter what life throws your way.

“That’s the No. 1 highest priority,” he insists. “So until you get a comfortable emergency fund, you shouldn’t look at doing anything else.”

One bonus of building up a healthy savings account: You may be able to avoid taking on additional debt at higher interest rates.

2. You aren’t maxing out your 401(k) employer match

If your employer offers a 401(k) with an employer match, that’s free money and it’s “hard to make the case that it would have a higher return (elsewhere). In addition to your emergency fund, it’s the one big area every graduate should look at,” Camillo says.

One March 2013 survey by WorldatWork in partnership with the American Benefits Institute found that about a third of employers surveyed said that at least half of their employees aren’t taking full advantage of the employer match. At a minimum, Camillo suggests young workers try to save enough to take full advantage of this opportunity.

3. You can generate a higher return elsewhere

The other concept these debtors should educate themselves about is return on investment or ROI. They can then ask themselves whether the money they plan to use to accelerate debt repayment could be used elsewhere to earn a higher return.

Student loan debt often carries low interest rates (though some private student loan debts have high interest rates and some federal loan rates will be rising soon). And that means students with lower rates may be able to invest their money for a higher return elsewhere.

That’s what happened to Camillo. He says a close friend started a software company and came to him for investment capital. “I had debt, but I also had an investment portfolio and was able to invest in his company,” he explains. When the company sold several years later, his return was 40 to 50 times what he had invested.

A golden opportunity like that won’t come everyone’s way, of course, but Camillo still suggests graduates develop an investment habit early in their careers and not “wait seven or eight years to get started.”

The good news is that as long as students make the required monthly payments on their loans, these balances will likely be a plus for their credit scores. You can get your credit score for free at Credit.com and find out exactly how your debt is impacting your scores. Paying student loans off faster or becoming debt-free alone won’t boost your credit scores.

More on Credit.com:

Stacy Johnson

It's not the usual blah, blah, blah

I know... every site you visit wants you to subscribe to their newsletter. But our news and advice is actually worth reading! For 25 years, I've been making people richer without making their eyes glaze over. You'll be glad you did. I guarantee it!

💰🗣📰

Read Next: 10 Key Facts to Test Your Credit Card IQ

Check Out Our Hottest Deals!

We're always adding new deals and coupons that'll save you big bucks. See the deals to the right and hundreds more in our Deals section.

Click here to explore 2,020 more deals!