Paying Off Debt Too Quickly Can Be Dangerous

No one likes debt, but if you had to choose, which debt would you prefer to have, a student loan or a mortgage? I’m almost certain you would prefer a mortgage. But, a federal student loan is better, let me explain.

Student loans have benefits that a mortgage simply cannot offer. Some of these benefits include loan forgiveness, loan deferment, no credit checks and income-based repayment.

Student loan debt is low-interest debt that is easily paid off with the income you receive from using your degree. If you pursue a good career with numerous job prospects, your student loan can easily be paid off. Plus, you’ll keep making money from the degree for the rest of your life. Not to mention, no one can foreclose on your degree.

Old-school financial experts speak negatively about student loans. They simply do not understand how this new economy works. In this economy, it is okay to have good debt if it brings you money. Old-school experts will not understand why it is okay to have good debt. Neither will they understand why it is okay to have subscription payments like Amazon Prime, Spotify, Netflix, Apple Music or Hulu.

The new economy is completely different. Old school advice won’t help you because our cost of living is significantly higher. Wage growth has been flat for almost 30 years. College education is very expensive. Home values have skyrocketed. Inflation has eroded much of the purchasing power of savers, and banks pay little to nothing on a savings account. Our generation simply cannot afford to follow the same old advice to save as much as possible and stay out of debt. It won’t work.

You need to adopt a new philosophy.

1. You need to save for an emergency.

2. You need to pay off good debt slowly.

3. You need to invest for the future

All three of these have to be done simultaneously. You cannot prioritize one over the other. If you do, you will lose.

Old-school experts teach us to make debt our number one priority. This is exactly what banks and financial institutions want. They want you to focus on paying off debt, so they get paid first, before you keep any money for yourself. This has to change. You need to save, pay down debt and invest — at the same time.

Rushing to be “debt free” without investing is dangerous. It can set you years back financially. Being debt-free today and broke at retirement does not equal financial success. Each year you wait to invest, you lose about $200,000. This means waiting five years to begin investing will cost you $1 million.

I’d rather have good debt that I pay off slowly, and invest more of my income towards my future than to give all of my money away to pay off debt and end up broke.