Pausing Your 401(k) To Pay Off Student Loans Can Be A Good Idea

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Here’s why (and how) pausing retirement investing to pay off student loans helped me become a debt-free millionaire in my thirties.

Focusing on paying off debt forced me to stop buying depreciating items, like cars and clothes, and to get excited about closing down loans that subtracted from my net worth. I stopped creating new debt because I didn’t like seeing my net worth go down.

In 2016, two months after completing graduate school, I resolved that I would pay off my $72,000 of student loans in two years instead of 10. Before pursuing debt freedom, my husband and I invested $500 monthly into his 401 because of the match. We didn’t fully understand what we were investing in, why we were doing it, and we even withdrew from the 401 with a penalty because we never fully educated ourselves on investing. We were trying to keep our heads above water.to test if we were losing money. Assuming a 30-year horizon, starting at $0 and a 7% return compounded annually, we would save $566,764.72 before taxes and inflation.

Thanks to the discipline and the skills we learned in paying down debt, our current net worth is more than $1.3 million, even with investment fluctuations. I don’t regret paying off the debt first. It was the sure bet at the time, and now I can take on more risk. More importantly we have the freedom to retire early instead of waiting for 30 years from now.

 

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