From Bitcoin to Ethereum to Litecoin, investing in cryptocurrency is all the rage.
What’s more, cryptocurrency could change the economic landscape as we know it. Advocates of cryptocurrency seek a decentralized economy that relies on digital money to handle transactions around the world.
However, this technology has some serious growing pains to go through if it’s going to catch on. Plus, the cryptocurrency market is extremely volatile.
If you’re a risk-tolerant investor with money to spare, the ups and downs of cryptocurrency might be exhilarating. But is investing in cryptocurrency a good idea if you’re on a tight budget or dealing with student loan debt?
If you’re debating over whether you should buy digital coins or pay off your student loans, here’s our two cents.
Investing in cryptocurrency is a high-risk move
Many cryptocurrency investors have seen their holdings soar to new heights and plummet to rock bottom in the same 24-hour period.
On Jan. 1, 2017, a single bitcoin was valued at $968. It hit an all-time high of $19,783 in December 2017. But as of March 22, 2018, it’s back down to around $8,600.
Even small digital coins such as Tron (TRX) are not immune to this rollercoaster effect. TRX reached a high of 30 cents on Jan. 4, 2018, before nosediving to 4 cents over the following month.
These examples reveal a simple lesson: Investing in cryptocurrency is risky. Although it’s easy to dream of becoming an overnight millionaire, chances are you could lose your investment altogether.
Don’t invest in cryptocurrency if you’re facing student loan default
If you’re struggling to make student loan payments, you shouldn’t invest in cryptocurrency.
If you fail to make payments on your federal student loans for 90 or more days, your loan servicer will report the delinquency to the three major credit bureaus. After 270 days, your loans will go into default. Private lenders can be even less lenient, putting your loans into default after a single missed payment.
Falling into student loan default leaves a red mark on your credit report that can destroy your credit score. What’s more, it takes a long time to build your credit score back up. Debt collectors could also start calling you, your friends, and your family demanding you pay what you owe on your student loans.
Plus, if you have federal loans, the government can garnish your wages. According to Federal Student Aid, collection agencies garnished wages in the amount of $182.38 million in the second quarter of 2017. Some borrowers have even had chunks taken out of their Social Security benefits.
Private lenders don’t have the same powers in debt collection. However, they can take legal action against you, as long as they do so before the statute of limitations on your debt is up.
Defaulting on your student loans can have severe consequences. And if you’re already on a tight budget, funneling your money into cryptocurrency instead of student loan payments could be a big mistake.
Instead, prioritize coming up with a plan to manage your student loans and avoid default. This might include applying for student loan repayment assistance or lowering your payments through an income-driven repayment plan.
Should you invest or pay off your student loans early?
Choosing to buy cryptocurrency over paying off student debt could do a lot of harm to your finances. However, that doesn’t mean you should avoid investing while you have student debt. If you have low-interest debt and keep up with loan payments, investing in the stock market could make financial sense in the long run.
Use our calculator to help you decide whether to pay off debt or invest. As an example, let’s say you have $35,000 in student loans with a 5.00% interest rate and a monthly payment of $383. At the same time, you have $5,000 in a retirement savings account that has a 7% annual rate of return, and you put $200 each month into the account. Based on your budget, you also have an extra $317 to work with.
If you put that $317 toward your loans, you could shave 4.8 years off your repayment term and save $4,815 in interest. But if you put that same amount into your retirement savings, you’d have an extra $43,863 after 20 years.
Because your return on investment outpaces your student loan interest charges, it could make more sense to invest than pay off your debt ahead of schedule.
That said, erasing your debt could have psychological benefits. Even if investing makes more financial sense in the long run, many people would rather get rid of student loans now than make extra money on their investments over the next 20 years.
Regardless of which camp you fall into, this reasoning goes out the window when it comes to investing in cryptocurrency. Because the digital currency market is so unpredictable, you have no way of knowing how your investments will match up with your student loan interest charges.
And if you fall behind on your student loan payments, you’re guaranteed to run into trouble.
Don’t invest more than you’re willing to lose
With daily reports on the price of bitcoin sweeping social networks, it’s easy to get carried away by the hype. But the volatility of the market cannot be overstated; anyone investing should be prepared to say goodbye to whatever they put in.
A good rule of thumb when buying cryptocurrency is to not spend more than you’re willing to lose. And if you’re a student loan borrower, you should make sure you have enough money to cover your loan payments before dabbling in cryptocurrency.
Once you’ve cleared away your student loans, you might be in a better financial position to try your luck with cryptocurrency.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.54% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of March 18, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 0318/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.5% effective February 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.54% – 7.12%3||Undergrad & Graduate|
|2.54% – 7.27%1||Undergrad & Graduate|
|2.67% – 8.96%4||Undergrad & Graduate|
|3.23% – 6.65%2||Undergrad & Graduate|
|2.54% – 7.43%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|