Student loan debt sucks. There's no way to get around that unfortunate fact. So it's easy to get laser-focused on doing what you can to knock out every last bit of debt to your name.
That's the financially smart thing to do, right? For most people, yes. Just making minimum payments on your loans means a longer amount of time until the day you're debt-free. And the longer it takes you to repay your loans, the more they'll cost you because of interest charges.
But like any rule, there are exceptions. It doesn't make sense to funnel all your available cash flow into debt repayment in every case. Here are 3 times when you may want to focus on saving instead of aggressively paying down debt.
1. When you have nothing saved for an emergency
Putting every available dollar toward your debt can actually leave you vulnerable if you don't keep any cash in savings. At the bare minimum, keep $1,000 set aside for emergencies. Without this money, you may push yourself into even more debt should something unexpected happen.
Ideally, you'll work up to 3 to 6 months' worth of income stashed away in your emergency fund. But you can slowly work up to that amount as you pay down debt. Get that baseline $1,000 saved just in case, then go back to tackling your student loans.
2. When your expected return is way higher than your interest rate
Conservatively, you can expect to make about 6% in returns when you invest your money in the stock market. One simple, easy, low-effort way to do so is by investing in passive, low-cost index funds.
You don't need to actively trade or move money around. It's more of a set-it-and-forget-it approach because the goal is just to track the market's overall return.
If you just focus on paying down debt, you're racing to a $0 net worth. Debt puts you in the red. Getting out of it brings you back to black -- but if you never save or invest, you'll reach debt freedom with a $0 net worth since you only focused on digging yourself out of a hole.
Putting some money into the market and earning a 6% return leaves you with greater wealth when you finish paying off your debt, especially if your loans have a lower interest rate.
3. When you miss out on big opportunities
Keeping a cash savings account in reserve gives you more freedom and flexibility to take advantage of opportunities as they come your way. If you throw all your money into student loans, you may miss a chance to move to a new city for a better job because you can't afford to relocate.
Don't let debt further trap you and limit what you're able to do. By setting aside some amount of money as you pay down debt, you provide yourself the freedom to choose paths that may make it easier to repay your debt in the long-run. (What if that job offered better benefits or a bigger salary?)
A Word of Caution: You Still Need to Pay Down Debt!
Keep in mind none of this is to suggest you should stop paying off
The point is to not funnel every bit of your cash flow toward your debt. Any extra money above your required payment amount might be better off in savings or investments, as the above scenarios explain.
Don't stop paying at least the amount you owe each month. But consider saving at the same time so you're not just racing from a negative net worth to a $0 net worth. Doing so helps you pay off your debt and build wealth simultaneously.