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Should I invest While Paying Off Debt?

Budgeting image with calculator and pen


When questions like this come up, I answer as if it were me having to make the decision. My thoughts on this particular question are based on how I handled and how I would handle the situation.

I always hear people say their interest rate is only 6-9% on cars or even credit cards in some cases. The next phrase that comes out is that I can make more by investing my money vs. paying my debt off early.

First let’s take a closer look at this issue. First we have a basic human habit to address. When we continue to have debt, because we want to use our money for other activities such as investing or other activities, we are not “changing” bad behavior. We had bad habits that we needed to address. This means we should be focusing on the debt to prove to ourselves that we are going to make this change no matter what. We are changing our behavior here instead of just talking. In order to quit drinking you need to stop buying alcohol altogether or you will just continue down the path.

Let’s take a realistic look at the financial ramifications of the decision to continue to invest rather than paying off debt. The first question to ask yourself is would you really borrow money at 9% in order to invest in the market? I will tell you my answer, because I know what mine would be. NO! Now, others may argue that the market averages 10% year on year if you invest, so paying off the car or card that is only 6-9% makes logical sense right? First debt makes zero logical sense (stipulation here for a home loan, because you need a place to live). The market has been a bit unpredictable the past 10 years and if you have made 10% year on year for the past 10 years, NICE JOB!

Again, this comes down to changing your habits. If you pay off the car, cards etc… then you have made at least 6-9% on your money even without investing! You kept more of your money instead of giving it away.

If you are aggressive and get your debt (insert disclaimer for your house) paid off other than your home, you can jump right back into investing. In fact you can probably increase your investments and still have money free to do what you want with.

Remember to become cage free is means changing old habits that got us into trouble in the first place. As always consult a professional if you have any questions. Every individual situation can be very different and you should consult a paid professional with questions specific to your particular situation.

Happy Saving!

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