When to Pay Off Debt First

Prioritizing debt repayment often makes sense when:

• Your debt has a higher interest rate than your expected investment returns
• You have high-interest consumer debt like credit cards (often 15-24% interest)
• The emotional burden of debt is causing you stress
• You want to improve your debt-to-income ratio for future borrowing (e.g., mortgage)

When to Prioritize Investing

Focusing on investing might be better when:

• Your debt interest rate is lower than your expected investment returns
• You have access to tax-advantaged accounts (401(k), IRA) with employer matching
• You have low-interest debt like mortgages or some student loans
• You're young and can benefit from many years of compound growth

Important Principles to Consider

• Emergency Fund First: Before aggressively investing or paying debt, aim for 3-6 months of expenses saved
• Employer Match: If available, try to contribute enough to get the full employer match - it's essentially free money
• High-Interest Debt: Always prioritize paying off high-interest debts (usually >7-8%)
• Balanced Approach: For many people, doing both simultaneously provides financial and psychological benefits
• Tax Considerations: Remember to account for tax advantages of certain debts and investments