Invest your money or pay off debt?

Invest your money or pay off debt

Ah, the age old question of whether to invest you money or pay off debt. I believe it’s up there with what came first and if a tree falls in a forest. (I say egg and yes, yes it does).

But really, what is one to do?!

There are varying opinions, but what it comes downs to is what makes most sense mathematically for you.

Options when deciding whether to invest your money or pay off debt

  • The first option is to be aggressive with debt payments and not invest at all. The thoughts is that by putting all available funds towards debt, you quickly knock out those high interest debts and eliminate losing money to interest. You then invest once your debt is gone. This method can make sense of you have very high interest rate debt, such as credit cards.
  • At the other end of the spectrum is the second option which is don’t wait to invest. Pay off your debt, but earmark money in your budget to put towards investments: taxable and non-taxable. This may be a good option if the debt your carry is low interest and the possible gains from investing outweigh the low interest in your debt

  • And finally there is option number three which is be as aggressive with debt repayment as you can, directing all available funds to debt and hold off on investing, BUT, if you receive matching through work (401k/Group RRSP), don’t pass up the free money! Allocate the minimum required to gain the employer match while allocating everything else to debt.

When asking whether to invest your money or pay off debt, the right answer is different for everyone. Evaluate to see which option mathematically makes most sense for you (money lost to interest vs. money gained from investing) to help you decide.

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