Should You Invest or Pay off Debt?

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To invest or to pay off debt... that is the question. When it comes to personal finance, investing and retirement conversations we generally have a lot of questions without any clear-cut answers. Should you invest or pay off debt is one of those questions.

Many feel that it is foolish to stop investing (temporarily) to pay off debt because you would lose out on your 401K match. I mean, it's FREE MONEY! Are you seriously going to pass that up?

Well in most cases I think that I would. In this video I'm going to explain why, in my opinion, it is often better to take a temporary break from investing to pay off debt.

If you enjoyed this video you can check out some of my other videos at the links below!

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Please watch: "The Budget That Pays You First | Reverse Budget Explained | Budgeting For Beginners"
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[MG-twoh]

I decided 20 years ago I would pay off the large debts in my life off first and give most of my attention to those debts, house and vehicle mostly. Once I had payed my mortgage off in 12 years, tripling my payments for the last 3 to 4 years, I was mostly debt free! Also the value of my house from 1997- 2009 had tripled! Thus leaving me debt free and basically ended up indirectly investing at the same time! I won on both accounts IMO. Having said that I was basically house poor for most of that time did not take any trips or buy many luxuries for myself. In retrospect I regret not having more fun in those years age 25-37. If I could do it over again I would tweek that approach abit, following the Everything in Moderation including moderation rule. You can always make more money, but you can’t get time back! Some advice to those starting out. Good luck.

[weerobot]

Mental health wise....Best pay of Debt..!!!

[whoeverwhoever]

Hmm... credit cards charge 24% interest. I hardly believe any investment would give me 24% net return. Something tells me i should pay off my credit card first.

[lordstanleyjr]

Get rid of personal debt first.Then invest.

[trinialday]

Your channel awesome and pretty binge-worthy! I paid off my student loan debt late last year (it took me 17 months to annihilate 72k) and plan to continue life without [non-mortgage] debt. I have been working on my emergency fund and once complete, will dump all of my disposable income into index funds. Anywho, thanks for the great info. I've subscribed!

[paulhaynes]

I would say that it’s always better to get your head above the waves before you start to climb that mountain!
You can always invest in opportunities but having to carry a load of debt around would just weigh you down mentally and cause unnecessary stress. The great thing about paying off the debt too is that once it’s gone, it’s gone as long as your wise enough not to get sucked back into it👍

[reggiemccoy]

"Never Tell Anyone How Much Money You Got Saved Its None Of Their Business." 💯

[ianbutters]

My wife and I were this couple almost exactly. We paid off $110k in debt in 2 years by age 26. Life is much better without debt, and we are going to be able to pay off our mortgage by age 33. It’s not just math. 80% of finance is mental. Get out of debt first.

[PhongNguyen-nzkz]

Jane and Jon messed up when they got new cars.

[bryancouillard]

The extremely easy math makes the answer extremely obvious. 8%>4.5%, or 4.2%. An extra $1800 per year from employer match is greater than the nothing you'd get without it. If the two hypothetical situations both buy exactly the same things at exactly the same times, the investing couple comes out ahead by quite a bit after 10 years. In the video version, the couple that attacks their debt instead of investing only winds up ahead in the end because they never bought a second set of cars. With another 60k car purchase at the 68 month mark(same time as couple 1 did), couple 2 ends up with less than 180k instead of 248k.

That's not to say paying off your loans is always the wrong move. I'm just pointing out that this particular video is deceptive. The psychology of money matters, too. If you had at any point stated that the second couple's hatred of debt had inspired them to avoid buying new cars, I'd call this a great video. Instead, you effectively hid the fact that couple 2 are still driving 10 year old clunkers from viewers not willing or able to do the math.

[ParkerAntoine]

The real world education of taking on debt is extremely underrated - loved your rational approach to a topic that is not solely mathematics based

[raventhorX]

what about if they paid enough to get the full match from their employers 401k and threw the rest at their debt until it was paid off?

[LivinglikeLeila]

Thank you for this! Gives me hope that I'm not behind.

I'm almost 26 and about $60K in debt, my job doesn't offer a 401K, so I put $100 into my Roth each month and anything extra goes to debt. I plan on being debt free by April 2022. I don't want to work a corporate job until 65, so I was afraid my debt would put me really far behind but this gives me hope!

[jimpalace]

I used the debt snowball. It works!!! Got out of debt much quicker than I was predicting and now the wife and I have a ton of money at the end of the month we are putting towards buying a home.

[LifewithAmber]

Hey Dan! I always enjoy your videos! I love this concept but would love a video on this same topic but for folks in their 40's plus. Some of us didn't get started until much later in life. Thanks again!

[nicholaslasala]

I really like how you cover scenarios including numbers as well as real life stats such as the stress it can put on an individual or relationship. As emotional human beings, it's important to account for all those factors. Superb video!

[jonathanjames]

Paying off debt is risk free and tax free …...

[ShaneAddinall]

Being debt free allows a lot of mental freedom as you're stress free, can try new things like start your own business or work on a skill set that builds towards future success. Living pay check to pay check - or worse credit card payment to credit card payment - kills those options.

[eatpigsnot]

smarter to clear debt and stay debt free, build up 6 months of living expenses (not salary, living expenses) then start to invest. you have to have a solid foundation before you put up walls, and sturdy walls before you put on the roof

[mickcv]

And this my friend is how john and jane end up in the rat race of stressful life no matter what they earn