Should you pay down #DEBT or #INVEST first?! #MONEY

[msKita]

I just paid off all my credit cards debt! Just a mere $4k student loan and I'm free!

[izy]

Ok just remember that the index fund isn’t guaranteed to return 8% every year. That estimate is based on historical AVERAGES over time. There will be some years it’s less, so you need to invest long term.

[harmonicaveronica]

There are sometimes reasons not to follow this rule - firstly, if your monthly payments are high and you could increase you cash flow by paying off a lower interest debt entirely or by substantially shortening the amount of time you still have to make payments. Sure your car loan may be at 5% but if it's eating up $500/mo and you're making $2000/mo and you get a $10000 windfall, put it toward the car. Another good reason is psychological. My student loans are all under 7%, but the amount is $57k. I was really aggressively paying the higher interest ones pre-pandemic, and when payments were paused I just kept doing that but put the money in a high yield savings account instead. Now they're about to unpause and I have the full amount saved up, so I'm going to get rid of them in one go because I can!

[junenam]

Vivian, what would we do without you. Thank you, bestie, for helping us with our financial literacy every day! ❤

[TheDevler]

Ok but how? I keep hearing invest and high yield savings account, but how do I even get started? Where do I go, who do I talk to? Financial advisors? Accountants? Apps? How do I start?

[OrdinaryDude]

The borrower is slave to the lender. Living a debt-free life is fantastic. Pay of all your debt then every penny after that can go towards investing and you won’t be working just to pay interest to someone else.

[panda_dva]

“Oh you should follow the 7% rule” just say “ok” then walk away. You leave them holding their tongue with a gut wrenching feeling in their stomach to explain what it is and not being able to.

[booya]

Consumer debt goes immediately. Very few actual net worth millionaires advise keeping consumer debt around, regardless of potential investment payouts to offset interest.

[jackiecs]

that 8-10% is based on the risk-free rate of return, which is super super high right now. I would say 10-12% would be a better guideline for debt vs investment with fed funds rate over 5%

[susanfurlong]

No credit cards, EVER. Designed to keep you paying them. Cash and carry, if not, you can't afford it!

[fishman]

You also need to pay tax on stock market returns while paying down debt is tax free returns essentially.

[jeffrice]

Great advice, however, I would lower the estimated return/debt rate for the long term. Market gains worldwide will be flat, while the US will show lower returns but will be the best investment. Our economy(ies) are consumption based capitalism and the developed world is experiencing the smallest generations coming to age in decades. It's really hard to have growth when your consumer base is shrinking, even if you increase market share.

[Karoline-cdvh]

Thanks Vivian, I'm learning and studying money because you inspired me 😘🤑

[respectfullymama]

Not necessarily. The goal is to hit your minimum investing rate to make sure you retire with the amount you need/want. If there is a plan, you can effectively save and pay off debt.

[tamaramcrae]

Trust me on this: pay off your debts FIRST then invest. Now I have more debt on top of my new debt lol

[silverstar]

That’s numbers. There is a mindset that needs to be considered. Kill your credit card debt altogether and you will feel better than “oooh! I have a 5%, credit card debt, but I am making 6% on my investment. I am a financial savant “.

[love_kristy.s]

Love your real straightforward advice 💚💚

[jameshorton]

This sounds great, but the average person that’s gonna have a significant amount of non-house debt isn’t smart enough to do this and should focus on paying off debt,

[dfjpr]

It's a good thing the market never goes down ever, or this wouldn't work.

[namedhuman]

But for investing there are broker fees and taxes to pay. You won't get the market return and you should pay down debt because that is guaranteed, returns are not.