The answer to that depends on your goals … and your personal financial situation. Most of the time, it depends on the debt’s interest rate. If you have debt with an interest rate over 10%, we typically recommend waiting to invest and paying that off as quickly as possible. If the interest rate is between 5% and 10%, it is usually best — although not quite as pressing — to pay the debt off first. And if your interest rate is below 5%, we typically recommend paying the minimum payments on that debt and putting any extra money in your budget toward investing. The long-term returns that have historically been available by investing are likely to outweigh the cost of that interest. Read more in this article or read about good debt and bad debt in this article.
One more thing: If you have a 401(k) employer match available to you at work, we typically recommend investing enough in that 401(k) to take full advantage of the match, even if you have high-interest-rate debt. (Here’s an article with more information employer matches.)
Interested in learning more? Connect with one of our CERTIFIED FINANCIAL PLANNER™ professionals for a complimentary consultation at a time that works best for your schedule. We only need 15 minutes of your time to talk through some of your priorities, financial goals, and money-related questions.