Mon Sep 16 2024, by Tyler Gardner

Introduction

If you have ever asked yourself whether it's better to pay down your debt or invest that money instead, here are three things to consider.

I'm Tyler. I'm a former financial advisor and portfolio manager. Now I make financial content for free so that you don't have to pay for it.

Consideration One

If the interest rate on the debt is 3% or less in a high-interest rate environment, you have the equivalent of free money. If you can get a 4 or 5% return in a relatively risk-free investment vehicle like a high-yield savings account or a CD, you would be wise to take advantage of the additional money.

Consideration Two

If the interest rate on the debt is between 4 and 5%, or to make this a little more timeless, whatever the current three-month T-bill rate is, it's really a coin flip. It will depend on your psychological wiring. If you prefer the guaranteed return and psychological relief of paying down debt, then go for it. But if you're like me, and you prefer seeing your money grow more than you care about paying down relatively cheap debt, you might choose to invest that money in the markets.

Consideration Three

If the interest rate on that debt is over 5%, you'd be a ding-a-ling not to pay down that debt as quickly as possible. Make sure you pay down more than the minimum payment and more than the interest alone.

Conclusion

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