Should You Pay Off Debt Early or Invest?

The math behind the debt vs investing decision and when it makes sense to prioritize each.

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The Interest Rate Test

The decision comes down to one number: interest rate. If your debt interest rate is higher than what you expect to earn investing, pay off the debt first. If investing returns are higher, invest.

General Guidelines

High-interest debt (>8%) — Pay it off first (credit cards, personal loans)
Medium-interest debt (4-8%) — Consider investing if you have a long time horizon
Low-interest debt (<4%) — Invest first (mortgages, student loans)

Don't Forget the Psychological Factor

Debt carries an emotional weight. If being debt-free helps you sleep better, that has real value. Sometimes the mathematically optimal choice isn't the best choice for your personal well-being.