The question everyone has
You have some money left over this month. Maybe $200. Maybe $500. And you're stuck.
Part of you feels like you should wipe out the debt first. Clean slate. Fresh start. But part of you knows the stock market has been going up and you're missing it.
The answer is not "it depends." It has a formula. One number tells you everything: your interest rate.
The rule most people never hear
If your debt charges more than 7% interest, many financial advisers suggest paying it off first. The stock market has historically averaged about 7% a year. Paying off 18% credit card debt eliminates a known 18% cost — whereas market returns are never certain.
If your debt is under 7%, make the minimum payments and invest the rest. A 3% car loan or a subsidized student loan at 4% is cheap money. Let it sit while your investments compound.
Kill the debt first. Your 18% interest rate is eating you alive.
The stock market averages 7% a year. Your debt is costing you 18%. Every dollar you invest right now is a dollar losing 11% on net. At $400/month, you clear this debt in 2 years. Then every dollar goes to work for you.
The difference between these two paths: $123K. The right choice depends entirely on that interest rate.
Assumes 7% average annual market return. For illustration only. Not financial advice.
Depends on the rate. Federal loans from before 2023 are often 3 to 5 percent. Invest while paying those off. Loans at 7 percent or above, attack them first.
The math says no. The psychology says maybe. If you cannot sleep with debt hanging over you, paying it off faster might be worth the smaller investment return. Your mental health is part of the equation.
Before any of this, you need three months of expenses sitting somewhere liquid. Not invested. Not paying down debt. Just there. Do that first.
If your employer matches your 401k contributions, many advisers suggest contributing enough to capture the full match before focusing elsewhere. That match is additional compensation from your employer — consult a financial adviser about what makes sense for your situation.
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Join the waitlistNot financial advice. Handled is not a registered investment adviser. All content on this site is for educational and informational purposes only and does not constitute financial, investment, tax, or legal advice. Past performance does not guarantee future results. Investing involves risk, including the possible loss of principal. Please consult a qualified financial adviser before making any investment decisions.