We all want to pay off debt. And we all want to put more money into our retirement plans (401k’s, IRA’s, etc.). But do these two things conflict?
They shouldn’t. They’re both working towards the same goal: a better financial future for yourself.
So Do I Invest While I Pay Off Debt?
We hear the argument made all the time: “Why would I pay off debt at 3-4% interest when my investments make an average of 6-7% every year? I can make the minimum payments on my debt and invest and come out ahead.”
Look, we get that you can crunch the numbers. But this is personal finance. And it is important to remember that nothing in personal finance makes mathematical sense. Personal finance is almost entirely psychological, not numerical. And that statement alone is enough to make a person with a finance degree cringe.
If we made personal financial decisions based on what made numerical sense, we wouldn’t have debt in the first place.
So I Shouldn’t Invest While Paying Off Debt?
Yes. Saving and paying off debt are conflicting goals. This has nothing to do with the numbers making sense or that both of these actions help work toward your future.
They conflict because you can only do one thing aggressively at a time. If you try to pay off your pile of student loans at the same time you are trying to grow your investment portfolio, you will lose your mind. You will get burnt out and give up.
It is so important to feel small victories when working on yourself financially, just like it’s important to have small victories when dieting or exercising. This is where the psychological side of personal finance comes into play.
The balance in your 401k won’t matter when you have hundreds of thousands in student loan and credit card debt. The stress will pile up from the debt and your IRA won’t be there to comfort you until you turn 59 ½.
But what do you think? Have you gotten out of debt at the same time you invested? Do you think it’s more beneficial to focus on paying off debt before investing in mutual funds?
This article is not intended to be financial, tax, or legal advice. For help regarding your specific situation, please consult your local professional.