The Most Common Question

When it comes to personal finance, one of the most common questions people ask is whether they should focus on paying off debt first or start investing right away. It can be a tricky decision, and the right answer isn’t the same for everyone. Your choice depends on several factors, including interest rates, financial goals, and even your personal comfort level with carrying debt.

Many people dream of building wealth through investing, but they feel weighed down by the burden of existing loans. Common financial challenges often include not knowing where to start with investments, struggling to create a realistic retirement plan, failing to balance immediate expenses with future goals, and facing tax season without professional guidance. Unfortunately, ignoring these challenges doesn’t make them disappear — they tend to snowball, creating more stress and insecurity over time.

A helpful guideline often referred to as the “rule of 6%” can provide clarity. If your debt carries an interest rate of 6% or more, it generally makes sense to pay it off before investing extra money toward retirement. This rule assumes that you’ve already built an emergency fund. Why 6%? Because balanced investment portfolios have historically returned around 6–7% annually. If your debt is costing you more than that, the math says debt repayment comes first.

Not all debt is created equal. For example, paying down credit card balances with rates between 16–24% should be a top priority since the cost compounds quickly. On the other hand, federal student loans at around 5% or a mortgage at 3.5% may not demand aggressive repayment if you could potentially earn more by investing. In those cases, investing while maintaining minimum payments may provide a better long-term outcome.

Still, math isn’t everything. Feelings matter, too. Debt can be emotionally exhausting, and many people prefer the peace of mind that comes with becoming debt-free, even if the numbers suggest investing would generate higher returns. If debt keeps you awake at night, there’s nothing wrong with prioritizing repayment. On the other hand, if you’re comfortable carrying low-interest “good debt,” investing alongside repayment can help your money grow.

There are also foundational steps to put in place before making the debt vs. invest decision. Experts generally recommend establishing an emergency fund of three to six months’ expenses to avoid falling back into debt when unexpected costs arise. Capturing an employer 401(k) match is another must, since it’s essentially free money. With these building blocks in place, you can then focus on choosing between debt payoff and investing.

The general rule of thumb is: High-interest debt (7–8% or more): Pay it off first; low-interest debt (under 5%): Invest while keeping up with minimums. Middle-range debt (5–7%):  The decision depends on your goals and tolerance for risk.

There’s no one-size-fits-all answer. The decision comes down to both math and mindset — comparing interest rates with expected investment returns, while considering your personal comfort with debt.