The age-old question: Should you prioritize paying off debt or investing?
Or, if youre ambitiously trying to do both: To what extent should you prioritize each?
The answer isnt the same for everyone.
Its easy from the outside to say, Dont invest until youre debt-free.
Or, The market has higher returns than your loan interest, so why would you pay it off?
However, it comes down to what you feel comfortable with.
(I know lame answer, right?)
Should You Pay Off Debt or Invest?
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
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The quickest way to do that is to lower your expenses and/or increase your income.
So lets look at the fictional examples of Adam and Sharon.
Both have $50,000 of debt and are paying an average interest rate of 6.45%.
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Adam has a sizable surplus.
But Sharon has very little surplus.
So she plans to pay off her $50,000 in 10 years.
Why Adam Might Want to Invest While Paying Off Debt… Hell end up making 32 payments of $1,726, rather than 24 payments of $2,226.
Hell pay an extra $1,000 in interest.
But hell have an extra two years of Roth IRA contributions $12,000 invested.
Shell pay a total of around $18,000 in interest.
Shell have contributed $6,850 in her Roth over that time.
At 6% growth, the balance would be $8,357 by the time shes debt-free.
Of course, no financial situations will be the same as Adam and Sharons are.
The most valuable lesson from these scenarios is that you have to initiate the numbers for your own situation.
You might not stick with the strategy you begin with.
Alternatively, you might invest for a while and then encounter something that cuts your income.
So it might make sense to take a break from investing in the short term.
We cant personalize articles for our readers, so your situation may vary from the one discussed here.
Jen Smith is a former staff writer at The Penny Hoarder.
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