Pay off debt or invest: which comes first?

You have debt, and you also have some room to do something with your money. The question is: do you pay down those debts first, or start investing while the debt is still there? It feels like a math problem, but it isn't. It's a choice that depends on your interest rate, your risk tolerance, your goals, and how much control you feel over your finances.

When paying off debt is almost always the right move

If the interest rate on your debt is higher than the return you can reasonably expect from investing, paying off the debt is the better financial choice. Consumer credit, overdrafts, or a personal loan with a high rate: paying those off delivers a guaranteed "return" equal to the interest you stop paying. Investing doesn't offer that guarantee.

When the trade-off gets more nuanced

With a low mortgage rate or a student loan with favourable terms, the math is less clear-cut. Other factors come into play: how long do you have until retirement, how do you feel about carrying debt, and what would being debt-free do for your state of mind? Financially optimal and emotionally smart are two different things.

Questions to ask yourself honestly

• What is the interest rate on each individual debt?
• How long does the debt run, and what are the repayment terms?
• How does carrying debt feel to you: does it create stress, or can you live with it?
• Do you have an emergency fund for unexpected expenses?
• What is your investment horizon, and how much risk can you handle?

What Beslisflow does for you

Beslisflow asks you ten focused questions about your financial situation. Based on your answers about your debts, your goals, and your risk tolerance, you get a personal report that lays out your situation clearly and points to the approach that makes most sense for you right now.

Frequently asked questions