Pay off Debt or Invest – Which is Best for the Deep in Debt?

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pay off debt or invest

That, my friends, is the question. There’s lots of debate in the PF blogging world about whether or not people should pay off debt or invest, or do both at the same time. But what if, like us, you’ve got LOTS of debt. LOTS and lots? Does the scenario change?

Rick and I go back and forth on this when discussing whether we should pay off debt or invest. One minute we feel immense urgency to get the debt off our plates, and the next minute we are planning our investment strategy and how to design it to catapult us to financial independence quicker. Is our “huge debt” situation unique, and does it change the game? Here are some of the pros and cons that tumble around in our heads:

Against Investing Now


The Debt Really is at an Unhealthy Level


We started 2013 with a 65% Debt to Income (DTI) ratio. It’s down now, and continuing to drop, but our DTI ratio is still at a very unhealthy level. Shouldn’t we be working ASAP to rid ourselves of, at the very least, the consumer debt before we start investing? Not to mention the fact that our investments may lose money. Then we’d really be in trouble. Should people in our situation even be asking whether or not we should pay off debt or invest?

We’ve Got a Good Chunk of Retirement Savings Put Away


Not massive amounts, but enough that with continued stable growth, we’ll be just fine in retirement – IF we don’t have any debt. The point is that we’re not desperate for retirement funds, but we are desperate for an easier “now” situation. We aren’t currently contributing to Rick’s 401(k) simply because things are so tight, but his employer adds money each quarter, and we will contribute once the debt situation is a little less intense.

For Investing Now


The Debt Really is at an Unhealthy Level


Pay off debt or invest? Well, we’re already up the creek without a paddle, so why not put a few dollars into investing every month, right? I mean, at least we’ll be growing more wealth as we pay off our debt, even if that debt payoff will take longer to achieve. Plus, investment earnings could surpass the amount we’re paying on interest debt each month. I realize this is a bit of a “que sera sera” attitude, but at times we feel like we’ve got to not scrutinize our financial decisions quite so intensely, as the fear can help us to make wrong decisions.

One option we’ve looked at is helping others pay off their debt, through peer-to-peer lending, that would also allow us to make money as well. This would allow us to invest small amounts that wouldn’t take away too much from our debt repayment efforts. You can check out many of the different Prosper reviews available online to see if that might be a possibility for you.

Pay off Debt or Invest or…Save?


It would be nice to graduate to debt freedom with a bunch of savings/investments in tow, but it would definitely increase the amount of time it takes us become debt free. Is that smart? What do you think? We are working on an emergency fund, but obviously with the minimal amount of interest savings accounts are paying, the emergency fund isn’t going to be the investment vehicle that catapults us to massive amounts of wealth, nor should it be. This is one reason we think we should invest right now.

So there you have it. This is our dilemma. Do you have any opinions on whether its better to pay off debt or invest first? How do you answer the question? Do we start investing, even if it’s just a bit, right away, or do we continue to go full board on paying off the debt?

We haven’t figured out the answer to whether its best to pay off debt or invest first, so for now we’re just reading up on all the available investment avenues and working to decide which ones are most in our comfort level, price range, and which will most quickly help us accomplish our goal of financial freedom.


So, what do you think: Should people who have massive amounts of debt be investing, or should they get rid of some (or all) of the debt first?

(Editor’s note: The pay off debt or invest decision can be a very difficult one for many to make, generally speaking. I believe both can be done, but each situation is unique and should be based on your personal circumstances. I covered the topic myself several months ago and you can check out that post here.)


Photo courtesy of: Haven’t the slightest

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Laurie is a wife, mother to 4, and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom, and to a simpler, more peaceful life.