Thinking About Debt – When to Pay It Off vs. Invest

When I graduated college, I had a mix of student loans and credit card debt. I was making $15 an hour and barely scraping by. The first major financial decision I had to make was whether to put extra money toward debt or start investing.

It’s a question a lot of people face. And the answer depends on one key idea: opportunity cost.

The Simple Rule:

  • If your debt interest rate is higher than 6–7%, pay it off first.
  • If it’s lower, consider investing instead.

Why That Rule Works:

Historically, the U.S. stock market has returned 7–10% annually over the long term. So if your student loan interest is 4%, investing instead might earn you more over time. But if your credit card charges 22%, paying that off is basically a guaranteed “investment” return.

My Strategy:

  • I aggressively paid off high-interest credit card debt first.
  • I made minimum payments on my student loans while contributing to my retirement accounts to get employer match (free money).
  • Once my high-interest debt was gone, I split extra cash: half to student loans, half to investing.

What You Can Do Right Now:

  1. List all your debts and interest rates.
  2. Pay off anything over 7% ASAP.
  3. If under 7%, start investing small amounts consistently.
  4. Always grab your employer 401(k) match if offered — it’s an instant 100% return.

Paying off debt is important. But don’t wait until you’re debt-free to start investing — or you might miss years of growth.