What’s a better use of my money – pay down debt or invest it in the market?
To which JillyBean responded:
At what rate of interest is your debt? How much debt do you have? Do you have an emergency fund? If you invest your money, what is the purpose for the money — short term or long term? The markets are on a downward spiral and very volatile — it might be more prudent to answer the above questions to determine the answer for the actual question.
You could always compromise and do both! It never is bad to pay down debt.
But, I am always working from the assumption that you want to get rich /stay rich …
… if that’s also your mindset, you might have more clarity if you rephrased the original question as “what’s better, to INVEST in debt or INVEST in the market?”
Once it’s clear that you are making an INVESTMENT every time you pay off debt – even personal debt – or, decide not to, then you will realize that you simply need to consider relative returns.
Then it will suddenly become clear that INVESTING in debt returns you a guaranteed rate equivalent to the interest rate (plus ongoing fees, if any) being charged. On the other hand, investing elsewhere MIGHT return more, over the long-term.
So, your real question that you need to answer is: “What investment will give me a greater AFTER TAX return than my highest interest rate currently outstanding debt?”
If you can find one (and, you have the required skills/interest/knowledge/stamina) then invest in that, otherwise pay down some debt.
Naturally, start with the highest interest rate debts first and work your way down (remember the ‘debt avalanch’?)