Should I invest or pay off debt? That has to be at the top of the most common questions I have received over the years. And the answer is a solid—it depends! But only on one thing:
If you do not have an emergency fund saved and stashed in a safe place—and I’m talking about at least $1,000—you should save madly while you keep paying the minimums required on your burgeoning debt. Once you have an emergency fund in place, the answer to that question is clear:
Dear Mary: I have $13,000 in credit-card debt. I have designed a plan in which I would pay the amount of interest charged to me on my last statement plus $930 each month. The way I figure it, by doing this I will have this debt paid off in 15 months. I am going to have to dip into my investment account to come up with that additional amount each month, but I can do that. I could also just pay off the whole amount from my investment account (it is not a tax-advantaged retirement account), but I don’t prefer to do it that way. My investment account is at about $209,000 and I really don’t want to go under the $200,000 mark in that account. What is your suggestion? Anonymous
Dear Anon: You don’t say the interest rate you are paying on that debt, so I am going to assume it’s the current average rate of 17.55 APR. You don’t say how your funds are invested, so I will assume you are invested in the stock market (some equity stock, some bonds).