Should You Pay Off Debt Before Investing?

One of the most common financial dilemmas is whether to use spare cash to pay off debt or to invest. It’s important to accomplish both, but with only so much money to go around, how do you know which to focus on first? If you’re not sure about the next move to make, it’s easy to feel stuck and never make progress with your personal finances.

In this post, I'll cover the main pros and cons of paying off debt before investing. Plus, you'll learn a simple method to prioritize your precious resources so you accomplish key financial goals and build wealth as quickly as possible.

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First Understand the Big Picture of Your Personal Finances

Too often we get bogged down by a specific financial decision or dilemma without considering the big picture. To make the best decisions, it’s wise to step back and take a holistic view of your entire financial life.

I created a simple, three-pronged approach called the PIP plan, which stands for Prepare, Invest, and Pay Off. Use it as a touchstone when considering how to allocate your money wisely. 

1.    Prepare for the unexpected.

Life is full of surprises and many of them drain your bank account! So before spending a dime on debt or investments, ask yourself if you’re really prepared for the unexpected.

In an instant, you could lose your job, see your business income dry up, get a serious illness, lose a spouse, or experience a natural disaster. It’s not fun to think about these types of devastating situations, but they happen.

In an instant, you could lose your job, see your business income dry up, get a serious illness, lose a spouse, or experience a natural disaster. It’s not fun to think about these types of devastating situations, but they happen every day.

While no amount of money can reverse a tragedy, having a financial safety net can make it so much easier to cope. What you need depends on factors such as your living expenses, debt payments, income, and whether you have dependents.

At a minimum, strive to maintain an emergency fund equal to three to six months...

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