When it comes to your financial freedom, trying to decide between investing or paying off debt can be confusing. To make things a little easier, let me show you how I run the numbers and make the call.

Let’s get started!

The first step is to write out all your numbers. Make a list that includes your debts as well as their minimum payments and their interest rates. 

The next step is to review your budget. It’s important to know where all of your money is going each month. Where is it slipping through the cracks? Find the cash surplus you have after you’ve paid all your expenses. 

Run the numbers!

Take a look at your current debts. FIgure up how much interest you’ll pay as well as when you’ll be out of debt if you continue payment at the current rate. 

Run some hypotheticals in an investment growth calculator like this one and see what it would look like to invest any surplus you have each month.

Now, compare those two numbers and see what makes more sense. If your interest rate on your debt payment is low, it may make sense to invest. If you’re paying a higher rate of interest, it may be smarter to focus on paying off your debt first. 

There are always other factors that should be considered. This includes how markets move, which can be alarming to new investors! You won’t get a consistent return each year. Some years you may actually have less and that can discourage you, but don’t freak! Knowing what to expect going in will help.

Another considerable factor is your own discipline. If you’re deciding to keep debt and invest the surplus, you actually have to invest it! Will you forget and just spend it? Consider the flexibility you’ll have when investments accumulate. If you needed money, you could borrow from yourself! Be sure to run the numbers for yourself, this is not a one size fits all approach.

To wrap it all up…

If it’s possible, use debt to your advantage. Take the emotion out and make decisions based on what builds your wealth the best over time – if having debt weighs you down go ahead and pay it off. Do what’s best for you.