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Should I Invest or Pay Off Debt?



In three decades as a CPA and financial counselor, I’ve been asked one question more than any other: Should I invest or pay off debt? It’s a great question. If you have extra money, should you use it to pay off what you owe or invest it to make even more money?

Thankfully, the answer to these questions – and all their variations – are pretty simple. Once you grasp the basic concepts, it’s just a math problem. Here are three from readers, and you might recognize yourself in one of them – or more…

“Spend money to make money”

Question: I’m constantly trying to save money, but now my husband says we should “spend money to make money.” He says the stock market is going so great, we should invest. But we have two car loans and a $3,000 balance on our credit cards. I want to pay those off first, but he says we’re missing out on a big opportunity, and that the stock market is how people get rich. 

I’ve stalled him by saying we’d ask an expert first. I chose you as that expert. What do you think?

– Rebecca in New Mexico

Howard Dvorkin answers…

Every time the stock market rises, so do the number of questions just like yours, Rebecca.

In the past, I’ve been asked if savings should be put into the stock market. I’ve even been asked if an inheritance should be invested in the stock market.

The answer in both cases depended on the same question: Do you have a lot of debt?

It’s purely a numbers game, but I definitely understand the emotional allure of a bull market, where everyone else seems to be raking in dollars by the wheelbarrow load. Of course, that’s not true — because dollars someone “wins” means there’s a dollar someone “lost.”

It doesn’t add up

Let’s look at the numbers…

  • The average car loan has an interest rate of just over 4.5 percent, according to Bankrate.
  • The average credit card interest rate is over 16 percent, according to
  • The average stock market return between 1966 and 2015 was just under 9.7 percent, according to The Motley Fool.

So you can see, if you stick to the averages, it makes little sense to play the stock market in hopes of scoring a fortune. You’ll have more money at the end of the day if you use the extra cash to pay down debts that are charging you interest.

If your husband thinks he can play the market better than the average, he might as well play the lottery. That’s because investing in single stocks hoping to “beat the market” is tough to do and almost impossible to maintain. Why? Because he’s competing with investment professionals who do this for a living and have access to data he doesn’t.

Even those professionals have been under stress lately, as the market has pulled back as I’m writing this. It will surely rebound, but when? And in what sectors? The stock market isn’t one entity. The New York Stock Exchange alone trades stocks for 2,800 companies.


I totally agree with you over your husband, Rebecca. At least pay off your credit cards, if you can. If you can’t, consult a nonprofit credit counseling agency for a free debt analysis.

Once you’ve saved enough to invest, start small. Don’t choose individual stocks. In fact, you may want to invest more into a workplace retirement account or an IRA to get comfortable with how investing works.

Whatever you do, realize the stock market isn’t a get-rich-quick scheme. Done rashly, it’s a great way to lose money quickly.

Stay in the stock market or pay off credit cards?

Question: I currently have about $10,000 in credit card debt – at an interest rate of 18 percent. That’s the bad news. I also have $20,000 invested in the stock market. That used to be good news. But with the market in turmoil, I’m wondering if I should take it out and pay off the debt?

– Christopher in Florida

Howard Dvorkin answers…

When I answered the question before this one, I said, “Every time the stock market rises, so do the number of questions just like yours, Rebecca.”


“Every time the stock market plummets, so do the number of questions just like yours, Christopher.”

So the answer to Christopher’s question is similar: Will he earn more in a volatile stock market than he’ll be charged in credit card interest rates?

Of course, it’s impossible to predict the stock market. Thankfully, it’s easy to predict credit card interest rates. With inflation on a historic run and the Fed raising rates, those interest rates aren’t going down anytime soon – and they’re already rising.

Thus, I can answer Christopher more definitively than Rebecca: DO IT NOW. Pay off those credit cards as soon as you can. The math is simple: The market will be a rollercoaster ride for the next little while, and credit card issuers are hiking their interest rates – a lot.

LendingTree has been tracking credit card interest rates for the past five years. Recently, it reported those rates are “topping 20% for the first time since we began tracking rates in 2018.”

LendingTree added:

With the Federal Reserve announcing interest rate hikes in March and May and hinting at several more to come later this year, interest rates are virtually certain to keep rising – and soon.

Now for the caveat, Christopher didn’t specify, but I’m assuming his $20,000 in the stock market doesn’t refer to his 401(k). Never deplete your retirement savings to pay your credit cards. First, try the aforementioned credit counseling.

Invest inheritance, or put it toward debt?

Question: I’m 24 years old and my Nana died recently and left me $5,000. I have about $6,500 on my credit cards that I would love to pay off, but I am thinking about putting half of my inheritance in stocks that pay dividends.

My uncle says it doesn’t make any sense to use all my inheritance pay off my credit cards because I will still have a balance with nothing to show for it. He also says I could potentially make more in the stock market if I leave it in there until I really need it.

My mother is not sure what I should do. She said, “Ask someone who knows about these things for help.” So I am asking you.

Angela in Boston

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Howard Dvorkin, CPA, answers…

Your uncle makes a good point, Angela. Unfortunately, it’s not the one he intended.

First, let’s do the math.

You didn’t tell me what interest rate you’re paying on that $6,500 in credit card debt. The national average is just over 14 percent as of this moment. (It constantly shifts, as you can see here.)

Stock market returns can top 30 percent a year like they did in 2013, or they can be as low as 2 percent like they were in 2011. Then there are years like 2008, when average returns were negative 36.55 percent. (See nearly 100 years of returns here.)

Of course, that’s the nature of the stock market — you just never know. Experts spend their workdays and lifetimes trying to decipher market fluctuations.

Unless you plan to spend at least some of your free time monitoring your investment, I must disagree with your uncle. However, he raises two issues even though he probably didn’t mean to.

Investing is good

Your uncle is encouraging you to invest in your future instead of focusing on the now. While the stock market might be too risky, you have many other ways to invest your money. If your employer offers a 401(k), sock away as much as you can. You can even open your own retirement account in a number of ways.

I know what you’re thinking, Angela: I’m only 24. Why do I need to save for retirement now? The answer is simple and profitable: Put away even a little now, and over the decades, it will grow many times over. Your uncle probably knows that savings and money market accounts are offering less than 1 percent interest these days, so he pointed you to the stock market. However, even the safest retirement accounts will earn you hefty returns over the long haul.

Changing habits instead of balances

You uncle might have been subconsciously suggesting something else: If you pay down your credit card balance, will you just be tempted to run it up again?

You really need to ask yourself: “How did I get $6,500 in debt?” As a CPA for more than two decades, I’ve counseled people who inherited much more than you have, Angela. I’ve watched them squander huge sums because they never took a hard look at their spending habits.

That’s why my advice in this case has nothing to do with the inheritance. Your first step, Angela, should be to use our free Debt-to-Income Ratio Calculator, which will reveal some insights into your finances.

Once you do that, I don’t think you can go wrong if you invest or pay off credit cards – or both.

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