I often get asked: “Which is more important, investing or paying down debt?” Usually my answer is "Both."
Let me qualify that, the most important priority is paying down high interest debt like credit cards. Credit cards often have interest rates ranging from 18% to 28% which has a tremendous negative impact on where your money is going and can make it impossible to invest in yourself.
Once you have the high interest debt paid off, then you should split your disposable income between paying off debt and investing. This balance can serve you well no matter what happens to the rates. If the rates go up, your term deposit and savings account earnings increase. If rates go down, you will be able to pay down debt more quickly. Over the long term (more than 10 years) you will see the benefit of doing both activities. Even if you are investing in mutual funds or stocks, over the long-term reinvesting dividends will help your investments grow, while your loan payments steadily pay down your debt.
The real point is that you want as much time as possible for compound interest to work on your investments while steadily paying down your debt. Jerry
Jerry, I've often wondered which is most important. My dad hammered into my head that I need to pay down my debts and then save money, so I've tried hard to do that. The problem is that as I've moved into larger homes my debt never seems to go down, and I haven't saved anything yet either. I should have started putting something away every month, even if it was only $100/month. Keep up the good work. T.M.
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