Debt vs. Investment: What Should You Prioritize?

One of the most common financial dilemmas is deciding whether to use extra cash to pay off debt or to put it into the market. The answer isn't always simple, but a logical approach can help.

Check the Interest Rates

The first rule of thumb is to compare the interest rate on your debt with the expected return on your investment. If you have a credit card debt at 24% interest, paying it off gives you a guaranteed 24% 'return'—something no safe investment can match.

The Psychological Impact

For some, being debt-free provides a level of peace of mind that can't be measured in percentages. If debt causes you stress, prioritizing repayment might be the best personal decision, even if the math suggests otherwise.

The Power of Starting Early

On the other hand, compound interest needs time to work. If you have low-interest debt like a mortgage at 7%, and you expect 12% returns from a diversified SIP, starting your investment early while paying off the loan could lead to a much larger net worth in the long run.