By Dr. James M. Dahle, WCI Founder
Today we're going to address the most common question I see on this blog, in my email inbox, and on forums. Should you pay off debt or use your money to invest? Over and over again it is asked, always with slightly different details. 95% of the time, the answer is a simple “It depends.” So today, we're going to talk about what it depends on. I've written about this topic years ago and included a chapter on this in The White Coat Investor: A Doctor's Guide to Personal Finance and Investing. In 2017, we actually paid off all of our debt, so we are among the few who no longer have this dilemma. But until you become debt-free, you're going to struggle with the dilemma just like everybody else does. Whatever you choose, make sure you're thinking about debt the right way.
Avoid the Extremes When Choosing Paying Off Debt or Invsting
Perhaps the best advice I can give is to avoid extreme positions. 95% of the time there is no right answer, but 5% of the time there is. If you're giving up an employer match in order to pay off debt, you're making a mistake, basically leaving part of your salary on the table. If you're carrying 30% credit card debt in hopes that your investments will outperform it, you're making a mistake. But for just about everything else in between, I can come up with a situation where it might make sense to invest, but where it could also make sense to pay off debt, no matter what kind of debt that might be.
Paying Off Debt and Investing Are Both Good Things
Here's the other thing to keep in mind. Paying off debt is a good thing to do. It builds your net worth. Investing is also a good thing to do. In general, it also builds your net worth. They're both good things to do. One of them isn't wrong and the other right. At its worst, one is a little more right than the other. If you can't tell which one is better for you, it probably doesn't matter much. So don't worry about it too much. If it is really paralyzing you from doing either of them, just split the difference and put half of your extra money toward debt and half toward your investments. Trust me, in the end, this decision isn't the one that is going to determine whether you are financially successful or not. The important decision is probably what percentage of your income is going toward building wealth rather than consumption.
7 Principles That Determine Whether You Should Pay Off Debt or Invest
#1 Attitude Toward Debt
Some people hate debt. I dislike it enough that it was a major factor behind why I spent four years on active duty. The more you dislike being in debt, the more likely you are to want to pay it off instead of invest. Some people love debt. There are even people who think you should stay in debt your entire life. There is a significant behavioral aspect to this. Even though the math would sometimes indicate you should carry a debt and invest, behavioral and cash-flow considerations often argue for just paying it off.
#2 Risk Tolerance
If you aren't going to invest aggressively, then you might as well get the guaranteed return available from paying off debt.
#3 Available Investment Accounts
This has had a major effect on our debt vs investing choices over the years. If we had a sweet tax deal being offered to us for investing, we usually took it instead of paying off debt. Yes, we paid off our mortgage in less than 7 years, but we never put an extra dime toward it until we had maxed out our retirement accounts, HSAs, and as much as we wanted to give to our kids (529s, UTMAs) first.
#4 Anticipated Investment
This is where the math comes in. If you're expecting to make 10% and your debt is at 2%, even if it is 2% variable, it seems kind of dumb, at least from a mathematical perspective, to pay off the debt. So, in this respect, perhaps investments with high expected returns get purchased before paying off debt and vice versa. Bear in mind the only returns that count are the after-expense, after-tax, after-inflation returns. Market valuations might play into this, as well. The higher the valuations, the lower expected returns may be. 8 years into a bull market? Maybe you should pay off your mortgage. Market just dropped 40%? Maybe it's time to invest. Market timing? Sure. But if there is no right answer to the question anyway, why not?
#5 Interest Rate of the Debt
On the other side of the mathematical equation is the interest rate of the debt. High-interest rate debt should, in general, be paid off before low-interest rate debt and investments. Bear in mind the only interest rate that counts is the after-expense, after-tax, after-inflation rate. So a tax-deductible debt (like many mortgages) is less of a priority than one with an equal interest rate that is not deductible. Likewise, if you have a low, fixed-interest rate debt and inflation is high, well, you're going to be paying that debt off with less and less valuable dollars the longer you drag it out.
#6 Level of Wealth
Your level of wealth can affect whether or not you should pay off debt. You've heard the phrase before, “When you win the game, stop playing.” We carried our mortgage a couple of years longer than we had to in order to invest in a taxable account. Then we became wealthier faster than we expected. It started seeming kind of silly to still be carrying that little old debt around, so we paid it off. But if you have a four-figure portfolio and are decades away from financial independence, paying off your 2.5% mortgage early probably shouldn't be your priority.
#7 Asset Protection and Estate Planning
Just when you thought it couldn't get more complicated, let's bring asset protection and estate planning considerations into the equation. In some states, your homestead is 100% protected from creditors. If you live in one of those states, perhaps you prioritize paying off the mortgage a little faster. If you're in a state where it isn't protected, perhaps it is less of a priority. Likewise for paying off debt prior to maxing out retirement accounts with their awesome asset protection and estate planning benefits. What about an ill 85-year-old with some debt but also some taxable assets with low basis? In that scenario, it would make sense NOT to liquidate the taxable assets in order to get the step-up in basis at death. It might even be wiser to borrow against them rather than sell them.
Everyone feels good paying off debt and investing
Financial Order of Priorities
Okay, despite reading those seven principles, some of you still can't decide whether you should pay off your debt or invest. You want an algorithm that will tell you exactly what to do. So I'm going to give you an algorithm and make a list, just like I did six years ago and just like I did in the book. Savvy readers over the years realized those lists were not identical. In fact, they're both different from this list. That reflects the fact that a perfect list can't even be made.
But this much I can guarantee you: If you just follow this list, you're not going to do anything stupid. Reasonable people are going to disagree with the placement of some items on this list. They may even argue about it for weeks in the comments section. That's fine. But no reasonable, knowledgeable person is going to move something from the bottom of the list to the top of the list. This algorithm is good enough to lead you to financial success.
#1 Get Any Employer Match
Not getting this money is leaving part of your salary on the table. It would be very unusual for you to have a better investment or debt pay-down option than this.
#2 Pay Off High-Interest Rate Debt (8%+)
Not only does this “investment” come with a high rate of return, but it is also guaranteed.
#3 Max Out Available Retirement Accounts
- 3b – Tax-deferred accounts first in peak earnings years
- 3c – Tax-free first in non-peak earnings years
- 3d – Include non-retirement tax-protected accounts in accordance with your goals — HSAs, 529s, UTMAs, etc.
This is where most of the arguments are going to be made. The Dahle Family funds our Roth IRAs, HSA, and 529s up to the state tax credit limit on January 2nd of each year. But we still make sure we max out our tax-deferred accounts during the year (401(k)/PSP (Public Sector Pension), individual 401(k)s, Defined Benefit/Cash Balance Plan). Any other 529 contributions, UTMA contributions, and taxable investing is put off until those accounts are maxed out. But if you're in a situation where you can't max out everything and have to choose, well, there are no right answers. HSAs are triple tax-free, but you can't stretch them or use them very tax-efficiently except for health care. 529s are good, but the tax break pales in comparison to a 401(k). Super-savers might benefit more from a Roth than someone who started saving late. Lots of little subtleties there, but the general principle remains — retirement accounts are great places to invest, and if you don't max them out in any given year, you can't go back and do it later.
#4 Invest in Assets with High Expected Returns
Some more room for argument here. What is a high expected return? Are stocks going to have a high expected return in the near future? What about over your entire investing horizon? What about real estate? Hard to say. But if you're expecting to make 15%-20% on an investment, it can make sense to not pay off 5% debt and invest instead. Heck, if you're expecting 20%, it might make sense not to max out the retirement accounts first (or figure out a way to put the investment inside the retirement account).
#5 Pay Off Moderate-Interest Rate Debt (4%–7%)
I'm often amazed how many people are willing to carry around debt like this. I still find a 5%–8% guaranteed return to be a very attractive use for my dollars. That investment better be very compelling if I'm not paying this sucker off ASAP.
#6 Invest in Assets with Moderate Expected Returns
Okay, that makes sense. If you expect to make 5% or 6% on something, it can make sense to carry a 2% loan.
#7 Pay Off Low-Interest Rate Debt (1%–3%)
I've never been a huge fan of debt. But I've avoided paying it off a couple of times in the past when the interest rate was really, really low. I would certainly pay it off before dumping a ton of money into a bond fund paying 2% or a saving account paying 1%. Not much arbitrage there.
#8 Invest in Assets with Low Expected Returns
I hope nobody is surprised to find this one at the bottom of the list. In fact, some people might even put “buy a wakeboat” ahead of this one.
I hope this post is helpful to you as you weigh your own pay off debt vs invest decisions. Truly, it depends. Not only is the answer different for different people, but it can be different for you as you progress from one stage of life to the next.
What do you think? When should debt be paid off instead of investing? How would you reorder this list? What would you add to it? Comment below!
A fitting topic for New Years day! I love how you have seven principles and “The List” to help people figure out for themselves “Should I invest in A or pay off B”. For me, I’m a real estate investor who decided to pay off my investment properties as well as my primary residence. There are psychological reasons for this, as well as financial ones. I just love the peace of mind of truly having no debt, especially as I near my military retirement date. Awesome post!
As we got close to his military retirement we felt reducing our monthly expenses by the mortgage payment reduced our needed FI amount quicker than leaving the pay it off money in taxable investments did, since once the mortgage was gone our income REQUIRED was much lower.
We wouldn’t mind eating out less, traveling less, borrowing for college, or delaying new car/ sailboat purchase as much as we’d mind HAVING to move if we suddenly had a drop in income and were unable to pay the prior mortgage each month
I am following a similar plan. I will be able to retire from the military in 4-6 years, and I would like to pay off the mortgage because it will reduce core expenses dramatically. There should be plenty of money in investment accounts to cover mortgage payments, but the security of knowing in a down market that the military pension will cover most if not all core expenses will both let me sleep better at night and allow me to keep most of the retirement accounts invested in equities.
Forgot to mention plans apply for forgiveness. My student loans are at about 8 percent, I think. But because I am hoping to apply for PSLF, I have continued the income based payment plans. In the next few months/years, depending on what’s going to become on the program, I will have more clarity as to what my priorities should be.
Yes, obviously you don’t want to pay off debt that someone else will pay off for you.
A financial planner that is highly respected on the Bogleheads forum told us that we should pay off the mortgage. His reasoning was that there is no benefit to being on both sides of debt instruments. Since we have a moderate portfolio and have debt instruments, he said we should take the guaranteed “return” 3.5% from paying off our mortgage and then invest what would have gone towards our monthly payment. I imagine that the calculus would be different for a person who doesn’t have any bonds or T bills
Yes, it seems silly to buy 2% treasuries while paying 4% on a mortgage doesn’t it?
Excellent post – just about as simple as it can be made while still retaining the necessary complexity to be useful. Well done.
We refinanced student loans into 5% variable loans in residency because we knew we weren’t going to do PSLF. We are not yet in peak earnings years so we max out the his and hers Roth IRA, then put the rest towards paying down the debt, and just make minimum payments on the 3.5% mortgage.
Some of my wife’s colleagues are still carrying mortgages 10-15 years out of residency in order to increase leverage to invest. I have to say while maybe that makes sense, I kind of hate the idea of still having a mortgage that long after residency.
Seems like a great balance to me.
I think there are a couple of other major considerations.
1) should you refinance and if you didn’t refinance and are planning PSLF, what should you do? One could argue in that situation yo are trying to make minimum payments on likely a high interest rate debt and should still invest with the anticipation of it being forgiven.
2) how protected you are from life’s calamties (disability insurance, etc). Hopefully this is taken care of, but I know I am not very risk averse except when it come to this topic. I am still saving 20% of my income but putting an equal amount (or more) of my money towards debt because of not being able to get individual disability (have group) because of a mistake I made as a medical student. So I have little tolerance for debt because of a lack of protection.
I know those are specific examples that fit into your qualifier of “it depends,” but the first one at least is a major consideration for most. It’s the first fork in the road: refinance? Then what?
Good post. And a good new year’s resolution to think up some serious financial planning decisions!
Yes, obviously if you can refinance something to a lower rate without adverse consequences, you should do that.
Yes, you should buy insurance against financial catastrophes. If you can’t, well, I can see why that would cause you to dedicate more of your income to building wealth. But not sure it changes the invest vs pay off debt calculations.
Nice review. My relationship has been “love-hate.” Mostly hate. I couldn’t wait to be debt-free. Now that I achieved that, I will never go back if I can help it.
On the other hand, I’m thankful to debt. It allowed me to go to college, become a doctor, buy my first home, buy into a private practice, buy a commercial real estate building, and buy shares in a surgery center. I am much better off now because of all that “good debt.”
Fire can keep you warm and heat your food. Just realize you are playing with fire and it could burn down your house if you aren’t careful.
Great post. I’m currently on #7, looking to pay off a 2.75% mortgage aggressively. But I don’t neglect my 401k/college/HSA to do it. Much as I would like it to be gone faster, and I hate debt, I know the expected return on the payoff is low. It’s still a goal of mine, though, so extra money goes toward that goal. Unlike others I keep it in a “payoff fund” in a high yield account. So it functions as a type of emergency fund, and it’s available to me in case I change my mind.
Sounds like where I was a year ago.
I’ve pretty much utilized this strategy and am paying down my 2.875% mortgage. What’s been omitted from the discussion is the behavioral aspect… I’m much more motivated to reach a specific target (pay-off) over a certain timeframe, than I would be to just passively “save” the extra. This motivation has kept me focused and enabled me to more easily bypass purchases/trips that otherwise may have been more of a weakness. So while the math is one consideration, psychology plays a large role too.
Goals definitely help, but you could set a saving/investing goal too.
At some point I crossed into the world of debt as a tool. I even sought out a 0 percent car loan for the arbitrage opportunities. My guess is it was similar to your point around level of wealth and risk tolerance. Both of course change significantly with the stages of life.
I did not prioritize paying off either my school loans (only 29k) or mortgage in my 30s. I of course maximized retirement accounts. I built up a taxable account and then in my forties I paid off all loans. Putting money into investments early gives you more compounding time. With the tremendous size of school loans I see people post about I think starting to make this a priority in the 30s is a good idea. I think it is possible to split the difference.
What today’s graduates would give to only owe $29K….
Amen. Average comes out to 180 to 200k just from medical school these days.
No, it’s over $200K now. Plus add another $100K for residency since it typically compounds at 6%+ for 3-5 years.
Ya, drives me nuts when people mention the average price of loans after med school without mentioning the number it’s gonna be when we start actually paying it off.
Great article WCI. The only debt I have remaining is sub 2% student loans which I go back and forth on whether to pay off or not. While it’s a low interest rate and I can clearly make more investing it’s still a required bill every month and it cuts into cash flow. In order to leverage this debt I have to pay 1k a month to my lender which means I need more money in my emergency fund, limits how much I could I can cut back at work etc. So with interest I have to pay ~15k per year on this debt in order to hopefully make more money elsewhere. The thought of doing that for the next 25 years does not sound fun.
It’s interesting isn’t it when it’s your debt and your future. The math starts mattering less doesn’t it?
We have no debt. I was brought up to never carry a credit card balance. If you can’t pay for it, you can’t afford it. We were both military, so close to nil student debt (I paid off my squat undergrad loan with my first few paychecks as an intern)….but we are kind of “older” and when we built our home interest was 8% for mortgage. A few months in we refinanced (for free) to a 15 year at 7.25%. …..that debt alone forced chipping away at it aggressively….but even so we maxed out every retirement vehicle (and I pre-date for several years TSP so that was only an IRA back then) and put in double our mortgage into our brokerage account. I really think people who have not experienced the high interest rate mortgages and even school loans (my federal loan was over 6% in the 1980s) just have become comfortable with debt. Living in the decades I have just created different habits…..Even with debt, there still is a portion of your monthly cash flow that heads out the door….
You’ll be sad to know that graduate/medical student loans have been mostly over 6% for the entire time I’ve been blogging.
Certainly something we’ve struggled with, so much so I posted it on the forum last year and was fortunate enough to get multiple pages of replies. For me, interest rate isn’t so bad on school loans (4.5%) but the absolute dollar amount, combined with daycare, combined with primary care field of work has led us to meld #2 and 3 together: max a couple (but not all available) retirement accounts (still saving >15%) and focusing raises, bonuses, etc onto student loans.
Sounds like you found the balance that is right for you. Good job!
When I completed my medical training, my strategy was to pay off my line of credit (at prime for interest) as slowly as possible and to use all my available money to invest. But almost three years into practice, I am starting to really, really hate the debt. So I’ve decided to pay it all off as soon as I can, even though numerically it doesn’t make the most sense. Sometimes you just have to go with what feels better emotionally as long as it’s not a stupid decision.
Funny how it changes over time isn’t it?
Thank you for all your expertise! I’ve been reading this blog since I finished med school 4 years ago and have learned so much.
I am curious on how to incorporate the PSLF into this equation. I have $300k in med school loans and recently signed a contract for $350k for my first attending job which is eligible for PSLF. I originally didn’t anticipate this and was planning to basically split my attending salary in 4 equal parts (~85k) to pay for taxes, savings, living, and student loans. With this plan, I would be done with paying my student loans in 4 yrs.
Now that I am eligible for PSLF, I am tempted to pay as little as possible on my student loans a have them forgiven in 5 years (which is a great thing!!). However, my question is whether I should save the extra funds in a low risk account in case PSLF falls through? Or should I use the funds for a down payment on a home, even with having student loans lingering? Or should I aggressively invest this money?? Any suggestions or thoughts would be appreciated!
I would put that 85K into a CD or MMF until there is clarity on the PSLF. From what I read the 10 year window is being hit now so you will find out soon if it really applies to docs.
I’m not sure what the right answer is for you MDRadOnc but I know a lot of people who are setting money aside in safer accounts just in case PSLF falls through.
Not sure why it has to be a “safe account.” I mean, there’s a good chance you will just be adding it to your retirement portfolio. And if the market tanks AND PSLF disappears, you could just carry the debt a little longer until the market recovers.
What do you mean how to incorporate it? Don’t pay off debt someone else is going to pay off. I like your four part split though, even if it isn’t right for you! You could put that pay off debt fourth into a “side fund” in case PSLF disappears on you. I don’t know that it has to be low risk, unless you’re going to use it to buy a home soon.
Happy New Year Jim & WCI Team!
Enjoyed this post and have only one point I’d love to add: For families who may have struggled with having more debt than they want, a key barometer in whether your debt-payoff plan / net worth building & investing strategy is working is this: Is total debt decreasing as a percentage of total assets, and is net worth accelerating at an acceptable pace relative to your age?
If the decision to keep debt to invest is just a balloon-squeeze between debt balances and investment balances, I’d suggest adopting a more radical approach to debt reduction, whether that’s through scaling back lifestyle further, or through diverting investment dollars to pay off debt.
With the caveat that docs will have to adjust for their late start earning money, here are three great resources on whether your net worth is keeping up:
https://dqydj.com/net-worth-by-age-calculator-united-states/
https://www.financialsamurai.com/the-average-net-worth-for-the-above-average-person/
And, though it’s my own article, this analysis of the Millionaire Next Door Tom Stanley Wealth Equation has a bunch of tables with numbers in in that your readers might find interesting:
https://www.designindependence.com/articles/2016/10/25/book-review-the-millionaire-next-door-by-thomas-j-stanley-and-william-d-danko-and-tackling-the-stanley-wealth-equation-what-should-your-net-worth-be
I agree the big picture is how much of your income is going toward building wealth. The debt pay off vs invest question is a more minor one.
Attitude towrad debt was our biggest motivator. We don’t like being beholden to someone, feels like giving up freedom. I’m not military, but might have done the active duty thing you mention to avoid debt.
We paid ours off after maxing qualified accounts, 529, and going into taxable. Maybe lost some money due to interest rate arbitrage but the point for us isn’t end wealth, it’s peace of mind balanced with end wealth. We love being debt free.
Happy New Year!
I appreciate the “no exact answer” tone of this post. We carried student loan debt for 8 years post-residency. We also have a mortgage in a high COLA. Student loans and mortgage are our only debt and all of it is 3.8-3.9% interest. We started with 250k in student loans and are paying the last big chunk off next week when bonus check clears so we will then only be left with our mortgage (whoo hoo!).
In the past 6 years, we also maxed out all our retirement accounts, HSAs, and backdoor ROTHs (~120k/yr) and put a bunch into a taxable account . The month out of residency we were -300k net worth. Eight years later we are at 1.5 million, which seems really crazy to us.
Carrying the student loans this long was a choice of balance that worked for us. It felt great to invest so much in retirement, start a taxable account, have a nice car to drive (paid with cash), hike the Tour du Mont Blanc, take a fancy pants small boat cruise in Alaska, and go to Hawaii 2x a year! For us, our course of delaying paying off the student loans felt like the middle way. But at this juncture, it will feel great to payoff the student loans and only have a mortgage left to contend with.
Happy New Year everyone and thank you to the WCI – you are a big reason we have the net worth we have. Your site provided us with the foundations to make key decisions that will set us up financially for the rest of our lives. Posts like this one are a perfect example.
This is a great way to look at low interest student loan debt. Congrats to you. The problem I have is that anytime I think about buying a nice car or going to Hawaii I think “that would be nice but that money would knock x amount of months/years off my loans” and from a purely financial point of view paying off even low interest student loans is better than an expensive trip. Guess I need to get over that bc I really want to go to hawaii?
You only live once on Earth.
Look into flight miles. They get rid of the guilt. 🙂 Alaska Air has a pretty sweet companion ticket deal if you have multiple tickets to buy, as well.
Balance it with the thought that you won’t live forever. You’ll find your balance somewhere in the middle.
Congrats on finishing off your student loans. THAT is a big deal! I was way more excited about paying mine off (i.e. separating from the military) than I was paying off my mortgage.
Completely agree with finding our balance in the middle. Honestly, we’d say to ourselves given how much we are investing in our futures, if we died soon would we have rather taken a trip or paid our student loans. And it’s not that the balance tipped (we are taking as many trips as ever). We just saved enough to choose either more in taxable account or pay off student loans and the latter felt like it made more sense at this point.
We are in Seattle so the companion fare has been used many times. We also book far in advance and stay at relatively inexpensive (oceanfront condos). The vacations aren’t cheap but they aren’t super expensive either and they are SO worth it to us.
Anyway, student loans are paid. Whoop whoop.
Great article. My order was refinance loans under 4%, then fill HSA/bdRoth/i401k yearly, then pay off loans over taxable account with any money not spent keeping lifestyle inflation in check. To me I can’t stomach taxable bonds with keeping loans. Also a 529 is not very valuable to me in no income tax state.
I assume you mean over 4%. I agree you have a reasonable strategy.
I think the way you laid out this debt:invest topic is superb and anyone who can do simple math and express an emotion should be able to make a solid decision from this. For anyone else maybe my friend M.’s advice of “put 50% towards debt and 50% towards investments” might help.
I actually think that’s a pretty good rule of thumb!
I finished off the last of my debt last month. Feels fantastic!
For me, between 33 and 40% of my income is productivity bonus paid every six months. Thus, my cash flow is relatively limited for monthly payments. For us, paying off some smaller debts makes a lot of sense, as it frees up cash flow and gives more cush in the budget. Our mortgage is quite large, and I think we are just going to sit on it and take the tax deduction. In the meantime, we are investing in taxable accounts instead of paying down the mortgage. Once that money doubles, we will decide whether to pay any off on the mortgage or just let that money continue in the market.
I bet you pay it off sooner than you think you will. That’s what happened to me!
Tax bill may change the equation. I think that I will not be itemizing from now on so my plan is to pay down my 4.375% mortgage rather than investing in my taxable account at a 70/30 allocation. Factoring in capital gains its like buying a bond at 5.6% with no risk of default.
Capital gains? Remember there is a decent amount of capital gains that are excluded from taxation with a house. Also, inflation and such working for you in the house long term.
Sorry, I’m saying I would compare paying off debt at 4.375% to a taxable investment gain of 5.6% because the taxable investment would net about 4.4% after capital gains.
For sure, losing that tax subsidy makes it more attractive to pay off debt.
I have a loan on vacant land (10 acres) adjoining my retirement cabin on an additional 11 acres.
The empty land made it such that we own the top of the mountain and no one can build anywhere near me. The 0.3 mile road leads only to my land and cabin.
Because the lot is empty, it’s at 6.25% (whereas the cabin and acreage is at 3.99%). It’s where all my money goes after maxing out 401K and SEP and 529 accounts. I have no taxable retirement accounts.
This year I will be switching to a “solo 401K” instead of the SEP, as I can avoid the income limits on Roth contributions in the Solo 401K. I’m still learning about this option.
With the new tax law, I will no longer be able to deduct mortgage interest, moving the empty land to the top of the “pay this debt as quickly as possible” list.
Seems like a really expensive way to avoid having neighbors. I’d think about which neighbors I’d like and sell them each a parcel!
Good summary. I think it is hard to go wrong paying off debt because once it is gone those returns are locked in. Can’t say the same about investments. Now I do agree that paying off high interest debt and maxing out tax advantaged accounts should be prioritized but after that paying off debt is not a bad idea.
This is a timely post for me. I’ve been sitting on cash for the last 6 months struggling with what to do with it. I pretty much came to the same line of thinking as principle #4. Obviously nobody knows the future of the stock market particularly short-term performance however we’ve had quite a run. I figure there’s a lesser probability of outsize returns with the stock market currently so I went ahead and paid down my mortgage. Should be paid off completely this month. Still hedged with some cash on hand in case I see a good opportunity in the market. Granted this is after my usual 401k and Roth contributions. Basically figuring out what to do with excess cash. Even if I lose out on some returns I’ll take the psychological satisfaction of having no debt as some consolation. Like WCI said, in the grand scheme of things I don’t think this will be a major factor.