Should You Pay Down Debt First Or Start Investing?

Getting ahead financially isn’t merely about earning more. It’s also about what you do with that money once you receive it.

Investing can help your net worth grow, but debt can eat away at it.

That means most people understand they need to invest and pay down debt. But it leaves a lot of people asking what they should do, pay down debt, or invest first.

There are important considerations to make when it comes to canceling your debt or investing more of your income.

To help you make the decision that’s best for you, let’s explore these considerations, as well as a sample plan, you can follow to answer the question once and for all.

A Refresher on Compounding

Before exploring the options of paying down debt or investing, it’s important to revisit the concept of compounding.

There are times when compounding is a friend and other times when it’s a financial foe. Knowing how compounding works can help you decide if you should pay down debt or invest first.

Compounding works in your favor when it comes to investing.

Here’s how: If you start with an initial investment amount of $5,000 and earn an estimated interest rate of 5%, your money grows to…