Investing vs paying off debt. That’s a dilemma that many people paying off debt face. And that is the exact dilemma I am currently facing.

Since I started my debt repayment journey, I knew that once I got my six-figure debt down to under $100,000 (which I’ve now accomplished), I would reassess my aggressive debt payment strategy for alternatives such as saving for a home or investing.

I made a New Year’s resolution of getting my debt down to $100,000 by the summer of 2018 along with 3 other goals. While I’m proud to say that I’ve accomplished all 3 of my short-term goals, I am concerned that I no longer have a direction to head to.

The only goal left is my long-term goal of purchasing a condo.

When I created my goals at the beginning of this year, I did not want to overwhelm myself. At the time it was good to not think too far out in advance. I very much attribute my laser-focus on debt repayment to be the reason why I was successful in paying off $75,000 going from $171,000 debt to $98,000 debt one year after I started my loan payments.

The Dilemma: Investing vs Paying Off Debt

However, now that I’ve accomplished my goal, I’m at a crossroads. Should I continue paying off my loans? I’ve had a great momentum the last couple of months and want to continue riding on that high. 

But then I look at this.

See, around the same time I started paying off my debt last July, I also started a Robinhood account. Robinhood is an app-based stock brokerage that allows $0 commission trading. Basically, it allows you to trade stocks for free versus having to pay a fee as you would have to with a normal brokerage account.

Note: if you’d like to start a Robinhood account, feel free to use this link to get a free stock when you sign up (if you’re lucky you may get Apple or Facebook stock for free).

My friend raved about the app and I gave it a try and signed up last year when I finally started making an income. At first, I just bought a stock here and there and abandoned it for a while. A couple of months later, I started investing more.

But look at the numbers! I made a 31% gain in just a year! Now, obviously the market has been doing great this year (and the past couple years) so I can’t assume I will always be getting this kind of return.


Historically, the S&P 500 index averages an annual return of 10% and it has actually beaten that average the past few years.

Now, compare that to my student loan interest. My current highest interest rate on my student loan is 6.21%. Since I’m currently on the REPAYE program, all my unsubsidized loan interest are halved and all my subsidized loans are not accruing interest until April 2019.

So basically, with the interest subsidy that I am getting until April 2019, my interest rate across my loans average <3% which is lower than even some mortgage rates.

Financially, there is no justification for why I should take all the cash flow from my paycheck and just give it away to my loan provider when I can better leverage that into a financial gain.

As long as the market returns more than 3%, I will more than offset the interest I would be accruing from my student loans. And based on historical returns of 10%, the amount of money I can gain by investing in the stock market will far exceed the amount I would lose in paying my student loan interest.

What’s Stopping Me?

I always knew that I wasn’t going to continue paying off my debt aggressively until it’s all paid off. Investing was always in the back of my mind.

And honestly, I’ve felt quite guilty for not investing for a while now. It seems like everywhere I turn in the personal finance community, all I see are “you should invest when you’re young”, “the younger you start investing the better”, “if you invest in your twenties vs your thirties..”, etc.

That’s why all my goals on student loan payoff revolve around reassessing my aggressive payments once I hit five-figure debt.

The reason why I have been so aggressive in debt repayment is that I hate the thought of losing money through interest accruing over the years. But when I think about it more thoroughly, missing out on money that can be made from investing is as big of a disservice.

If I continue on my aggressive debt repayment journey, come one or two years from now, I will have nothing to show for when I have paid off my debt.

I will instead be spending another one or two years saving up for a down payment on a home. On the other hand, if I use this year to save up, I may be able to save enough for a down payment to purchase a home as early as next year.


So what’s stopping me? Well, changing one’s mindset is hard. I’ve been conditioned to think debt is bad. Debt must be paid ASAP.

I’ve watched countless videos of Dave Ramsey’s Show to know he would disapprove of my plan. While I will always credit Dave Ramsey with setting my desire to pay off my debt on fire, I don’t agree with all his teachings. I’ve already skewed from his view of paying off debt through the debt snowball method.

I also still use my credit card instead of cutting it up. I also disagree that I shouldn’t start contributing into a retirement fund or investment until all debts are paid off (although I did follow this strategy when I first started my debt repayment and did not start contributing to my 401k until 3 months ago).

Related:

• Debt Repayment Guide: Debt Snowball vs Debt Avalanche
• I Don’t Pay My Credit Card Off Every Month and It Saves Me Money

At the end of the day, when I think it through more rationally, paying off my debt aggressively will only serve me emotionally, not financially.

Because the sad truth is, the emotional satisfaction of paying off debt can be addicting. There is a certainty to it. If I put down $5,000 to loan payments, my debt will go down by $5,000. That is not the same when it comes to investing where there will always be uncertainty and periods of downturn.

But the numbers do not lie. A 10% annual return on stock market investment is simply something that I cannot afford to miss out on for two whole years. And at the end of the day, my goal is not just to get out of debt. It is to achieve financial independence and be able to retire early. If I have to delay the more immediate satisfaction of paying off my debt to have more money later on, then so be it.

What’s Next?

About three months ago, I started contributing to my 401k but since I have not been with my company for a year, I am not getting a match yet.

I do not have a Roth IRA, so that is currently my goal. After doing some research, I find that my best option is to set up a Roth IRA account where I will solely invest in index funds. 

I just opened a Vanguard account so once I figure that out, I plan to share the details on the process. I will also be following along Millennial Revolution’s Investment Workshop to guide me in starting my investment.

While I love Robinhood and think it was a great introduction to stock market investing and will continue to use it to buy individual stocks, I also know that my gains are taxable. With Roth IRA, all my gains will accrue tax-free.

Another perk of having a Roth IRA is that I can pull out my contributions (but not earnings) penalty-free, unlike my 401k which I will have to wait until retirement age. This is important for me because I plan to put money into my Roth IRA until I have saved enough for a down payment on a home at which point I will take out the money to purchase my first home.

What will I do with my student loans? I have $4,420 balance left on my 6.21% loan so once I finish that up, while I will continue to pay down my student loans, I will do so at a more conservative pace.

I plan to cut my monthly payment to my student loans by almost half, putting $3,000/month to student loans, a decrease from the $5,000 I have been contributing these past couple of months. I will be putting the rest into maxing my Roth IRA for this year.