Investing vs. Paying Back Debt: When to Save and When to Seek Debt Relief


Deciding what to do with your money is always tough. You want to make the best decision for you, but it’s not always clear what the best choice is.

It doesn’t help that financial advice is often contradictory and hard to apply to your own circumstances. On the one hand, they say you should get out of debt as soon as possible and start fresh. On the other, they say you need to start investing as early as possible if you want to save enough to retire.

The problem is that there’s rarely enough money to do all of these things at once. Instead, your finances are about choices.

When to Invest and When to Pay Back Debt

According to financial planners, you need to save roughly 10 times your pre-retirement salary in order to retire comfortably and live on roughly 80% of that annual income.

In order to do that, you need to save aggressively throughout your career, putting away as much as 15% of your income in your 20s and saving even more as you get older.

That’s not easy when you’re trying to pay back student loans, save for a mortgage down payment, buy a car, start a family, and stay on top of credit card and utility bills.

Given the pressure to start investing early, though, there may be times when it makes more sense to save your money and invest in a mutual fund or other investment vehicle than pay off debt. Fortunately, there’s a simple rule for evaluating what to do. If the interest you generate from the investment is higher than the interest you pay on the debt, it makes sense to invest instead of making more than the minimum payment on the debt.

As a general rule, you should invest when you’re only paying low-interest loans (like student debt) but pivoting to debt payments when you have high-interest loans.

That rule doesn’t apply if you don’t have enough cash left over to make minimum payments and keep up with the debt. However, when you have extra cash, now you know what to do with it.

Debt Relief Options

When you’re deeply in debt and struggling with high-interest loans, investing may be the furthest thing from your mind.

If that’s the case, you need to learn about your debt relief options. One of the first things you should do is talk to a Licensed Insolvency Trustee in Ontario about your debt relief options. They can explain how to claim bankruptcies in Ontario, alternatives to bankruptcy like consumer proposals, and what the best option for you may be.

Carefully consider your debt relief options. Filing bankruptcy can discharge you from debt when you’re insolvent, but it can also come at the cost of assets, such as property or investments. Although there are some protections in place, you may have to give up a number of assets to pay back creditors.

Alternatives like consumer proposals can do a better job of protecting your assets and savings. They work well if you have a consistent income to make monthly payments. There will be an impact on your credit score, but it does not last as long as a bankruptcy.

It’s time to start making smarter financial decisions. Find out when to save, when to invest, when to pay back debt, and when to seek out debt relief options.