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Should I invest while getting out of debt?

It depends on a number of important factors.

This is one of the most common financial planning questions we’ve been helping families answer since 1978. For nearly five decades, our organization has walked alongside individuals and families seeking to practice faithful, wise financial stewardship.

The answer isn’t one-size-fits-all, but for most people, the priority is clear.

 

The Dave Ramsey Approach: Get Out of Debt First

If you were to ask Dave Ramsey if you should invest while getting out of debt, he would likely say: No! Get out of debt first. There is a certain elegance and wisdom to this advice. When you make debt elimination your single focused priority:

  • You eliminate debt sooner.
  • You reduce interest expenses faster.
  • You free up more cash flow.
  • You position yourself to invest at a far greater level later.

By concentrating your financial energy in one direction, you create momentum, and momentum changes everything.

Over the years, we’ve seen that households who commit to aggressive debt elimination often build stronger long-term investing habits once they are debt-free.

 

Why the Debt Snowball Works

When you use the debt snowball method, something powerful happens:

  • You begin finding creative ways to increase income.
  • You cut expenses more aggressively.
  • You allocate larger monthly payments toward debt.
  • You build confidence as each balance disappears.

Here’s how The Debt Snowball works:

  1. List all debts (excluding your primary mortgage) from smallest to largest balance.
  2. Make minimum payments on all debts except the smallest.
  3. Apply every available budget dollar toward the smallest debt.
  4. Once it’s eliminated, roll that payment into the next smallest debt.
  5. Repeat until you are completely debt-free.

When the snowball is complete, the same large monthly payment can then be redirected toward retirement savings,  significantly accelerating your investing progress.

 

The Compound Interest Question

Some people hesitate to delay investing because:

  • Their debt feels overwhelming.
  • It may take years to eliminate.
  • They fear missing out on compound interest.

This concern is understandable.

However, compound interest works in two directions:

  • It builds wealth through investing.
  • It destroys wealth through high-interest debt.

Interest on debt, especially consumer debt, often compounds at a higher rate than you can reasonably expect from investing. A credit card charging 25% interest is compounding against you far more aggressively than a 7–10% investment return compounds for you.

 

Key Principles to Consider Before You Invest while Getting out of Debt

1. Be Debt-Free by Retirement

You should not enter retirement carrying debt. By retirement, your goal should be:

  • Completely debt-free
  • Adequate cash reserves
  • No reliance on new borrowing

It is better to enter retirement with modest savings and no debt than a larger nest egg burdened by loan payments. Debt and savings counterbalance one another, and debt creates stress that retirement should not include.

2. Build a Starter Emergency Fund First

Before aggressively paying off debt, build a $1,000 emergency fund. It won’t solve every emergency, but it provides a critical cushion. If you must dip into the emergency fund:

  • Pause discretionary debt payments and investing.
  • Redirect all available income toward replenishing the fund.

Liquidity creates stability. Stability creates momentum.

 

Types of Debt: Not All Debt Is Equal

When deciding whether to invest while paying off debt, you must evaluate the type of debt involved.

Mortgage Debt

With a conventional fixed-rate mortgage at a relatively low rate (3–4%), some flexibility exists. However, when rates move into the 6–7% range or higher, allocating additional funds toward the mortgage becomes more compelling.

15-Year vs. 30-Year Mortgage

A 15-year mortgage typically offers:

  • Lower interest rates
  • Less total interest paid
  • Faster payoff

The downside is a higher required monthly payment.

Some borrowers say they’ll take a 30-year mortgage and pay it like a 15-year — but in our experience, most households struggle to maintain that discipline over time. Life has a way of interrupting good intentions.

Consumer Debt (Highest Priority to Eliminate)

This includes:

  • Credit cards
  • Car loans
  • Medical bills

Credit Cards

Average credit card interest rates often sit in the mid-20% to low-30% range. With compounding, this destroys wealth rapidly.

Paying off credit cards should be a non-negotiable priority before investing.

Car Loans

Car loans often carry high single-digit to low double-digit rates. The added risk: the asset is depreciating. Frequently, the vehicle is worth less than the loan balance, increasing financial vulnerability.

Medical Bills

Medical debt varies widely: Some carry 0% interest while others accrue significant interest. A 0% balance allows for more flexibility. High-interest medical debt should be attacked aggressively.

Student Loans

Student loans create the most hesitation when deciding whether to invest while in debt. We’ve worked with families carrying six-figure student loan balances projected to last 30+ years. In many cases, student debt severely limits long-term financial progress.

Our guidance:

  • Pay student loans aggressively.
  • However, consider contributing enough to an employer-sponsored retirement plan to capture the full employer match.

An employer match is an immediate return on your investment and may justify limited participation while the majority of income goes toward debt elimination.

 

Your Age and Proximity to Retirement Matter

In Your 20s and 30s

Investing is important, but being debt-free is more important. Make short-term lifestyle sacrifices to:

  • Eliminate debt quickly.
  • Gain control over spending.
  • Build margin for meaningful long-term investing.

In Your 40s and 50s

This stage requires serious intentionality. If you still carry debt and have not built retirement savings, you must:

  • Aggressively eliminate debt.
  • Avoid taking on student loans for your children.
  • Carefully evaluate Roth IRA and retirement contributions.
  • Balance investing with destroying debt.

Taking on loans for your children’s college at this stage can stall your own retirement progress.

If poor decisions in your 20s and 30s left you with heavy debt, you must accept that your retirement plan may look different. You cannot enter retirement with debt. In many cases, it is wiser to:

  • Eliminate debt completely.
  • Work longer.
  • Reduce lifestyle expectations.
  • Increase income creatively.
  • Decrease expenses strategically.

Debt freedom brings flexibility and dignity.

60s and Beyond

If you are nearing or in retirement and still carry debt, the priority shifts almost entirely to:

  • Gaining control over debt.
  • Living on a low budget.
  • Building cash reserves.

For some individuals in their 70s or 80s, full repayment may not be realistic. In those cases, understand how probate works: When someone passes away, their assets stand in place of their debts. Assets are used to satisfy outstanding liabilities. If debts exceed assets, the remaining balance is forgiven.

This reality does not remove responsibility, but it does provide perspective.

 

Mindset Matters

There is a dangerous belief that debt is inevitable and lifelong. That mindset becomes self-fulfilling. To assume you will never escape debt is to adopt a victim mentality, believing you lack the ability to control spending or grow income.

Financial stewardship requires:

  • Discipline
  • Self-control
  • Creativity
  • Responsibility

Debt freedom is not accidental. It is intentional.

 

So, Should You Invest While Getting Out of Debt?

For most people, no.

Eliminate high-interest debt first. Build an emergency fund. Create margin. Then invest aggressively.

There are limited exceptions, such as capturing an employer match on retirement contributions, but those are strategic decisions, not excuses to delay debt elimination.

If you want help determining the right balance between investing and paying off debt, our team has been guiding families in faithful financial stewardship since 1978. We would be honored to help you build a plan that aligns with your values and long-term goals.

 

 

Next Steps

 

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The topics discussed in this podcast are for general information only and are not intended to provide specific investment advice or recommendations.  Investing and investment strategies involve risk including the potential loss of principal. Past performance is not a guarantee of future results.

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