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Posted by Casey (MONEY FORUMS: 4, Answers: 0)
Asked on September 15, 2015 9:00 am
In my opinion, paying off debt is a guaranteed return on your investment. For example, my graduate loans are at 6.8% interest. Every time I make a payment, I am ultimately lowering my interest. It's doubtful I could have the same gains in interest in the stock market. At least with such consistency.
Hi Casey, I am going to give you both the technical answer and a practical answer. Technically, it is better to invest when the investment return exceeds the loan interest rate. Both rates should be net rates, meaning you have factored in the effects of any taxes and fees. From a practical standpoint it may be better to avoid the technically correct answer and build some savings while paying down the debt. By building savings at the same time as reducing debt you build a cushion to use for emergencies. This way you can use the savings in the event of an emergency and not increase the debt you are trying to pay down.