How to balance paying debt vs. investing

About this Video

• Video Title: How to balance paying debt vs. investing
• Channel: Vox
• Speakers: The transcript does not name the speaker(s).
• Duration: 00:08:08

Introduction

This Vox video explains how to decide whether to prioritize paying off debt or investing, based on the interest rate of the debt. The video uses a "7% rule" as a guideline: if your debt's interest rate is below 7%, it's generally better to invest; above 7%, focus on debt repayment. Different debt types (mortgages, student loans, credit cards) are also discussed in relation to this rule.

Key Takeaways

• The 7% Rule: If your debt's interest rate is below 7%, investing is generally mathematically more beneficial than paying down debt. If it's above 7%, focus on debt repayment. This is a rule of thumb, and individual circumstances may vary.
• Debt Types Matter: Mortgages and student loans often have lower interest rates (often below 7%), while credit card debt typically has much higher interest rates (often above 20%).
• Investment Risk: Investing in the stock market carries inherent risk, a factor to consider when making this decision.
• Emergency Fund: Before deciding between debt repayment and investment, establish an emergency fund (ideally at least $1,000).
• Mathematical Examples: The video provides examples illustrating how much faster high-interest debt can be paid off by making extra payments, compared to low-interest debt. It also compares the potential gains from investing versus the cost of high-interest debt.