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Should You Invest When You’re in Debt?

May 14, 2019 By Bob Lotich 15 Comments

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This question came from a reader the other day. He said:

“I just watched your recent investing videos. What are your thoughts about investing while in debt? We’ve been going crazy paying off our debt, which has been great, but then I see other things that make me wonder if I’m missing out on some investing.”



There’s no black and white answer here, but I want to look at four different considerations for people in debt who are thinking about investing.

1. What interest rate are you currently paying?

For most of us, the best investment that we can make is to pay down debts with high interest rates.

For example, if you are paying 20% on your credit card, any money you contribute toward paying down that debt gets you a guaranteed, risk-free, 20% return on your money.

If you consider investing while in that kind of debt, ask yourself: Can I beat a guaranteed 20% return? If you ever find any way to invest your money and earn a guaranteed 20%, it’s most likely a scam. But if it’s not a scam, you have to tell me. I would definitely want to know about that!

The reality is that most investors are tickled pink if they can just get a 10% or 12% return on their money. That sort of return, if you can find it at all, comes with a decent amount of risk.

Remember, paying off debt is a guaranteed return on investment.

2. How long do you want to be a servant?

Proverbs 22:7 says, “The borrower is servant to the lender.” Some translations say, “The borrower becomes the lender’s slave!” This felt very, very true to me when my wife and I first got married.

We were $46,000 in debt. I felt like I was in bondage. I felt like the creditors—Chase, Mastercard, and the bank who had our car note—controlled me. Owned me. Being able to pay off that debt felt so, so liberating.

We’ve been able to make some money investing, and it’s been a whole lot of fun. But the relief that has come from paying off our debt far superseded any of the joys of investing.

3. Are you ready to learn?

When you’re ready to invest, begin by investing in your education. When I first started learning about investing, I created some mock portfolios. I pretended to make certain investments and watched to see how my portfolio would have performed. It was fun.

But the reality is this: everything I’ve really learned about investing has been when I had skin in the game. When you actually put some money in, you really pay attention. If you are waiting to pay off a lot of debt before you start investing, ask yourself this: What will it cost me to delay my education?

The lessons you learn from these investments — even (and especially) the ones where you lose money —are going to be lessons you’ll have for the rest of your life. They’re ultimately going to help you in every investment decision you make.

Though this may not be a good reason for someone in debt to start investing today, it’s something to consider. And remember, you don’t have to invest all your money to learn some of those lessons. We’ve created some videos that show you how to get started investing with very little money.

4. Are you more like the tortoise? Or the hare?

Do you remember the old children’s story about the tortoise and the hare? The tortoise and the hare were in a race. The hare was impatient, but the tortoise took his time. The tortoise won, because “slow and steady wins the race.”

Which are you? Are you impatient and easily distracted? Do you find yourself constantly jumping from one thing to the next? Then buckle down and focus on eliminating your debt. Give it everything you have and knock it out before you get distracted by the next “big thing.”

Is your investment style slow and steady like the tortoise? If you can stick with a wise investment strategy for an extended period, then you may be able to get some of the benefits of learning to invest while still making progress on your debt.

Investing while in debt: What’s your strategy?

Don’t forget, paying down your debt is a guaranteed return on investment. If you decide to start investing while you’re in debt, make sure your return will be higher and better than the interest rates you’re currently paying on your debt.

What else should a person consider when investing while in debt? Leave a comment below and let me know what I missed!

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About Bob Lotich

Bob Lotich, CEPF® is a Certified Educator in Personal Finance and has over 10+ years experience writing about Biblical personal finance and is the best-selling author of 4 books including Managing Money God's Way and has been named a top 20 social influencer in personal finance. His writing has been featured on Forbes, The Huffington Post, Yahoo Finance, CBN, Crosswalk, Patheos and others. He has been a full-time writer since 2008 and loves uncovering financial wisdom in the Bible as well as discovering the best tools and strategies to help you put more money in your pocket.

Reader Interactions

Comments

  1. Samantha says

    May 14, 2019 at 3:05 pm

    Really love your blog! Thanks for sharing with us from week to week!

    Reply
    • Vince says

      October 20, 2019 at 12:42 am

      Ok, understand your points regarding debt reduction to investment. My position however has a debt reduction plan with a small investment account that in time will be a continuation of habit. Sure, I only have $300, but it’s $300 more than in years gone by. Simply trying to create a habit of investing.

  2. Johan Najoe says

    May 15, 2019 at 8:35 am

    I like your response/advice. I however invest/save a little bit of money whilst in debt simply because it gives me a sense of self worth even if the return is not that much. It is amazing what it does to my confidence levels

    Reply
  3. Sibongile says

    May 15, 2019 at 8:57 am

    Hi Bob it’s so difficult because sometimes you don’t know where to start, when you try you just get deeper and deeper into debts

    Reply
  4. Tim Kiser says

    May 15, 2019 at 10:35 am

    Love point #1. If a company offers a 1:1 or 50% 401(k) match that would be a good reason to at least dip a toe in the water. Right?

    Reply
  5. Frugal Fortunes says

    May 16, 2019 at 5:13 pm

    For the average person, paying off debt is the way to go… and start with the highest rate debt. Although, for the more savvy, debt is a great way to leverage returns. Locking into a home equity line of credit at 4% (30 years) and going long equities (approx. 7% long-term return) is a solid approach. Albeit, that’s if you can meet the monthly payments… and the growing dividend income could end up eventually covering all of the payments.

    Reply
  6. Sharon Rausch says

    May 20, 2019 at 5:21 am

    Thank you for sharing this information. Oh great article amazing hint.

    Reply
  7. Ana says

    May 21, 2019 at 1:48 pm

    >If you consider investing while in that kind of debt, ask yourself: Can I beat a guaranteed 20% return?

    And that answer is always going to be an unequivocal “no”. If you have credit card debt, pay it off ASAP!

    Reply
  8. Anna Burkart says

    May 23, 2019 at 2:27 am

    Thanks For Sharing nice information…

    Reply
  9. Marina Smith says

    May 24, 2019 at 2:10 am

    I would not invest if I’m in debt. But I could consider to investing with a budget plan if I get enough return. Meanwhile I will wait until I have enough money to invest. Because I have many other priorities with paying debt monthly. So I would wait for the time first.

    Reply
  10. Sharon Rausch says

    May 25, 2019 at 5:43 am

    That was a great article thank you so much.

    Reply
  11. Sandeep singh says

    June 2, 2019 at 1:00 am

    Loved how you explain the four points in depth. Thanks for sharing.

    Reply
  12. Deepti Sharma says

    June 4, 2019 at 2:34 am

    thanks for sharing this information , this information will help the readers. manage money is very important , pay off debt,and save more i like this tips. this tips helps the person………..

    Reply
  13. Sam Harris says

    June 5, 2019 at 2:06 am

    This post is very helpful and informative. I am really happy.

    Reply
  14. Vincent says

    November 30, 2019 at 10:01 pm

    Very good stuff but I can say I do manage money very well

    Reply

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Welcome!

Bob Lotich

Hey! I’m Bob Lotich. Jesus follower, husband, dad, best-selling author, CEPF®, and money nerd.

This site contains the lessons I learned on my journey from being a stingy, debt-ridden fool, to being able to give more than I ever dreamed, having a paid off house by age 31, and peace with money in the process. Find out more or join us here.

Related Posts

  • Why Money Doesn’t Solve Most Money Problems
  • Free Debt Snowball Spreadsheet (for 2021)
  • 7 Easy Money Moves You Can Make Today
  • 5 Ways To Get Started Investing With Very Little Money

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