Debt vs. Investing: Where Should Your Extra Money Go?
Imagine this: You receive an unexpected bonus at work or finally have some extra cash at the end of the month. You feel a sense of relief, maybe even excitement. But then, reality kicks in. What should you do with this money?
Do you tackle that lingering debt? Or is it time to start investing for the future?
The answer is not one-size-fits-all. It depends on your financial situation, interest rates, and long-term goals. Let’s break it down.
When Paying Off Debt Makes Sense
For some, the weight of debt can feel like a constant storm cloud, making it hard to move forward. If that sounds familiar, focusing on debt repayment might be the best strategy, especially in these cases:
✅ High-Interest Debt is Holding You Back
Credit card balances and high-interest loans can eat away at your wealth. Paying them off first can save you more in interest than most investments would earn.
✅ You Need More Financial Flexibility
Reducing debt lowers your monthly expenses, giving you more breathing room in your budget. This frees up cash for future savings, unexpected expenses, or even small luxuries.
✅ You Want Peace of Mind
Debt can be emotionally exhausting. The relief of knowing you owe less or nothing at all can be just as valuable as the financial benefits.
When Investing is the Smarter Move
Now, imagine a different scenario. Instead of throwing every extra dollar at debt, you decide to invest. Over time, your money starts working for you, growing steadily. Here’s when that strategy makes sense:
✅ You Have an Employer Matching Program
If your company offers RRSP matching, contribute enough to get the full match. It is essentially free money, and no investment beats an immediate 100 percent return.
✅ Your Debt is Low-Interest
A mortgage or student loan with a low interest rate, such as three percent or less, might not be worth rushing to pay off. Historically, investments in the market have offered higher returns, meaning you could grow your wealth faster by investing instead.
✅ Time in the Market Matters
The earlier you invest, the longer your money has to compound and grow. Even small amounts invested consistently can lead to significant wealth over time.
Why Not Both?
Here is the good news. You do not have to choose just one. Many successful investors balance both strategies.
👉 Prioritize high-interest debt while still making small, consistent investment contributions.
👉 If your debt is low-interest, focus on investing more aggressively to take advantage of market growth.
👉 Reassess regularly. As your financial situation evolves, so should your strategy.
The Bottom Line
There is no perfect answer, only the one that is right for you. Whether you focus on paying off debt, investing, or a mix of both, the key is taking action.
💡 So, what will you do with your extra money?
If you are unsure how to balance debt repayment and investing, let's create a plan that fits your goals.
No matter where you are on your financial journey, the key is to take action. Whether you focus on paying off debt, investing, or a mix of both, every step you take brings you closer to financial freedom. The goal is not just to manage money but to create a future filled with opportunities and peace of mind.
Start today, stay consistent, and watch your financial confidence grow.
Kerry Rizzo