How to balance paying debt vs. investing

The simple math behind paying off debt versus investing. This video is presented by Robinhood. Our sponsor has no editorial influence over how we report our stories, but their support makes videos like these possible. When you get to a place financially where you can begin to start saving, rather than living paycheck to paycheck, a big question often comes up: ”Should I pay off my debt or invest in the stock market?” There’s no simple answer, but there’s a simple rule of thumb that can help you decide what to do with this money to have the best financial outcome in the long run. The first place to look is the interest rate on your debt and see if it’s below 7%, the rate of return you can conservatively expect from investing in an index fund, like the S&P 500. If your debt — like a mortgage or a student loan — falls below 7%, it is usually mathematically more beneficial to invest in the stock market while you pay down the debt by its minimum payments. The logic being: You’ll likely earn more interest by investing than your debt will accrue in that time. Higher interest rate debt, like credit card debt, should almost always be eliminated as soon as possible, since you are statistically unlikely to see a rate of return from investing past 7 to 10% annually. And of course, investing always comes with risk. So the most secure bet is always to work toward being debt-free. Further reading: How to Prioritize Retirement Savings vs. Debt Payoff, Bill Fay https://www.debt.org/retirement/prioritize-savings-vs-payoff/ Should you pay down debt or invest?, Fidelity https://www.fidelity.com/learning-center/personal-finance/pay-down-debt-vs-invest Debt Destroyer, a US government online tool to help make a plan to eliminate debt https://finred.usalearning.gov/debt-destroyer-calculator/debt-destroyer-calculator.html Note: The title of this video has been updated Previous title: When it's okay to wait to pay off debt Subscribe to our channel! http://goo.gl/0bsAjO Vox.com