Saving vs. Paying Off Debt in 2023: Here’s What the Experts Have To Say

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Tanja Ristic /

If you are living paycheck to paycheck and have very little money left over, you may be in the position of choosing whether to invest and save your extra money or to focus your efforts on paying down debt.

If you can choose only one option, it may actually be wiser and more cost-effective in the long run to pay down your existing debt.

The Ideal Financial Situation

In a perfect world, you’d be able to invest your money into an index fund that would guarantee a rate of return close to 16%, while your finance charge on your credit card hovered at a much lower rate. With that scenario, it would make sense to save (via investment) instead of paying down debt, because the money you invested would earn substantially more interest than the amount of interest you would pay out on your existing debts. Also, paying down your debt would be much easier and faster.

However, the reality is just the opposite. The average credit card interest rate is a substantial 23.65%, according to the latest report from LendingTree, the highest figure since tracking began in 2019. The historical annual average return on a S&P 500 index fund is about 10% per year, per Forbes. And when it comes to deposit savings rates, there’s no comparison: The current average interest rate on a 12-month CD is only 1.49% as of March 20, 2023, according to Forbes.

Paying Down Debt Is Likely the Better Choice

Logically, if you can make more money on your investments than your current debt is costing you, then it makes sense to invest your extra money instead of paying down your debt. After all, you could potentially take the money you earn from your investments, pay down your debt and have money left over. But remember, when it comes to the stock market, particular gains are unlikely to be guaranteed.

Make Your Money Work for You

And if you’re investing the money you could use to pay down debt into a CD, money market account or high-yield savings, the amount of interest you’re charged on your credit card or other debt will almost certainly mitigate any returns you manage to accrue from your deposits.

Economics professor Lucia Dunn of Ohio State University weighed in on the matter, as quoted by InCharge Debt Solutions: “For most people, debt is a separate function from investment… Investments carry risks that need to be considered,” and, if you’re considering investing, “It always makes sense to pay off the debt with the highest interest charges first.”

This point was echoed by Nina Gunderson, financial advisor and account VP at UBS Financial Services, per Fortune. “We typically do not recommend investing for someone that is carrying significant credit card debt at a high interest rate because it will only continue to build and weigh on you financially. We typically suggest that an individual start by paying down their high interest credit card debt first before evaluating other financial decisions and opportunities.”

Paying down your debt instead of investing makes a lot of sense if you think about it. If you have the choice of paying off a credit card debt with an interest rate of 23.65% or investing in products with rates of return ranging from a solid 1.49% to a riskier 10%, simple arithmetic will prove the value of paying down debt over investing. Then, once your debt is taken care of, invest all you want.

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Last updated: Apr. 17, 2023


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