Invest? Or pay off debt?

Video Transcript

One of the questions that I'm asked the most is, should I invest or focus on paying off my debt?
 
There are two questions you should ask yourself. First, how much interest are you paying? Take a look at how much your debt costs versus how much you could earn if you were to invest that money instead. If you're paying down high interest debt on things like credit cards where interest rates can easily exceed 20%, you want to focus on paying that debt down first. Paying 25% interest on a card while receiving a seven to ten return on your investments means that you're actually losing money.
 
The second question you want to ask yourself is, does my company offer a match in my retirement plan? A 401K match is essentially free money that your employer is willing to give to you as a benefit. Typically there's a minimum amount that you have to contribute first so, for example, you'd have to put in three percent first and then your employer will match with an additional three percent contribution into your plan. Whatever match you have available, it's a great deal and something that you don't want to pass up.
 
So even if you are in the process of paying down debt, it's a smart decision to contribute enough money to get all or at least part of your employer match, because really, who doesn't like free money?