A question I’ve been asking myself a lot lately is should I pay down my debt or invest my extra money each month?  For folks with high interest credit-card debt, the choice is simple - pay off the debt.  But here’s the debts that I current have:

  • Mortgage at 5.55%
  • Two car loans, each at 5.29%
  • Credit card debt at 0%

Long-term investments into solid mutual funds should net 9-10% average, give or take.  Naturally that assumes long term, and a well-balanced portfolio.  So my dilemma is that if I pay down my debt sooner, I’m actually missing out on money - I’ll save the 5.55 percent only to miss out on making 9 or 10%.

Debt is evil

Lots of folks take on this mindset, and it’s hard to blame them.  I’ve been in ugly debt situations before, and it’s not fun.  Being debt-free would be a truly free feeling, and something that I would love to experience.  Also no matter how stable a job seems, you never really know if you’ll keep making as much as you do now.  Currently I make what I consider to be excellent money.  Hopefully my annual income will continue to rise, but I don’t know that for sure.  After all, I don’t have a fancy college education to fall back on.  By eliminating my debt, I’ll reduce my monthly obligations, and allow myself to live with less money each month.  That’s a pretty nice safety cushion.

Early retirement beckons

If I forego paying off my debt early,and invest smartly, I greatly increase my chances of being able to retire early.  Assuming my job situation works out well, the high monthly obligations won’t be a problem.  Any spare dollar will go to investments, and compound interest will work it’s magic.  Once my debts are paid off the long way, all that extra money can go towards investments as well.

The choice is not easy

I still don’t know which path I will follow.  The choice is difficult, and there’s no clear answer.  For the time being, I’ll invest slowly and pay off my 0% credit card debt ( since the 0% doesn’t last forever ).  Once that’s gone, I’ll have to sit down and decide whether I want to be debt-free or have a big fat portfolio.

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