5 Reasons You Shouldn’t Pay Down Debt

As much as no one enjoys living in debt, the amount of people who can boast that they’re debt free is very few. One could arguably state that about half the American population lives in debt. Now everyone is trying to be debt-free one way or another however wanting to get out of debt and actually being debt-free are two different things. However, have you ever asked yourself is if paying down your best is the best strategy to employ for your money? Well, let me share with you a few situations where paying down debt may not be advisable!

Reason #1: Your loan interest rate is lower than potential investment ROIs

Generally, if your investments generate higher interest returns on your money than the cost of your debts, you should refrain from paying down your debt beyond their minimum payments. For instance, if the interest rate on your mortgage is 5%, and let’s say you find an index fund that is generating a 10% return per year, you’ll come out ahead by investing your extra cash in the index fund.

However, if your debt is at 20%, it’s better to pay down that debt as soon as possible. Although, it has to be said that its investments don’t always provide the same return year over year so this decision to pay off debt or invest will change sometimes even by the day. For example, the…