A decision with different qualitative and quantitative considerations.
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When you're thinking about paying off your debt, it's important to look at both the practical and emotional sides.
Practical:
First, let's talk numbers. If you have a mortgage (assume $100,000 for simplicity), paying it off sooner rather than later can save you a lot in interest. But if you decide to invest that money instead, your portfolio might grow more than the interest you owe on your debt. It's a bit of a balancing act.
However, I’ll caveat the above by saying that if you have high-interest personal debt (e.g. anything over 7%), I would prioritize paying that off first. The reason is because you are paying high-interest personal debt off with post-tax money. It won’t be easy to beat that through investing in the short-term. You’ll need to earn at least 10%+ on your investments pre-tax to make sense over paying off your high-interest debt post-tax.
Emotional:
Now, let's address emotions. The feeling of knowing that you don’t owe the bank anything is hard to assign a value to. Having less debt can make you feel more financially confident and allow you to take greater risks in your career (which may pay off exponentially). Overall, we believe being in a mentally healthy place is truly more important than earning another $10,000 in your portfolio.
What’s the right answer?
The ideal solution likely lies somewhere in between. Dividing your paycheck between investing in your portfolio and paying off debt can strike a balance from both a practical and emotional perspective. It enables you to build a nest egg while simultaneously reducing your debt.