People who find themselves with extra cash ca🔴n face a dilemma.♕ Should they use the money to pay off—or at least, substantially pay down—that pile of debt they’ve accumulated, or is it more advantageous to put the money to work in investments that will grow for the future? Either choice can make sense, depending on the circumstances.

Investing vs. Debt Repayment

Investing is a way to set money aside for the f🉐uture, ideally in an investme💟nt vehicle—such as stocks, bonds, or mutual funds—that will grow in value over time.

Debt, on the other hand, represents money that you’ve already spent and that a lender is charging you interest on. Left unpaid, that debt will grow and grow, with interest charges adding to your balance and incu🀅rring interest charges of their own.

The Case for Investing

As a general rule, if you can earn more interest on your money by investing it than your debts are costing you, then it makes sense to invest. For example, if you have a mortgage with an interest rate of 5% and a stock market index fund that is returning 10% a year, you’ll come out aꦍhead by investing your extra🐻 cash in the index fund.

On the other hand, if you have credit card debt at 20%, you would be better off putting your extra cash toward paying that debt rather than investing it in the index fღund.

Unfortunately, it isn’t always that straightforward. Investments can be volatile. That index fund might be up 10% this year but down 10% next year. While there are investments that pay a guaranteed interest rate, such as bank certificates of deposit (CDs) and U.S. Treasury bills, they tend to have low rates of return that rarely exceed the interest rates charged by credit card companies and other lenders.

Another factor is more psychological: your 澳洲幸运5官方开奖结果体彩网:risk tolerance. If you are comfortable taking the gamble that your investments will bob up and down with the markets, sometimes rising in value and sometimes losing value, then you are a better candidate for investing than someone who would lie awake at night worrying about what the market might do tomorrow.⛎

The Case for Paying Down Debt

There are several good arguments for choosing to pay down debt rather than investing. The first, as mentioned above, is that you might come out ahead if your debt carries a relatively high interest rate. That’s especially true with credit card debt. The average interest rℱate on credit cards tracked in Investopedia’s c🐬redit card database was 24.20%, 𓂃as of March 2025. Few investments can m🐲atch that rate of return.

Another solid reason to pay down debt involves your 澳洲幸运5官方开奖结果体彩网:credit score—a number that can be 🧜very important if you want to borrow money in the future, such as for a mortgage or a car loan. Having a low credit score can mean paying higher interest rates if you can get a loan at all.

Your credit score can even affect other aspects of your life, such as the premiums you’ll pay for insuran💯ce, whether a landlord will rent to you—and even whether an employer will hire you.

Credit scores are based on several factors. In the case of the most widely used one, the FICO score, your credit utilization ratio—the amount of credit you are currently using compared to how much credit you have available to you—accounts for a significant portion of your score.

So, for example, someone whose credit cards are all maxed out is likely to have a considerably lower score than🌞 someone whose credit cards have been paid off or at least paid down to a more reasonable level.

😼༺Paying off debt, particularly if you have a lot of it, can be a smart move for that reason alone.

As with investing, psychology comes into play here, too. If you’re losing sleep over your debts, then you could be better 🦂off repaying them—even if you might get a better return on your money by investing.

The Case for Doing Both

Paying down debt versus investing doesn’t have to be an either/or decision. You can, and sometimes should, do both. For example, if you don’t already have an 澳洲幸运5官方开奖结果体彩网:emergency fund, you might want to use some of your 🅠money to create one, whi🔥le using the rest to pay down your debts.

A good place to keep your emergency fund is a low-risk and highly liquid (that is, easily and quickly accessible) investment, such as a 澳洲幸运5官方开奖结果体彩网:money market mutual fund.

How to Pay Off Debts

If you’ve dౠecided to use your spare cash to pay off your debts, then the next question is how to go about it. If you have enough money to🍌 cover everything you owe, the answer is pretty simple: Just pay it off. However, if you don’t have that much cash to spare, then you will need to prioritize.

Generally speaking, you’ll get out of debt faster if you start by paying off your debt with the highest interest rate first and working your way down from there. For example, if you have balances on✅ two credit cards, one that’s charging you 20% and th🀅e other charging 15%, tackle the 20% balance first.

In the case of credit card debt, you may also have another option: Transfer your balances to a card with a lower interest rate, then pay them off. Some 澳洲幸运5官方开奖结果体彩网:balance transfer credit cards offer promotional periods of six to 18 months when thꦺey charge 0% interest, which can help you pay your balance down faster since you won’t be incurring additional interest.

Still, another option is a debt consolidation loan from a bank or other lender. The way that works is that you bo🐭rrow✱ enough money from the lender to pay off your other debts.

Now you just have one debt to worry about, ideally with a lower interest rate than your prior debts. You can then use your extra money to begin paying off that loan. Investopedia also publishes ratings of 澳洲幸运5官方开奖结果体彩网:the best debt consolidation loans.

If You’re Really Deep in Debt

If your spare cash won’t begin to make a dent in your debt, then you may need to consider some more drastic measures. First, if you’re having trouble making even the minimum monthly payments on your credit cards or other loans, contact your lender. It may be willing to reduce your minimum paymen🦹t or the interest rate✨ on your debt.

A second option is hiring 澳洲幸运5官方开奖结果体彩网:a reputable debt relief company to handle negotiations for you. This is an area that’s rife witꦛh scams, so make sure you know who you’re dealing with.

As the Federal Trade Commission notes, “These operations often charge cash-strapped consumers a large up-front fee, but then fail to help them settle or lower their debts—if they provide any service at all.”

The Bottom Line

Having some extra cash is an enviable situation to be in. Whether to invest that money or use it to pay down you♑r debts is a decision that only you can make. But either use is better than simply sp𒊎ending it. Whichever course you take, you’ll be in a better financial situation than you were in before.