Final answer:
When deciding whether to pay off debt or invest, consider if the expected investment return is higher than the debt interest rate. Compound interest can substantially increase investments over time, making it beneficial to save a portion of your income for retirement early on.
Step-by-step explanation:
The decision to pay off debt slowly and instead route money to investments depends on comparing the interest rate of the debt to the expected return on your investments.
Financial advisors often emphasize the importance of saving for retirement early, highlighting the benefits of compound interest. For instance, if a debt carries a 4% interest rate and you can reasonably expect a 7% return from your investments, it makes sense to invest rather than pay off the debt quickly since the investment return exceeds the debt interest.
However, it is crucial to maintain a balanced approach. Paying yourself first by saving at least 15% of your income for retirement is a recommendation by many financial planners. This approach ensures you build a nest egg that can grow through investment, ideally at a rate outpacing inflation. In contrast, paying down a mortgage or other debt more quickly can save you significant amounts of interest, ultimately reducing the total amount of money paid overtime.