Should I pay off debt before investing?

Think of paying off debt as an investment with a guaranteed return equal to the interest rate. Clearing a credit card at 24 percent is a risk-free 24 percent. Nothing in the stock market reliably gives you that, so the card wins, every time, without debate.

The line most people draw is somewhere around 6 to 8 percent. Above it, the debt is expensive enough that killing it beats investing. Below it, a mortgage at 4 percent or a car loan at 5, you are usually better off making the normal payments and investing the rest, because the market’s long-run average has been higher than that.

One exception that overrides everything: if your employer matches 401(k) contributions, contribute enough to get the full match even while paying down debt. A 50 or 100 percent match is an instant return no debt rate comes close to.

Emotionally, some people just cannot invest while owing money, and that is fine too. The point is not to optimise to the decimal; it is to not carry 20 percent debt while hoping for 8 percent returns.