This is one of the most common financial planning questions... and the truth is, the right answer depends entirely on your goals, financial situation, and comfort with risk.
Below, we’ll walk through a couple of scenarios and highlight the key factors to consider.
1. When Your Top Priority Is Improving Cash Flow and Net Worth
If your main objective is to boost long-term net worth, the decision often comes down to a simple comparison:
the interest rate on your debt vs. the projected return on your investments.
Example:
- Mortgage rate: 6%
- Projected investment return: 4%
In this case, putting extra toward the mortgage may make more sense because the guaranteed “return” from paying down a 6% debt outweighs the expected 4% investment return.
Flip it around:
- Mortgage rate: 4%
- Projected return: 6%
Here, investing the extra dollars may be more beneficial because your money is expected to grow faster than the cost of the debt.
This same principle applies to other forms of debt—car loans, credit cards, or student loans—particularly when your goal is improving cash flow or building net worth.
Higher interest rate = higher priority to pay down.
2. When Your Priority Is Lifestyle-Oriented (Not Numbers-Based)
Now consider someone nearing retirement who already has a strong savings foundation and wants more peace of mind entering retirement debt-free. For them, even if the math suggests investing might yield more, accelerating the mortgage payoff aligns better with their personal goals.
In situations like this, the emotional and lifestyle priorities outweigh the numerical analysis.
3. Don’t Overlook the Emotional Side
Money decisions aren’t purely mathematical. Debt creates stress for many people—sometimes enough to affect sleep, relationships, or overall well-being. If having debt feels like a heavy weight, paying it down faster can offer emotional relief that’s just as meaningful as financial gains.
Risk tolerance plays a huge role here. Some people prefer certainty (debt elimination); others are comfortable with market volatility in exchange for higher potential returns. Neither approach is wrong. It’s about what helps you feel more secure.
Bottom Line: It All Comes Down to Your Goals
When deciding between paying extra toward debt or investing, consider:
- Your financial goals (net worth, cash flow, retirement readiness, peace of mind)
- Risk tolerance
- Interest rates on your debt
- Projected investment returns
- The remaining life of the asset tied to the debt
There’s no one-size-fits-all answer. The best decision is the one that fits your priorities.
Together, we can work to keep you on-track toward your financial goals.
Request a consultation to learn more.
Read more articles by Ryan Johnson