Should You Pay Down Debt or Save More Money?

by | Sep 8, 2023 | Videos

Is it better to aggressively pay down debt or just make the minimum payments and save/invest your money instead?

This personal finance topic is constantly debated. There’s no one size fits all because everyone’s situation is different. However, there are some important considerations to be made when deciding to pay down debt or save it instead.

In this week’s video, Casey explains what YOU NEED to pay attention when making this decision for yourself. Tune on in if this is something you struggle with.

Show Notes

Does Paying Down Debt Count as Saving Money? – Mullooly Asset Blog

Why Increasing Your Savings Rate is So Important – Mullooly Asset Show

Should You Pay Down Debt or Save More Money? – Full Transcript

**Click here for a full downloadable PDF version of this transcript**

Casey Mullooly: Should you pay down debt or save and invest your money? Keep watching to find out.

Welcome back to the Mullooly Asset Show. I’m your host, Casey Mullooly. Happy to be back with you for this week. And that is a good question, should you pay down your outstanding debt or save and invest your money and hopefully watch it grow?

There’s a couple different ways or things that you should think about when making this decision, and I think it’s going to be a pretty timely topic, especially if you have outstanding student loans.

We’re recording this in September of 2023, and for the first time in about three years, student loan payments are supposed to start again in October. So you might be thinking through this decision and here are some things to consider.

The first thing is the interest rate that’s attached to your debt. If it’s credit card debt, it’s probably got a pretty high interest rate, maybe 20, 25%. You’re going to want to make that a priority and pay that down ASAP, as soon as possible.

You don’t want to let credit card debt compound because it can get bad pretty quickly. But if you, let’s say, took out a mortgage to buy a house and you have a low mortgage rate of 3, 3.5%, that’s going to be less of a priority and maybe you just make the minimum payments on that.

The next thing to consider is, the fancy way of saying it is opportunity cost, but what that means is where else could your money be going?

It needs to be considered nowadays because with where interest rates are, online savings accounts, short-term Treasury bills, and some CDs are paying around 5%. So if you have debt with an interest rate of 3, 3.5% and you can take basically a very minimal amount of risk, very low risk in a savings account and get 5% for your money, well, you might want to put more money into your savings account where you’re going to earn money.

The next thing to consider is your personal preference. You can do both. You can pay down debt and save and invest money. You can do it at the same time, but you have to be intentional with where your dollars are going. And that is, like I said, personal preference. You have to do what you’re comfortable with.

The last thing I’ll mention on this topic is that saving and investing money and pay down debt, they’re not the same thing, but they both have a positive impact on your net worth. They both increase your net worth just in different ways. Saving money or investing that money increases your assets while paying down debt decreases your liabilities.

Assets are what you own. Liabilities are what you owe. But owing less in the future isn’t the same as having that money on hand and being liquid and being able to use it for other things.

So they both increase your net worth statement. Net worth is assets minus liabilities, what you own minus what you owe. And this is why we recommend everyone should keep a personal cash flow and balance sheet. This way you can see the progress that you’re making towards these goals. You can see how much your assets are increasing and how much your liabilities are decreasing.

So that is the message for this week’s episode. Thank you as always for tuning in. We’ll be back with you next week.

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