Personal finance Q&A: Should I pay off debt or invest?

Personal finance Q&A: Should I pay off debt or invest?

What's the smartest thing to do first: pay down my debt or begin investing?
Aug 24, 2010

When it comes to investing, nothing is more important than when you begin, says Fritz Wood, CPA, CFP, a veterinary financial planner and owner of H.W. Wood Consulting in Lake Quivira, Kan. “Please start now!” he says.

But before you rush off to build your portfolio, consider this: When you’re paying off debt, you earn the rate you would have otherwise paid. So, for example, if you pay off an 18 percent credit card, you earn a guaranteed, risk-free 18 percent. “If you can beat that rate, call me,” Wood says.

On the other hand, federal student loans charge 6.8 percent. Can you do better than that on the market? Probably. While not risk-free or guaranteed, the U.S. stock market has clocked average annual gains of 10 percent to 12 percent over the past 84 years (starting in 1926—and including the Great Depression). “I hate to see people paying off student loans early at the exclusion of beginning their investing career,” Wood says.

So if you’re free and clear of high-interest credit card debt, Wood’s advice when it comes to investing is: Just do it. “Have a dollar amount subtracted from your paycheck every pay period to put toward your investments,” he says. “I recommend 10 to 20 percent of your take-home pay. Financial independence is worth it.”

Hot topics on dvm360

Dog of Dallas Ebola patient will not be euthanized, authorities say

Health officials have quarantined and will monitor dog and amid concerns surrounding deadly virus.

Video: How to perform a belt-loop gastropexy

Prevent GDV in your at-risk patients with this simple technique.

Stretch your skills to earn more in veterinary practice

Finding new tasks could be the key to generating more income for your practice—and boosting your pay.

Veterinary community stunned by Sophia Yin's unexpected death

Prominent veterinary behaviorist died of suicide Sept. 28.

Study shows sustained salary slump for veterinary support staff

Since 2009, technicians paid by the hour have experienced a bump in pay, but pay for other team members has stayed stagnant, according to data from the 2014 Firstline Career Path Study. Here’s a look at changes in team pay from 2009 to 2013.