When you come into money, do you pay off debt or invest? No matter which option you choose, take the time to think it through, make a plan and then execute it.
Now let's assume investment returns of 8%. If you are in a marginal tax bracket of 22%, that makes the effective cost of your debt 3.12%, as compared to an after-tax return on investment of 6.24%.Clearly there is the risk of comparing a certain debt cost versus an uncertain investment return, so be very careful if you take this approach.
The decision to pay off debt or invest doesn't have to be an either-or decision. Why not try to do both?You save money on the interest expense, but you also get the money invested. This is a particularly good option when there aren't enough funds to completely erase the debt.
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