Money·3 min read

Should I Pay Off Credit Card Debt or Invest for Retirement?

Choosing between paying off debt and investing for retirement
Allison Kerek
August 3, 2020

The Story

Getting rid of credit card debt and investing for retirement are both smart ways to set yourself up for long-term financial health. Meaning you might have some financial FOMO when deciding whether to focus on option A or B.

So tell me how to make the right choice.

Trick answer...C: build up your emergency savings first. That’ll protect you from falling further into debt if you get hit with an unexpected expense. After that, run the numbers to see whether doubling down on debt or adding “shareholder” to your resume makes the most sense.

And by “run the numbers,” you mean...

Check how much interest you’re paying on your credit card balances. Psst...don’t be surprised if it’s a lot. Then compare that to how much your investments could grow each year. Based on the S&P 500 index’s historical performance, you can assume an average of about 10%. Key word: average. Some years, stocks have done way better than that. Other years, it’s been a lot worse. So do this comparison with your eyes on the long term.

Related: How to Read Your Credit Card Statement

What if my credit card APR is higher than that?

Then you’ll probably want to prioritize paying it off. Think of it this way: if you have credit card debt with a 16% interest rate, you’d basically get 16% in interest savings by eliminating those balances. That’s a good deal.

Bonus: saying ‘bye’ to high-interest debt can also give your credit score a bump. That’s important if you want to say ‘hi’ to a new car or house down the line.

So when do I start investing?

ASAP. The longer your money is in the market, the more time it has to grow – thanks to what’s known as “compounding.” Aka when your money starts making its own money. If you think you can earn more by investing than you’ll save by paying off debt, move investing to the top of your to-do list. 

Reminder: there’s always some risk with investing, and returns aren’t guaranteed. But there are things you can do to set yourself up for success. Like contributing to the right type of account, diversifying your investments, and trying to stay calm (and keep your long-term goals in mind) when the market starts to get bumpy.

Related: How to Tell Your Money Where to Go

Can you ever pay off debt and invest at the same time?

Yes. You can always split any excess cash between extra debt repayments (read: anything over the minimum) and investing. That’s an especially good idea if you’re getting a little help.

If your company matches a portion of your retirement contributions, try to invest enough to get the full amount. Because no one likes missing out on free money. On the other hand, if you qualify for a credit card with a 0%-interest promotion, use that time to wipe out as much debt as you can.


When you’re torn between two big financial moves, figure out how each one would impact your wallet. Then do whatever will put Future You in the best position. And yes, sometimes that means multitasking.

Want more info about saving for retirement? Get it here.

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