Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Rachel Haig | 11-24-2009 09:36 AM

Pay Off Debt or Invest?

Morningstar's Christine Benz offers guidelines for prioritizing investment savings with paying down mortgage, credit card, and student loan debt.

Rachel Haig: I'm Rachel Haig from Morningstar.com. A big question for a lot of investors is what is the best way to use their money? If they don't have enough to do both, does it make more sense to invest or to pay off debt? Here with me to address some of these issues is Morningstar's director of personal finance, Christine Benz. Thanks for joining me, Christine.

Christine Benz: Rachel, nice to be here.

Haig: So, where should someone start if they're grappling with this decision?

Benz: One obvious starting point is if you have high-interest credit card debt. In that case, it's very unlikely that you'll earn 18% or 20% by investing in the market, so paying off that credit card debt is going to be, by far, the best return on your capital.

One other area would be setting up an emergency fund, because the worst thing would be to find yourself digging an even bigger hole by layering on more credit card debt while you're paying off additional credit card debt. So you want to carve out that emergency fund, usually three to six months worth of living expenses.

And finally, if you're earning a 401(k) match, not investing in the 401K plan is the equivalent of turning away free money.

So those should be three starting points for anyone who's wrestling with the question of whether to pay off debt or invest.

Read Full Transcript
{1}
{1}
{2}
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
{1}
{5}
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article
    Username: