Should I Invest or Pay Off Debt First?
In your 20s, bad financial decisions were a rite of passage. But in your 30s? Not so much. It’s time to stop flirting with Lifestyle Creep and start building real wealth. Step one: crush your bad debt like your gym nemesis on leg day.
You’re in your 30s now. Time’s up—kidding. While you still have time on your side, the earlier you start investing, the bigger the payoff. The benefits of getting your act together in your 30s are massive compared to waiting until your 40s, so don’t put it off.
It’s all about understanding how to tackle competing priorities to make real progress toward your bigger financial goals. Should you prioritize saving for a dream vacation, investing for a comfortable retirement, or chipping away at those student loans? The quick-and-dirty answer: you should do it all.
But bad debt comes first.
Let’s break it down.
Pay off bad debt first
It’s called bad debt for a reason.
Bad debt is any debt with an interest rate above 6-8%—think credit cards, personal loans, or even some private student loans. Why tackle it first? Because high-interest debt grows faster than most investments. If you’re paying 15% interest on credit card debt but earning 8% in your portfolio, you’re losing money.
Carrying a heap of credit card debt and making six figures? Time for some tough love. You might be dealing with Lifestyle Creep—living a lifestyle you can’t afford. If you’re earning six figures but don’t feel like you have extra money to work with, that’s your red flag.
Bad debt is a losing game, and the sooner you tackle it, the better. Our advice? Go after it relentlessly. Kind of like going to the gym—you might dread it, but once you’re back home on the couch, you’ll be glad you did.
Balancing good debt and investing
Good debt, such as a mortgage or federal student loans, typically has lower interest rates and may be tax-deductible. It's generally considered acceptable to carry some good debt while also investing, as long as you're making consistent progress on both fronts.
Prioritize maxing out any retirement contributions that offer an employer match (free money). Then, assuming you have an Emergency Fund with 3 months of essential expenses in place, you should start investing additional funds in a well-diversified portfolio.
Each month, aim to allocate 20-30% of your income to a combination of debt repayment and investing. For example, if you earn $100,000 annually, that’s $20,000 to $30,000 per year—or $1,600 to $2,500 per month. At least half of that ($800 to $1,250) should go toward paying down debt, with the rest going into a well-diversified investment portfolio.
Investing once your debt is behind you
Once your debts are zeroed out, you have a golden opportunity to accelerate your wealth-building journey. You can also upgrade your lifestyle! Here’s why we say that. For most 30-somethings, 20% of your paycheck going towards your saving and investing goals is typically the right amount.
So while you’ll need to live a little lean while you’re paying down debt, as soon as it’s paid off, you can divert that dollar amount directly to your lifestyle or to fast-track progress towards your investing goals.
So where should that 20% go? Again, prioritize taking full advantage of any employer match offered through your company-sponsored retirement plan.
With the remaining funds, it’s time to start thinking about your larger financial goals. Maybe you want to put money aside for a wedding, a big trip or buying a house someday. Remember, for any goals coming up in the next 2-3 years, you want to keep that money sitting in cash (NOT invested), and preferably in a High-Yield Savings Account.
For goals 3+ years out, investing is the name of the game. But, investing is a long-term strategy. Don't get discouraged by short-term market fluctuations–they are a normal part of the process. Stay focused on your goals and ignore the noise (and news!)
The Bottom Line
Imagine the possibilities once you're debt-free: more money for travel, a down payment on a dream home, or early retirement. It all starts with a plan—pay off that bad debt, automate your savings, and watch your wealth grow.
The sooner you start, the closer you’ll be to living the life you’ve been dreaming about.
Key Takeaways
Prioritize paying off high-interest debt before investing.
Balance investing for the future with enjoying your present lifestyle.
Automate savings and investments to ensure consistent progress.
The F. Word
Ready for some real talk on how to master your money? Pull up a chair and pour yourself a glass.
Financial Planning For 30-Somethings
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