Investors face this dilemma of whether to pay down debt with excess cash (e.g. Bonus, salary increase & other windfall) or invest that money to turn it into even greater amounts of wealth. If you pay off too much debt and reduce your leverage, you may not be able to garner enough assets to retire. Conversely, if you’re too aggressive, then you may end up losing everything. In order to decide whether to pay down a debt or invest, you must consider your best investment options, risk tolerance and cash flow situation.
Pay Down Debt or Invest?
All debt is not equal. The type of debt you have can play a vital role in the decision making of whether to pay it off as soon as possible or put your money toward investments.
From a numbers perspective, your decision should be based on your after-tax cost of borrowing versus your after tax-return on investments. Suppose, for instance, [...]