Should You Pay Down Debt or Invest?

September 26, 2025

Trying to decide whether to pay off debt or put extra money into investments can feel like solving a riddle. The common advice is to simply compare your debt’s interest rate with the expected return on your investments and choose the higher number.

Sounds simple enough—except it isn’t. Predicting investment returns is far from an exact science, even for professionals. So how can you make a confident choice without relying on guesswork?

The “Rule of 6%”

One helpful guideline is what we’ll call the rule of 6%. Here’s how it works:

●     If your debt carries an interest rate of 6% or higher, it usually makes sense to focus on paying it down first.

●     If your debt has an interest rate below 6%, investing that extra money may be the smarter move.

This rule assumes you’re at least 10 years away from retirement, investing in a tax-advantaged account (like a 401(k) or IRA), and holding a balanced portfolio (roughly 50% stocks).

The idea is simple: debt with higher interest rates is tough to beat, even with long-term investing. But when interest rates are lower, there’s a good chance your investments could outpace the cost of holding that debt over time.

Adjusting for Your Situation

Your personal investment mix matters.

●     More conservative investors (less stock exposure) might use a slightly lower threshold since long-term returns are expected to be lower.

●     More aggressive investors (higher stock exposure) might use a higher threshold because their investments have greater potential to outperform debt costs.

In short, the more risk you’re comfortable taking on the investment side, the more flexible you can be about holding lower-interest debt.

What to Do First

Before applying the rule of 6%, make sure the financial basics are covered:

●     Always pay your minimum debt payments on time.

●     Build an emergency fund to cover unexpected expenses.

●     Pay off high-interest credit card debt—that’s almost always priority number one.

●     Capture your employer’s retirement match if available—it’s essentially free money.

Only once you’ve checked these boxes does it make sense to ask whether extra dollars should go toward debt reduction or investing.

Putting It Into Practice

When you’re ready to apply the rule, start by targeting your highest-interest debt first. Once that’s paid off, move down the list in order of interest rate. Meanwhile, continue to grow your retirement investments—especially in tax-advantaged accounts.

The Bottom Line

The choice between paying off debt and investing doesn’t have to be overwhelming. With the rule of 6%, you can use a simple, research-backed guideline to help steer your decision. It won’t remove all the complexity, but it does provide a clear starting point—and often, that’s all you need to move forward with confidence.

Sources:

https://www.fidelity.com/learning-center/personal-finance/pay-down-debt-vs-invest

Disclosure:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.