Should You Pay Off Debt or Invest? Create True Financial Strength
If the last few years have taught us anything, it’s this: the economy can shift fast. Inflation, rising interest rates, job market uncertainty—none of us have a crystal ball. But we can prepare. One of the smartest financial questions you can ask yourself is:
"Should I pay off debt, or should I invest?"
And while the math can offer clues, this decision is really about putting yourself in the strongest possible financial position to weather whatever the future brings.
First, Let’s Talk About Debt
Not all debt is created equal. If you want stability, breathing room, and financial confidence, you need to understand which kinds of debt help build your foundation— and which ones chip away at it.
1. Consumer Debt Needs to Go
Credit cards, personal loans, buy-now-pay-later apps—this kind of debt often comes with double-digit interest rates and no asset behind it. It's just expensive baggage from yesterday's spending. When the economy gets tight, this is the debt that becomes overwhelming fast. It reduces flexibility and increases risk. If you carry credit card debt into a downturn, the weight of interest and payment obligations can slow your ability to recover. The sooner you can eliminate consumer debt, the stronger your position will be.
2. Car Debt Should Be Short-Term
Car loans feel manageable. But here’s the truth: cars go down in value, not up. They're a depreciating asset, and every dollar you spend on interest is a dollar you don’t get back. When you carry car debt into a financial storm, you're stuck paying full price for something worth less every day. That's the opposite of leverage. The goal should be to own your car outright—quickly. If your car payment is stretching your budget or making it hard to build savings, it's time to reevaluate. In some cases, selling the car and switching to something more affordable—even temporarily—can create the breathing room you need.
3. Home Debt Can Be Strategic
Unlike cars or credit cards, your mortgage is tied to an appreciating asset. Over time, homes tend to gain value, and you need a place to live regardless of what the market does. Assuming your mortgage rate is reasonable and your payment fits comfortably in your budget, this is the one kind of debt that doesn’t need to be rushed off your balance sheet.
Home debt is acceptable. Consumer and auto debt? Not so much.
How Paying Off Credit Cards Frees Up Your Cash Flow
Paying off high-interest credit cards isn’t just a smart financial decision—it’s a move that gives you more breathing room every single month. Let’s say you’re carrying $10,000 in credit card debt with an average interest rate of 20% APR. If your minimum payment is about 2.5% of the balance, you’re sending $250 a month just to maintain that debt. And if you’re only making minimum payments, most of that money is going toward interest, not the principal.
Now imagine wiping that debt clean. That’s $250 per month—$3,000 per year—back in your hands. You could:
• Build an emergency fund
• Boost your retirement contributions
• Pay cash for your next car
• Simply breathe easier knowing you have less financial pressure
Multiply that by a few cards and a car loan, and you can easily see how hundreds or even thousands of dollars a month could be freed up. That’s not just about improving your net worth—it’s about improving your day-to-day life. Eliminating consumer debt creates a snowball effect: the less you owe, the more you can save. The more you save, the less reliant you are on debt in the future. It’s a cycle of freedom.
The Real Goal: Financial Flexibility
Why eliminate debt?
Because when things get tough—and at some point, they will—you want options. Less debt means:
• Lower monthly obligations
• More freedom to pivot jobs, careers, or locations
• More breathing room to help others or invest when opportunities arise Debt limits choices. Cash flow creates confidence.
The fewer payments you have, the more likely you are to weather a job loss, recession, or unexpected expense without going backward.
Here’s a real story: One client came to me with nearly $30,000 in credit card and car debt. She had a decent income, but every month felt like survival. We laid out a plan— she paid off the car first, then the credit cards. Within 18 months, her cash flow opened up dramatically. When she faced a job loss a year later, she had enough margin to stay afloat without dipping into retirement. Her words: “It wasn’t just about money. It was about peace of mind.”
What About Investing?
Yes, investing is still important. Building wealth takes time and consistency. But you don’t have to choose between being smart today and building for tomorrow.
The One Non-Negotiable: Get the Employer Match
If your employer offers a retirement match—grab it. Always.
If they offer 100% match up to 4%, that’s a 100% return on your contribution. It’s free money, and even when you’re focused on getting out of debt, this is one opportunity you don’t want to miss.
The Ultimate Goal: Save 15% of Your Income
Whether it all goes into your 401(k), or a combination of IRAs, brokerage accounts, and employer plans, aim to save 15% of your annual income toward retirement.
That number is based on long-term projections for financial independence. But if you're still working on your debt, start small:
• Contribute just enough to get the employer match.
• As you pay off debts, increase your savings to 5%.
• Then to 10%.
• Eventually to 15% or more.
Progress beats perfection. And building a habit of saving—even if it starts small— creates the discipline that sets up your future.
The Ultimate Goal: Save 15% of Your Income
Whether it all goes into your 401(k), or a combination of IRAs, brokerage accounts, and employer plans, aim to save 15% of your annual income toward retirement.
That number is based on long-term projections for financial independence. But if you're still working on your debt, start small:
• Contribute just enough to get the employer match.
• As you pay off debts, increase your savings to 5%.
• Then to 10%.
• Eventually to 15% or more.
To illustrate the power of consistent saving, consider this:
If you invest $300 per month over 20 years, and earn an average annual return of 7%, you’ll have saved just over $154,000. Of that, only $72,000 is your actual contribution. The rest—more than $82,000—comes from growth thanks to compounding interest. That’s the magic of long-term investing. The earlier and more consistently you start, the more powerful your momentum becomes. Progress beats perfection. And building a habit of saving—even if it starts small— creates the discipline that sets up your future.
Mistakes to Avoid
As you juggle debt and investing decisions, here are a few common pitfalls to steer clear of:
• Skipping the employer match to pay off low-interest debt – Don’t sacrifice free money.
• Investing aggressively while carrying high-interest credit card debt – The market might average 8%, but your debt is costing you 20%.
• Stalling progress waiting for the "perfect time" – Financial planning favors momentum over timing.
Remember: You don’t have to have it all figured out today. You just have to keep taking the next right step.
Final Thoughts: Strength Over Speed
You don’t need to be perfect. You just need to be intentional. When the economy is unpredictable, the best strategy is to:
1. Eliminate consumer and car debt.
2. Hold onto mortgage debt (if it fits your budget).
3. Capture the full employer match in your retirement plan.
4. Work toward saving 15% of your income over time.
This approach builds breathing room. It protects your income and your peace of mind. And most importantly, it sets you up for stability and opportunity—no matter what the headlines say next.
It’s not about timing the market or finding the perfect investment. It’s about building a life that’s resilient to change. A life where fewer bills mean more freedom, where your savings grow while your obligations shrink, and where the future feels less overwhelming and more in your control.
So don’t stress about doing everything at once. Start where you are. Take the next step. With consistency and clarity, you’ll be amazed at how much stronger your financial position becomes. If you want help figuring out where to start, how to prioritize, or how to build a debt payoff and investing plan that fits your life—I’d love to help. Let’s get you in the strongest financial position possible.
Intermountain Wealth Management is a Registered Investment Adviser (RIA). The company manages several fee-based portfolios comprised of various equity and fixed-income investments that may include exchange traded funds (ETF’s), stocks and mutual funds. This is not a prospectus or an offer to sell any security. Please read the prospectus of any investment before you invest. The information included here is intended for education and information purposes only.