NEWSLETTER
Xerxes Nabong, CFP®, CDFA®
Philip M. Maliniak, CRPC®
Nicole Brown-Griffin, CFP®, CDFA®, EA
Aaron Petty, Client Associate
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Wealth Avenue March 2026 Newsletter: To Save or Pay Down Debt?
Cliff Notes Version
When deciding whether to pay down debt or invest, there are two ways to approach the decision: the math and the emotion. Mathematically, investing often wins over long periods because of compounding growth. Emotionally, many people value the peace of mind that comes with eliminating debt. The right answer is often a balanced approach — continuing to invest for long-term growth while managing debt in a way that supports your financial comfort and flexibility.
To Save or Pay Down Debt?
This is one of the most common conversations we have with clients. Questions often sound like this:
- Should I make extra payments on my mortgage?
- Should I aggressively pay down my student loans?
- Should I invest instead?
- Should I pay cash for a vehicle or finance it?
- Should I use savings to eliminate debt or keep my investments working?
- Should I pay off my house before I retire?
- If I have extra cash each month, should it go toward debt or investments?
When this topic comes up, we often explain that there are two ways to answer the question, a mathematical answer and an emotional one.
More often than not, we find ourselves discussing the emotional side of the decision, sometimes with less attention given to the math. Both matter. Financial decisions should make sense on paper, but they should also align with how someone feels about risk, debt, and long-term financial security.
Before looking at specific types of debt, it helps to understand the power of long-term compounding.
The Cost of Waiting to Invest
If $100,000 is invested and earns an average 8% annual return, the growth over time can be substantial. After 20 years, your $100,000 grows to about $466,000. After 25 years, your portfolio value increases to roughly $685,000, and after 30 years you cross the $1 million mark at approximately $1,006,000.
The difference between 20 and 30 years is more than $540,000. This illustrates why time in the market is so powerful. Waiting to invest while aggressively paying down lower-interest debt can significantly impact long-term wealth accumulation.
Another way to think about this is through monthly savings. If you opted to pay down your home with the $100,000 instead of investing it upfront, here’s what you would need to save consistently to reach similar outcomes:
- To accumulate roughly $466,000 over 20 years at an 8% return, you would need to invest about $800 per month. Over that 20-year period, the total amount invested would be approximately $192,000.
- To reach approximately $685,000 over 25 years, the required monthly investment would be around $770 per month. Over 25 years, the total out-of-pocket investment would be about $231,000.
- To reach roughly $1 million over 30 years, you would need to invest about $670 per month. Over the full 30 years, the total amount invested would be approximately $241,000.
Starting earlier allows your investment growth to do more of the heavy lifting, reducing the amount you need to save each month while still producing significantly larger long-term outcomes.
Mortgage Payments vs Investing
Many people naturally want to pay off their home as quickly as possible. Owning a home outright can create a strong sense of financial security. In practice, we are generally comfortable with small incremental extra payments toward a mortgage, especially for younger households. However, when considering compounding investment growth, along with potential tax advantages from retirement accounts, we often lean toward prioritizing consistent investing for long-term growth while making modest additional mortgage payments.
Another important factor is liquidity. Money invested in brokerage accounts or retirement plans can often be accessed, repositioned, or used for opportunities. Equity in your home is far less flexible and typically requires refinancing, selling, or borrowing against the property to access.
Balancing both strategies can allow clients to build home equity while still allowing investments the time needed to compound.
Student Loans: Pay Off or Invest?
Consider a $100,000 student loan at 6% interest with a 10-year repayment period.
- Monthly payment: about $1,110
- Total payments: ~ $133,200
- Total interest paid: ~ $33,200
If the same $100,000 were invested at a 6% return for 10 years, it would grow to about $179,000. That represents roughly $79,000 of investment growth compared with about $33,000 of loan interest paid.
Another way to look at it is through monthly investing. To reach $179,000 in 10 years at a 6% return, someone would need to invest about $1,105 return, someone would need to invest about $1,105 per month This is nearly identical to the $1,110 student loan payment, illustrating the financial tradeoff.
If the investment earned 8% instead of 6%, that same $100,000 would grow to roughly to $216,000. That’s $116,000 of investment growth versus about $33,200 in loan interest.
The key distinction is that investments can continue compounding, while loan payments simply eliminate a liability.
Why Many People Still Prioritize Paying Off Their Home
Even when the math favors investing, many people still prioritize eliminating their mortgage.
Common reasons include:
- Peace of mind from owning their home outright
- Reducing monthly expenses before retirement
- Improving long-term cash flow
- Past financial experiences that create a desire for stability
Financial planning is not purely mathematical. It also involves aligning financial decisions with comfort, confidence, and lifestyle goals.
What If You’re Already Debt-Free?
Another question we hear is whether it makes sense to take on debt, particularly for purchases like vehicles. Many people prefer to pay cash for a car. While that simplifies things, it is helpful to consider the broader financial picture. Cars are depreciating assets. Investments are intended to be appreciating assets. If borrowing costs are relatively low, keeping capital invested while financing a vehicle can allow investments to continue compounding while the loan gradually disappears. In that scenario you are comparing a loan that goes away over time with invested dollars that may continue compounding long after the loan ends.
It is also important to consider taxes. If someone withdraws money from a tax-deferred account such as an IRA to pay cash for a vehicle, the withdrawal may create taxable income. In some cases, significantly more than the purchase price must be withdrawn to cover both the purchase and the taxes.
Because of this, maintaining invested capital and taking smaller distributions over time can sometimes be more efficient.
Tax Considerations Matter
Where the money comes from to pay off debt can also change the equation.
If funds come from tax-deferred accounts like IRAs, withdrawals are generally taxed as ordinary income. If taken before age 59½, they may also trigger a 10% early withdrawal penalty.
For individuals approaching retirement, large withdrawals can also affect Medicare premiums through IRMAA. Even though Medicare begins at age 65, premiums are based on income from two years earlier, meaning decisions made in the early 60s can influence healthcare costs later.
These tax considerations are an important part of the overall strategy.
How We Think About It
At Wealth Avenue, we typically evaluate:
- The interest rate of the debt
- The expected long-term return of investments
- Tax implications of both debt and investments
- Opportunities to invest in tax-advantaged accounts
- Cash flow flexibility and liquidity
- Your personal comfort level with debt
Often the optimal solution isn’t choosing one or the other. The most effective strategy is typically balancing debt reduction with consistent investing, particularly when those investments can benefit from tax-efficient growth.
Final Thought
Debt elimination can feel like progress. But the compounding power of invested dollars over time is one of the most powerful tools for building wealth.
Every dollar has a role in your financial plan. The goal is positioning those dollars where they can create the greatest long-term impact.
Your Team at Wealth Avenue,
P.S. Our practice continues to grow through relationships built on trust and intentional planning. We’re currently welcoming new clients who value thoughtful guidance and longterm collaboration. If someone in your life has recently changed jobs, is approaching retirement, received an inheritance, or simply wants a clearer financial roadmap, we’d be glad to connect. We serve clients from our offices in Virginia Beach, Scottsdale, and Newport Beach, and also work with many families and businesses virtually.
One Final Read – Your Emergency Fund
One risk we often see when people aggressively pay down debt is that they sometimes do so by draining their emergency savings.
While eliminating debt can feel productive, it’s important to make sure you still maintain adequate liquidity for unexpected expenses. Without a financial cushion, a job loss, medical bill, or home repair can quickly force someone back into higherinterest debt.
Morningstar recently published a helpful article ranking potential sources of emergency cash from best to worst. Not surprisingly, the most favorable options tend to involve assets you already control, while the least desirable options often involve highinterest borrowing.
The article below provides a helpful framework for thinking about where emergency funds should come from if unexpected expenses arise.
*The hypothetical examples are for illustrative purposes only. It is not a prediction or guarantee of actual results, nor does it intend to represent the performance of any specific investment product. It does not reflect any charges, fees, taxes or other expenses which would cause actual performance to be lower. The rates of return in these examples are hypothetical and investments that have the potential to provide greater return will have greater associated risks. Past performance is no guarantee of future results.
Jun. 2, 2025
By Christine Benz of Morningstar
