Why paying off your debt as quickly as possible might not be the best idea for everyone

August 16, 2013
It’s safe to say that we all agree that debt is a bad thing and it should always be at the top of the list to pay it off. However, it has drawn much debate as to how quickly it should be paid off if the rest of your financial house is not in order. Perhaps it is indeed the best idea to pay off your debt as soon possible, but there are several factors to consider before making the decision. Everyone’s individual financial situation is unique so it is important to evaluate your goals on an individual basis and take these factors in to consideration at the same time. Trust me, I have these conversations with friends all the time. 
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Here are a few things that you may want to consider before you start attacking your pile of debt.

Prepared for an Emergency?

It is often times referred to as a rainy day fund. If you don’t have one, it is a good time to start building up a stockpile of savings in the event of something unforeseen happening. Many financial advisors recommend having at least 3-6 months of expenses available in cash in order to cover you in the event of lost wages. This is one example of a place where your money will be well “spent” instead of paying off your debt.  I had to make sure that mine was healthy amount before I left my job.  


Is Your Nest Egg Empty?

If you aren’t at a bare minimum contributing to your  RRSPs or 401k fund, your money may be better used towards retirement than that of debt payments. Additionally, there are multiple other types of retirement accounts in addition to a RRSP/401k that you can be contributing to. Many of the tax breaks as well as the time value of money will end up making your money grow at a quicker rate than the interest on your debt.

College Fund, Goals, etc.

There are multiple other things that can be intrinsically more valuable to you than paying off your debt.  An example of such a thing is a college fund for your children. Although this is in no way earning you a monetary return on your investment, it is most likely extremely important to you to have your children get a proper higher education. You may have other goals that are important to you that require you to place them in a higher category than paying off your debt immediately.

Although these are a few examples of places where your money may be better spent, the fact of the matter is that there are many other viable options for either investing or spending your money that may be far more important to you than paying off your debt immediately. Some people want to buy and own a house, while others are content renting all their lives. If home ownership is for you, doing your own research using resources like Just Buy to Let is a great idea to make sure you are making the right decision. This is not to say that you should go out and splurge on a new TV or other trivial pursuit. At the end of the day everyone’s financial situations are different and taking the time to evaluate your individual situation is important in determining where your hard earned money is best spent.

  • Skint in the City August 16, 2013 at 5:39 am

    Refreshing thoughts here Marissa! Conventional financial wisdom always tells us to pay off debts first – nice to read some fresh thinking on how that may be other options out there that better serve us. Think the key is always to relate your financial planning to your specific situation and goals, rather than to follow cookie-cutter advice. Thanks!

    • Marissa August 17, 2013 at 7:44 pm

      Exactly. Knowing and planning your future is just as important as being debt free.

  • Kostas @ Finance Blog Zone August 16, 2013 at 6:52 am

    Interesting point of view and definitely something to consider for those who are focusing on paying off their debts and nothing else. One bad emergency and you will be back with even more debt than before!

    • Marissa August 17, 2013 at 7:44 pm

      Sadly, I’ve seen that far too many times.

  • Paul @ The Frugal Toad August 16, 2013 at 9:29 am

    Great points Marissa! A long-term financial plan is key and by setting both personal and financial goals you are much more likely to reach those goals. Saving for your retirement and your child’s college education should be a high priority!

    • Marissa August 17, 2013 at 7:43 pm

      Exactly, or perhaps having funds to live your life should be as well.

  • Rita P @ Digital Spikes August 16, 2013 at 10:00 am

    Great tips Marissa. Planning to pay off the debt and savings is equally important. One must have backups emergency funds as it helps a lot. Having goals and a strong desire to achieve them is must

    • Marissa August 17, 2013 at 7:43 pm


  • Thomas | Your Daily Finance August 17, 2013 at 6:41 am

    Very nice tips and the one I get all the time is people not having emergency savings yet they are rushing to pay off debts. What happens if you lose your job or some big expense comes up? Gotta think about long term as well. But as the saying goes you have to do whats works and is best for you. We are planning to payoff most of our debts but a going to keep a few like mortgage and our one car note.

    • Marissa August 17, 2013 at 7:43 pm

      Exactly! We tend to have odd priorities sometimes.

  • Daisy @ Prairie Eco Thrifter August 18, 2013 at 1:09 pm

    I have a small student loan, but it’s at close to 0% interest, so there’s no point in aggressively tackling this debt. I’m paying it off at a normal rate while investing money into retirement funds and savings accounts. It just makes more sense. I agree that it’s just not for everyone, depending on the circumstances.

  • Michael @ The Student Loan Sherpa August 18, 2013 at 3:53 pm

    I like to tell people that paying off their student loans is a marathon, not a sprint. When it comes to paying off any sort of debt, if you think about nothing but paying off that debt, you can get yourself burned.

  • Liquid August 18, 2013 at 6:38 pm

    Awesome post. My total debt has increased every year since I started working. I try to pay down my liabilities whenever I can but I’m more focused on building wealth 😎 One way I get around the emergency fund is having a revolving debt like a line of credit. This way I can slowly pay down the balance over time to decrease my debt load, but when I need extra money I can dip right back into it at any time and borrow 3 to 6 months worth of expenses from it 🙂 But borrowing money instead of using cash reserves may not make everyone comfortable. It all depends on the individual’s circumstances 😀

  • Buck Inspire August 25, 2013 at 10:42 pm

    Great points! We all need a rainy day fund. Better safe than sorry. I read maxing out retirement funds should be a higher priority than college funds. The logic is we have to be taken care of before we can take care of the kids.