Investment guide

Should I invest or pay off debt?

When it comes to managing our personal finances, we are often faced with the dilemma of whether to invest any extra money we might have or use it to pay off debt (or at least substantially pay it down). Both options have their merits and can contribute to your long-term financial well-being. However, the decision ultimately depends on individual circumstances, risk tolerance, and financial goals.

In this article, we will explore the pros and cons of investing and paying off debt, helping you to consider what might be relevant to your particular circumstances.

The case for investing: growing your wealth

Investing is the process of putting your money into various financial assets, such as shares, bonds, EFTs, or managed funds, with the goal of generating returns over time.

Here are some key benefits of investing:


  • Compounding returns: Compound returns are a powerful force in investing. Over time, your investment gains can earn additional returns, allowing your money to grow more over time.
  • Diversification: Investing enables you to diversify your assets across different investment options, with the aim of reducing the risk of significant losses. Having a diversified portfolio can help protect your wealth against market fluctuations, as while the value of some assets might drop, the value of others may increase.
  • Retirement planning: Investing is an essential component of retirement planning. By starting early and consistently contributing to retirement accounts like KiwiSaver, you can build a nest egg that provides financial security in your golden years.


However, investing also carries certain risks:


  • Market volatility: Investments are subject to market fluctuations and can experience ups and downs. Market volatility can be unsettling, sometimes causing investors to make hasty decisions which could result in losses. Investing requires a long-term perspective and patience.
  • Returns are not guaranteed: All investments come with some degree of risk. You aren’t guaranteed to make money when you invest, and you might lose the money you start with. It's important to assess your risk tolerance and choose an investment strategy that aligns with your comfort level.

The case for paying off debt: achieving financial freedom

Paying off debt involves using your available funds to reduce or pay off outstanding debts, such as credit card balances, student loans, or mortgages. 

Here are some advantages of prioritising debt repayment:


  • Financial freedom: Paying off debt can free you from financial burdens, reduce stress, and improve your overall financial well-being. It provides you with greater control over your money and the ability to allocate it towards other goals.
  • Interest savings: By paying off high-interest debts, you can save money in the long run. Eliminating debts with high interest rates can result in significant interest savings over time.
  • Reduced risk: Being debt-free reduces your financial vulnerability. It means that when unexpected events arise, like job loss, medical emergencies, or economic downturns, you won't have debt obligations to meet alongside day to day living costs.


Nevertheless, there are a few factors to consider before prioritising debt repayment:


  • Opportunity cost: By using your money to pay off debt, you may miss out on potential investment returns. If your debts have relatively low interest rates, investing the funds might provide higher returns in the long term.
  • Emergency fund: Before focusing solely on debt repayment, consider having an emergency fund in place. Having some savings can protect you from unexpected expenses and help avoid going further into debt.
  • Balance transfer or refinancing options: Explore options for reducing your debt burden, such as balance transfers with lower interest rates or refinancing loans. These strategies can help optimise your debt repayment while still allowing you to invest.

Making the decision: investing vs paying off debt considerations 

Ultimately, the choice between investing and paying off debt depends on your unique circumstances. 

Some things you may consider when making your decision based on your particular circumstances:


  • Interest rates: Compare the interest rates on your debts with the potential returns on your investments. If the interest rates on your debts are high, it may be more beneficial to prioritise debt repayment.
  • Timeframes: Evaluate your financial goals and the time you have available to achieve them. Investing is more suitable for long-term goals, while paying off high-interest debt may offer immediate benefits.
  • Risk tolerance: Assess your risk tolerance and comfort level with market fluctuations. Investing carries risks, while paying off debt provides a sense of financial security.
  • Balance: Striking a balance between investing and paying off debt is possible. Consider allocating a portion of your available funds to both, allowing you to make progress on debt repayment while also benefiting from long-term investment growth.


Whether to invest or pay off debt is a complex decision that requires careful consideration. While investing may offer growth potential and long-term financial security, paying off debt provides immediate relief and reduces financial vulnerability. Finding the right balance is crucial, and it's wise to seek guidance from financial professionals who can provide advice based on your specific circumstances. Remember, financial decisions should align with your goals, risk tolerance, and the path to a secure financial future.

Need help with investing?

Knowing where to start with investing can be challenging. Because everyone's needs are different – there's no one size fits all. At AMP, we offer a range of investment options that may suit you. It’s a good idea to seek financial advice or other professional advice relevant to your personal financial situation. We recommend you contact your Adviser, or, if you don’t have an Adviser, contact us on 0800 267 5494.

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This article doesn't provide financial advice on your investment choices. Any information we provide is general only and current at the time. You should consider seeking advice when considering whether an investment is appropriate for your objectives, financial situation or needs.