EP 094: Should I Invest or Pay Off Debt First?

We get this question all of the time in emails, messages, on the phone, etc...

And I definitely am not going to tell you what to do, especially since no situation is the same and there are so many variables. 

But what I will do is share with you my personal story and what led to my personal financial decisions back in the day. 

Let's get into it... 

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...I was a young adult with credit card debt, student loans, a car that needed to be paid off...

I just had a bunch of debt.

And unfortunately a lot of other people find themselves in similar situations. 

I had debt but I wasn't making enough to pay it off in a reasonable time frame. 

I was reading a book called "Rich Dad, Poor Dad", and a quote from it stood out to me... 

"If you want to get out of debt you need to take on more debt"

At a glance this may not make sense.

But what it means is:

There is good debt and bad debt. 

Bad debt is consumer debt... buying things that depreciate. For example, splurging on shopping or a vacation and putting it on a credit card. Its instantly gone yet you have to continually pay it off.

Good debt could be something like owning your own business and putting assets on a line of credit, because it will actually help you generate income. Another example is purchasing an investment property, because eventually you will get a return. 

So this quote is saying:

You already have debt that doesn't pay you anything, why not take on "good" debt such as an investment. 

If you add up all of my debt at one time, between student loans to credit cards, I was in debt...

$90,000. 

(To sum who went to school to become a lawyer or doctor etc... maybe it isn't that much, but to others it is a lot of money.)

When I looked at my situation, I let the MATH tell the story, I didn't let EMOTIONS tell the story. 

"Should I invest or pay off of my debt first?"

At the end of the month, I had an extra $1,000 left over from my bills (and that includes paying the minimum of my debt per month). 

I looked at my life and said if I pay $1K toward my $90,000 debt per month, it would have taken me 7.5 years. 

And that meant if I didn't go on vacation, my car didn't break down... just nothing wrong in life could go wrong for the next 7.5 years and then FINALLY I would have just an extra $1k a month now to do what I wanted to do. 

That's too dang long. 

It would take me too long in order to learn how to invest if I was going to get out of debt first...

Again, I am just sharing my own story. Everyone needs to make their own decision. 

But for me, the math said that I needed to learn how to invest first in order to pay off my debt. 

Take your debt, and see how much you have per month to pay it off. Now divide that by years and find out how long it will take to pay it off. 

I thought to myself, what if instead of putting that extra $1K a month toward the debt, I put it toward investing. 

Keep in mind that extra didn't include the minimum monthly payments I had to make toward that debt. 

So I started to look at "How could I make an extra $500 a month from that $1,000"

And I discovered I could do that with options. 

If I could keep flipping that money, I could have an extra $6K at the end of the year and still have that initial $1k per month. 

And thats not even including compounding. 

The point was:

Could my money grow faster than the interest they're charging me to help pay it off?

If you have 19% APR, you get charged hundreds of dollars extra in debt per year because of interest. 

All I needed was to cover that all...

And I knew no matter how hard I worked, my money wasn't working for me. 

So I duplicated myself. 

I made my money start to work for me.

And after getting out of debt now I would have a skill set. 

I would then know how to invest and make money in the stock market even when I was debt-free.

If you follow me on instagram how I took 1 trade... it cost me $24K and I got $32K in pure profit in 24 hours. 

I'm sharing this with you because I want to show you that it works.

I am currently not in debt and I used the skills I learned when I was in debt to this day. 

I am so glad I learned that skill. 

I was able to totally get out of debt, and now I have a skill that will last for life.