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Should I Invest In Stocks If I Have Debt? (Maybe!!)

If you’ve ever heard from the finance professionals about investing and debt payoff, you may have one major question: “Should I invest in stocks if I have debt”? And while many of these experts will say no, that doesn’t mean you shouldn’t invest at all. Let’s talk about what you should do.

Can you still invest if you have debt?

Interested in invest in stocks while in debt? Is that something that you can do?

Well yes, but there are a few things to keep in mind.

First, if you have high-interest debt, investing won’t make much of a difference if you’re constantly paying that down or off. Since the average rate of return on investments is about 8%, any debt interest over that cancels out the investing portion.

Instead, focus on investing once you’ve paid off your high-interest debt, or keep investing to a minimum. Yes, investing early can help you make more money by retirement. But, it won’t be worth it if you’re still paying off massive debts.

Related: Why Is It Important to Pay Off Debt?

Should I Invest in Stocks If I Have Debt - You Can!!Should you pay off your debt before investing?

What about all your debt? Should you pay off all your debt before investing?

It depends.

If it’s high-interest (8% interest or more), I highly recommend focusing on paying off that debt before you look at investing.

But, if you have lower-interest debts, like federal student loans or a car loan, then you may be able to both invest and pay off debt at the same time.

Related: FREE Credit Card Payoff Spreadsheet (Get Out of Debt in 2022!!)

Can you buy stocks with debt?

What if you want to use debt to buy stocks? Or, put another way, should you buy stocks on margin?

You could…but I never recommend this. Essentially, you’re borrowing money to invest, and quite often, investments are out of your control. Not smart. 

If you have debt from a prior date and you want to invest while paying it off, fine. But don’t purposefully go into debt to invest. It’s just not a wise thing to do.

Do millionaires pay off debt or invest?

What about millionaires? What do they do?

Many lower-level millionaires (think $1 million – $3 million net worth) use the Dave Ramsey method. They first get out of debt, then they continue to live simply and invest heavily. After 20+ years, they become wealthy and retire well once they hit their 50s and 60s. It’s not a bad way to go, but there is another route that the ultra-wealthy take.

The ultra-wealthy don’t mind debt. They use low-interest debt to invest in tried and true methods of earning money (often real estate or investing in their own businesses). Rarely do they ignore paying off high-interest debt so they can blindly invest in the stock market. That’s not what we’re talking about here. They know how to earn money, and they therefore don’t mind keeping 2-3% interest while they earn 10%+ with their cash.

So, do millionaires pay off debt or invest? They would go the route that earned them more money, but at a fairly low risk.

Should you pay off low interest debt?

If you’re a business guru or a real estate mogul and you know how to make money there, then it’s probably fine if you invest while you still have low interest debt. After all, it’s what the ultra-rich do each and every day. 

But, if you’re not comfortable investing in business or real estate, then it’s probably not a bad thing for you to pay off low interest debt. After all, it’s a risk-free way to “earn” money. Sure, the return isn’t 10%+, but it’s better than doing nothing!

Related: FREE Debt Snowball vs Debt Avalanche Excel Spreadsheet

Invest in bitcoin now or waitShould you invest in crypto or pay off debt?

Crypto is what we call a speculative investment. Very little is known about when the investment will go up or down. It’s quite volatile and is high risk. 

I would personally never recommend that someone invest their money in crypto instead of paying off debt.

Is it better to pay off debt or save?

This is a common question that I want to make sure we touch on. Should you pay off debt or save?

If by saving you mean putting money away for a rainy day, I recommend saving first.


If you’re not prepared, one emergency or rainy day can cause you to fall even further into debt.

While some experts recommend a $1,000 savings, I say save up at least 3-6 months (if possible). This way, if you lose a job, move across the country, or if any other “big” emergency occurs, you won’t completely drain your savings.

But, if all you can afford is $1,000, that’s better than nothing and can make a difference!

Related: 50+ Practical Ways to Pay Off Debt Faster [Free Tools Included!]

How much should you have in savings before paying off debt?

Overall, this will depend on you, your lifestyle, and who you need to support. A single mom who lives in a high cost of living city is going to need significantly more than a college student who lives in dorms.

For most, a 3-6 month emergency fund should suffice. But of course, feel free to figure out what number works best for you. Ideally, you want to have just enough to keep you out of racking up more debt. Whether that’s $1,000 or $5,000, only you can decide.

Related: Here’s Why You Need More Than $1,000 In Savings

Can investing in stocks put you in debt?

Is it possible that investing in stocks will put you into more debt?

Not if you aren’t using debt to buy stocks, or spending money that’s meant for debt payments.

Of course, investing in stocks yourself isn’t advisable, especially if you’re a newbie investor or have significant debt. Instead, there is another way to invest and still pay off your debt easily (read on below!).

Woman with Piggy Bank - Saving MoneyShould you contribute to 401k if you have debt?

Should you invest in stocks if you’re still in debt?

This is what I recommend if you’re still paying off debt. If you’re working a full-time job with a company that offers a 401k, take advantage of it! There are a few pros to contributing to your 401k, so let’s talk about them.

Tax Advantages

Your 401k contributions are taken directly out of your paycheck, and this happens before federal income taxes are withheld. Because of this, the contributions are pre-tax and lower your taxable income. This could mean that you owe less in income taxes!

Related: Keep Investing Simple: The Secret to Wealth


You can contribute as little or as much as you want to your 401k until you reach the limit contribution of $20,500. However, you don’t have to reach this limit at all, so you can contribute as little as $100!

Personally, if your company matches your contribution, I’d contribute up to that match amount at minimum!

You Can Take It When You Leave

Even if you change jobs, any money you’ve contributed to your 401k (and its earnings) is yours. This can help your money grow on a tax-deferred basis. If you leave an employer, check out your options for what you can do with the funds.

Related: How Much Should You Put Into Your 401k?

how to pay off student loans in two yearsShould I pay off student loans before contributing to 401k?

If possible, try to do both! Normally, student loans have interest rates of less than 8%, which means the money you invest in a 401k is earning more than you pay. And of course, the earlier you start to invest, the better because that money has more time to grow and earn interest.

Is it better to pay off student loans or max out 401k?

This will depend on your specific situation. Let’s talk about the two different options that you can take.

First, if your student loans are high enough or are high-interest (like private loans), it may be better to pay them off first.

At the very least, you want to pay off enough to where you can refinance or don’t have so much money coming out each month.

The second option is to do both. But, I only recommend this if you can afford it.

If you’re already struggling to pay your bills and student loans, it doesn’t make sense to take money away from yourself, even if it could help you in the future. You have to live in the now and focus on paying off debt that is weighing you down.

If you can’t max out your 401k, but can afford a few dollars per paycheck, this could be a possible third option. That way, you can at least get started in your investing journey, without sacrificing your debt payoff journey.

Related: Should I Pay Off My Student Loans? (Or Will They Be Forgiven…??)

How To Invest In A 401k

It’s totally possible to invest in a 401k, even while paying off debt. Here’s how to get started.

Enroll In Your 401k

Your first step to opening a 401k is to talk with your employer about the company’s plan. It’s also important to see if your employer has automatically enrolled you.

If you aren’t enrolled, your company will have you fill out paperwork saying that you’d like to contribute to the plan.

Related: Why You Should Start Investing At a Young Age

Decide On Your Contributions

You’ll also want to note how much money you want to contribute from each paycheck.

As a note, you can always change your contributions later. So if you decide that you want to invest more (or less!) in your 401k, you can do so. You are not locked into your contributions.

You’ll also need to choose a beneficiary — also known as the person you’d like to inherit your 401(k) if you die.

Related: 3 Reasons Why I’m Not Maxing Out My 401k

Piggy bank with moneyChoose The Right Investments

Your 401k isn’t automatically divided into different investments. You’ll need to choose your own investment options for your contributions. However, your job may be able to help you if you’re new to investing. At the very least, they can give you different options.

We recommend choosing low-fee options, especially when you’re first getting started. This includes investments like index funds and ETFs.

But be sure to keep your money diversified between stocks and bonds and amongst different sectors. This helps keep your “eggs” in different baskets and avoid heavy losses.

Related: Index Funds With The Lowest Expense Ratio (And Why You Should Care!)

Maintain your 401k

Don’t forget about your 401k once you’ve set it up. You’ll want to revisit it regularly so you can see if you need to make changes to your contributions or asset allocation. I recommend checking in on your plan at least once a year, or when you have a major life event (like a new baby, moving, medical scare, etc).

Also, see how your investments are performing. Small losses are expected since we can’t all win all the time. But, if you’re losing a lot of money, you need to update your asset allocation. And don’t forget, if you’re making more money, or have more money to save, up your contributions!

Related: How to Manage Your 401k Like a Pro

Should I Invest In Stocks If I Have Debt? In Conclusion…

As you can tell, the answer to “Should I invest in stocks if I have debt?” is — sort of! If you have high-interest debt, be sure to focus on paying that off first. If you don’t, then I’d say it’s fine to invest while paying off some debt at the same time. You should certainly invest enough to get a full match from your work if that’s offered!

If you don’t know much about investing, putting your money into index funds that model the overall stock market is usually a good way to go. As we stated earlier, this has historically earned an average of 8% a year! But, this is just what we would do if we were in your situation. Be certain to consult with professionals before making any big moves.

Best of luck to you with your debt and your future investments!

Get Out of Debt Investing Money

AUTHOR Kimberly Studdard

Kim Studdard is a project manager for online entrepreneurs and small businesses. When she isn't spending time with her daughter and husband, or reading her growing pile of horror books, you'll find her working on her HR degree and working towards FIRE.

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