Should I Pay Off My Debt Before Investing?


by Dr David Phelps

by Dr David Phelps


 question that I get a lot is: I’m about to get some money. Should I pay off/down my debt or use the money to invest?
 The answer: It depends.

First of all, it depends on your ability to invest money. It also depends on the interest rate and cashflow you’re having to take from your lifestyle or potential investments, and your overall risk tolerance.

Let’s look first at the interest rate. Despite what some people think, you don’t necessarily have to pay off your highest-interest loan first. You need to look at what we call the liability efficiency ratio to see which loans will free up the most cashflow when they’re paid off.

In our Freedom Founders Blueprint Workshops, we teach you to first find that ratio by taking the ratio of the amount of cashflow, principal and interest and multiply it by 12 to annualize it. Then you’ll divide by the balance of the loan. Do this for each loan you have to find out which loan is most efficient to pay off.

If you’re paying off debt, pay it in full. When you partially pay it down, you’re only taking cash off the table and putting it where you can’t use it.

When it comes to risk tolerance, some people sleep better at night if they don’t have any debt. If that’s you, it’s okay, but know that you are probably leaving potential on the table by hammering down debt without thinking about how to invest (in your business, practice, Real Estate, or alternative investments).

If you’re someone who likes to invest their money – you do need to make sure that you really know how to invest. Do you know how to adjust for risk? Can you do better than the interest rate that you’re currently paying on your loans?

You need to always be thinking about what your game plan is. It’s not always paying off the highest-interest loan. It’s not even necessarily about paying down debt. 

Whether you decide to invest or pay down debt, it’s about finding the best way to utilize your money and make it work for you.
To your freedom!

P.S. Whenever you’re ready, here are some other ways I can help fast track you to your Freedom goal (you’re closer than you think) :

1. Get Your Free Retirement Scorecard:

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2. Attend A Workshop:

If you’re committed to Freedom, but still building a practice, paying down school debt, or growing investment capital, our hands-on Freedom Blueprint Workshops are your entrance ramp onto the fast track! Visit to claim your seat!

3. Apply To Visit The Mastermind:

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4. Want to Work Directly with Me?

If you’d like to work directly with me and a small group of my closest investment colleagues, with direct access to the dealmakers and asset classes that I invest in, just send a message to my Member Advisor (, and put “Fast Access” in the subject line. Or, call (972) 203-6960 Ext 101 and leave a brief voicemail for Chris. Let him know you’re interested in the Fast Access program – we’ll set up a time with you to talk, find out about your goals, and see if there is a fit.

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