Better Financial Health in 15 Minutes (or less!)

The $10,000 Question: Save, Invest, or Pay off Debt

• Stacey Hyde

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A surprise $10,000 can feel like a gift and a puzzle at the same time. Do you save it, invest it, or wipe out debt? We break the decision down with real numbers, simple rules, and the human factors that make money choices stick, so you can act with clarity instead of guesswork.

We start by using interest rates as the compass. With forward-looking return estimates around five to six percent for a balanced portfolio, many debts at eight to eighteen percent are hard to beat. You will hear why high-rate credit cards should be paid off first, why carrying a balance does not boost your credit score, and how eliminating interest is a guaranteed return that frees cash flow and lowers stress. Then we step into a nuanced case: a 60-year-old with a 4 percent car loan and three years left. On paper, investing can edge out early payoff. In real life, the emotional ROI of fewer bills, simpler budgets, and pre-retirement calm can matter more than a few extra dollars of expected growth.

We also map out a practical decision tree: above 6.5 percent, prioritize payoff; below 4 percent, choose based on goals and risk; in the 4 to 6.5 percent band, let context guide you. Emergency funds, income stability, and upcoming expenses can tilt the scales. And if you hold a mortgage under 3.5 percent, we explain why preserving liquidity and investing may outscore prepayment, especially when tapping home equity later could cost six to seven percent. Throughout, we stress the sleep-at-night premium: that mix of certainty, control, and confidence that turns a good financial move into a sustainable habit.

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Envision Financial Planning. 5100 Poplar Avenue, Suite 2428, Memphis, TN 38137. (901) 422-7526. This communication is strictly intended for individuals residing in the United States. Advisory Services offered through Envision Financial Planning, a Registered Investment Adviser.

SPEAKER_00:

Hi everyone, welcome back to Better Financial Health in 15 minutes or less, and I'm Stacy High. What I'd like to talk to you about today, I'm gonna call it the$10,000 question. You recently got a bonus, a gift, an inheritance, whatever, but you have a little bit of extra money. And the question is, should you save, invest it, or should you pay off debt? And so we're gonna use some real numbers here so that hopefully that makes sense for you. But the key thing to keep in mind is what's your interest rate? Because if the interest rate on your debt is above 6.5%, you should pay off that debt because chances are you it's going to be very hard to out-earn that level of rate. Because mathematically, if we look at the projected, as I said on my last podcast episode, um they're projecting stock returns in the four and a half to five and a half percent and bonds four to five. So a blended portfolio, you know, five to six percent is going to be what you can expect. So if your debt costs you eight percent, investing isn't your friend. You need to pay off the debt. So then you've got what if you have a 30-year-old who is wanting to fund a Roth IRA, but they've got a credit card with an 18% interest rate. Well, the credit card interest is$1,800 a year. The Roth growth, well, you can't even put, unless they're doing a Roth 401k, you can't even put$10,000 in a Roth IRA, but that growth is$600. So even if the markets boom, it's gonna be hard to beat an 18% guaranteed return. Pay it off yesterday. I have so many people tell me, well, I'm leaving that there because that's gonna help my credit score. No, it's not. Pay it off every month. It's still, you're still gonna have, if you have perfect credit and you pay your credit card bill off every month, you'll still have an 830 credit score if everything else lines up. So then we've got a scenario with a 60-year-old. They have a 4% car loan, three years left, extra cash of$10,000. So if they pay off the loan early, they avoid$620 if they in interest. If they did a balanced portfolio um at 5%, the expected growth over um three years is about$1,575. Well, investing wins, but we haven't looked into this assumes they have stable income, they have an emergency fund, they don't have big expenses coming up. Also, if retirement's right around the corner, not having debt and having all that stuff paid off, that's worth a lot. So in this case, even though the math says you should probably invest it, I would probably say pay it off. Because that's the emotional return on investment factor. And it's real because not everything about money is about spreadsheets. In fact, most of the things around money are not about math, they're about how they make us feel. And so if you pay off debt, you have lower monthly stress, fewer bills to track, more control over your budget. And so, no, you may not be maxing out, but guess what? You took a guaranteed 4% rate of return for an unknown 5-6% rate of return. So, in theory, you gave up something, but you took a guaranteed uh return because that's really what happens when you pay off debt is you lock in that rate. And you know, I call that the sleep at night premium, and that is worth a lot. So here's kind of the simple decision tree. Um, if the interest rate's above six and a half, pay it off. If it's below four, that's up to you. Um, and it becomes, and if the rate's between four and six and a half, then it's a little bit trickier. But in all cases, make sure that you have a fully funded emergency fund. And if your income is very variable, you may want to hold on to the extra cash because that's really what we're trying to get to is to get you on solid financial footing. And generally speaking, fewer bills is gonna help you with that and keep you from having to run them up in the future. So that's um because I refer to that as uh Murphy's Law, what can go wrong will go wrong, and the Stacy corollary is at the absolute worst possible moment. So if you have a little bit of extra cash sitting around, that's likely going to help you prevent that and keep those um amounts uh where they're not gonna cause you trouble. Um, one thing I do want to say here if you're one of the fortunate ones and you have a mortgage that is under 3% or 3.5%, don't get in a big hurry to put all your cash to paying off that mortgage. I get wanting to be debt-free, but that is some very low-cost money. And investing in those situations likely is a better option because, and you're also making sure you keep enough cash there because if you put all your cash towards your mortgage and you needed to get money back out of your house, your home equity rates now are probably gonna be around six, seven percent. So you've lost money by paying off your mortgage early or putting all your excess cash towards your mortgage. So just a few things to think about. Um, hopefully, this advice is going to be better than some of the financial advice you may get around the Thanksgiving table. Um, and we wish you the a very happy and prosperous Thanksgiving and that you get to spend it with those that you love. Thanks for tuning in. This has been another episode of Better Financial Health in 15 minutes or less.