The 30-Second Verdict
Grab your full 401(k) employer match first — that’s free money. Then list every debt by interest rate. Kill everything charging 6% or more before investing another dollar. Debts under 6%? Pay the minimums and invest the rest. One rule, no exceptions.
Why 6%?
Paying off a 19% credit card is a guaranteed 19% return — the best investment you’ll ever make. The stock market averages about 10% a year long-term (closer to 7% after inflation). So any debt costing you more than ~6% is mathematically beating what investing would earn you. Below 6%, the math flips: investing wins.
The Order of Operations
- Get the match. Contribute enough to your 401(k) to capture the full employer match. A 100% instant return beats everything.
- Kill high-rate debt (6%+). Credit cards, personal loans, payday loans — avalanche method: highest APR first, minimums on the rest.
- Invest the difference (under 6%). Mortgage, federal student loans, low-rate car loans — pay the minimums, put extra cash in the market.
What About an Emergency Buffer?
Keep $500–$1,000 aside while killing high-rate debt, so one surprise bill doesn’t send you back to the cards. Build the full 3–6 month fund after the high-rate debt is gone.
The Bottom Line
Debt at 6% or more is an emergency. Debt under 6% is cheap leverage. Know which one you’re holding, act accordingly, and stop agonizing.
The Debt vs Invest Calculator
Educational estimate only. Based on YOUR balances, APRs, and extra monthly cash you enter. 6% rule is a rule of thumb, not a guarantee. Ignores taxes, employer match details, fees, credit impacts, and market returns vary. Not financial advice.
Disclaimer: Educational only, not financial advice. Talk to a qualified financial advisor about your situation.
Frequently Asked Questions
What is the 6% rule?
Kill every debt charging 6% or more before investing another dollar, and pay only the minimums on debts under 6% while investing the rest.
Why grab the 401(k) match before paying off debt?
The full employer match is an instant 100% return, which beats the guaranteed return of paying off even high-rate debt first.
What if all my debt is under 6%?
Pay the minimums on cheap debt like a mortgage or federal student loans and invest the difference, since the stock market averages about 10% a year long-term.
When should I ignore the rule and talk to a professional?
The 6% rule is a rule of thumb, not a guarantee, and it ignores taxes, fees, and credit impacts — so talk to a qualified financial advisor if your situation is complex.
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