Should You Pay Off Debt or Invest Extra Money?

It’s a good question – and a common one in today’s strong market environment. When you have some extra cash, what should you prioritise: paying off debt or investing for growth?

The short answer is: it depends. But let’s unpack the key factors to help guide a smart financial decision.

1. Compare the Interest Rates

This is often the most important starting point.

            •           Bad debt (like credit cards, unsecured loans, or store accounts) usually comes with high interest rates – often 15% to 25% or more. These are almost always worth paying down as a priority.

            •           Home loans, on the other hand, are lower-interest (currently in the 11% range) and sometimes tax-deductible depending on how they’re structured.

            •           If your potential investment return (after tax and fees) is lower than the interest rate on your debt, then paying off debt gives you a guaranteed “return” that’s better than the market could reasonably offer.

Tip: Think of debt repayment as a risk-free, tax-free investment at the interest rate you’re paying.

 2. Your Time Horizon and Risk Tolerance Matter

Investments require time and patience. Markets don’t move in a straight line, and short-term volatility can spook even seasoned investors. If you’re likely to need the cash in the next 12–24 months, investing might not be the right option.

But if you:

            •           Have long-term goals (retirement, education fund, generational wealth),

            •           Can stay invested through market ups and downs, and

            •           Are investing in a well-diversified portfolio suited to your risk profile,

then investing could create long-term compounding that far outpaces your debt.

 3. Psychological Benefits Are Real

Debt can be a psychological burden. The peace of mind that comes from knowing you owe less (or nothing) is a powerful motivator – and not something you should ignore.

Some clients opt for a hybrid strategy: use a portion of their extra cash to accelerate debt repayments, while still contributing monthly to investments. This builds financial momentum on both fronts.

 4. Emergency Fund First, Always

Before you invest or pay off extra debt, make sure you have cash reserves for emergencies (typically 3–6 months’ worth of essential expenses). This prevents you from needing to take on new debt when life happens – and it often does.

 A Quick Example

Let’s say you have R50 000 extra. You’re paying:

            •           18% on your credit card,

            •           11.75% on your home loan, and

            •           You expect 10% p.a. from your balanced investment portfolio over time.

Best use of funds (in order of priority):

            1.         Pay off credit card debt – this is an immediate, guaranteed 18% return.

            2.         Consider extra repayments on your bond if you’re averse to risk and want a secure return of 11.75%.

            3.         Otherwise, if you have time, appetite for volatility, and a sound financial base, invest the rest.

Final Thought

There’s no one-size-fits-all answer – but there is a right answer for you. A good financial plan considers interest rates, tax, your goals, time horizon, and emotional wellbeing.

If you’re weighing your options, let’s run the numbers together and build a strategy that suits your life, not just your balance sheet.

Let’s chat before you throw that lump sum at your bond or into the market. Disclaimer: This article is for informational purposes only and should not be considered financial advice. For personalised investment advice tailored to your specific financial situation, please contact us or one of our qualified financial advisers at Corona Financial Services.