Should You Invest or Pay Off Debt First? A Guide from Your Independent Financial Adviser
Debt can be both a financial and emotional burden, leaving many unsure whether to prioritise paying it off or focus on investing for the future. The right decision often depends on the interest rate of your debt and the expected returns on your investments.
In general, if your investments are expected to generate higher returns than the interest charged on your debt, you could benefit from staying invested. However, while debt interest is fixed, investment returns are not guaranteed — meaning there’s always a risk that your investments may not outperform your borrowing costs.
To discuss your options in more detail, book a meeting with an adviser today.
Managing Credit Card Debt
Credit card debt is one of the most common and costly forms of borrowing in the UK. The average interest rate on credit cards sits around 20%, which is significantly higher than the typical return from many long-term investments. With that in mind, it’s generally difficult to find an investment that consistently beats credit card interest rates.
For example, if you carry £5,000 in credit card debt at an interest rate of 19.7%, even small additional payments each month can make a big difference. Redirecting spare cash towards repayment instead of investing can shorten your repayment timeline and reduce the overall amount of interest paid.
This doesn’t mean your debt is unmanageable — balance transfer cards with 0% introductory interest periods can be effective tools when used carefully. However, they often come with fees and conditions that must be reviewed thoroughly. A financial adviser can help you evaluate such products and create a sustainable repayment strategy tailored to your goals.
Overpaying Your Mortgage vs. Investing
The decision between overpaying your mortgage and investing additional funds can be more complex. Mortgage rates in the UK currently average around 4.5%, which is considerably lower than credit card rates. This creates more flexibility for homeowners looking to balance mortgage reduction with long-term investment opportunities such as pensions or protection-based products.
Let’s consider an example. If you owe £250,000 on a 20-year mortgage at 4.5% and choose to overpay by £500 a month, you could save over £46,000 in interest and become mortgage-free roughly seven years earlier.
Alternatively, if that same £500 were invested monthly and achieved average annual growth of 9.9% (before fees), your investment could potentially outperform the savings gained from overpaying the mortgage. However, it’s important to remember that investment growth is never guaranteed, and returns can fluctuate depending on market conditions.
An independent financial adviser can help assess whether overpaying your mortgage or investing in a pension or protection plan offers the best long-term value for your personal circumstances.
Balancing Comfort and Financial Growth
Ultimately, your comfort level matters. If high-interest debt causes stress or limits your financial flexibility, prioritising repayments may offer peace of mind. Once those debts are cleared, you’ll have greater freedom to focus on long-term goals such as pension planning or wealth building.
The best approach is to take a balanced view — considering your debt, goals, and future investment opportunities. A certified adviser can provide a personalised service to help you make confident, well-informed financial decisions.
Ready to create a plan tailored to your goals? Book a meeting with an adviser today.
Key Takeaways
-Prioritise high-interest debt repayment before investing.
-Review the difference between your loan interest rates and expected investment returns.
-Use professional advice from an independent adviser to find financial solutions that suit your comfort and objectives.
-Consider both short-term stability and long-term growth when deciding between debt repayment and investment strategies.
Founded in 2017, Fintuity has fast become one of the only digital Independent Financial Advisers (IFA) in the United Kingdom. Fintuity offers a wide range of financial advisory services including pensions, protection, investments and mortgage advice. The key difference is that as an exclusively digital service, we can offer significant savings and a service that is direct to you and on demand.
